PETROLEUM: Embargo Prevents US from Seeking Cuban Crude

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Mar 13 2000 (IPS) - The United States-imposed trade embargo against Cuba leaves US petroleum companies out of the oil exploration race in the island’s territorial waters in the Gulf of Mexico, an area experts say has great production potential.

“If Washington wanted to, of course we would be willing to negotiate,” said a government source in Havana as officials announced the opening of foreign investment in the nation’s exclusive maritime zone.

But the Helms-Burton Act of 1996, which tightened the embargo against the island, prevents US firms from engaging in direct trade negotiations with Cuba, which in the early 1990s opened its doors to foreign capital in nearly all economic areas.

This US law strengthened the already strict economic and trade sanctions that Washington has applied since the 1960s against those who become involved in trade dealings with the Cuban government under president Fidel Castro. The law’s penalties even threaten third countries’ relations with Havana.

But so far the embargo has only served to discourage and hinder – not prevent – the arrival of investments in this country, say Cuban authorities.

The latest official reports list 374 mixed or joint companies in Cuba formed with capital coming from 46 countries, with Spain leading the way, followed by Canada and Italy.

The reports also affirm that 57 percent of such partnerships came about after the Helms-Burton law was passed, with 58 of these companies created in 1999 alone. “If they are here, it is because things are going well for them, though they have to take great care to stay out of the reach of the US regulations,” commented one Cuban trade expert.

Evidence that the US embargo has not been able to cut off the oxygen that foreign capital brings to the weakened Cuban economy only increases the annoyance among US entrepreneurs who see themselves deprived of an opportunity to participate in what could be profitable business.

Currently, mixed firms can be found in various branches of the Cuban economy, including the telephone industry, hotels, mining, electricity, finances, natural gas production and real estate, which alone grew from four companies in 1997 to 13 in 1998.

Mixed companies have also extended to soft drinks, citrus crops and tobacco, vegetable and rice production. In 1998, an electrical company was formed with 100 percent foreign capital.

Companies from Brazil, Canada, Spain, France and Britain, and others, have operated in the petroleum sector since the 1990s in exploration and hydrocarbon production, with total investments so far nearing some 600 million dollars.

The oil zone in the Gulf of Mexico covers some 112,000 square km, divided into 59 blocs, stated the first vice-minister of Basic Industry, Tomas Benitez, when he and other leaders of this strategic economic sector announced the opening of bidding earlier this month.

The officials said that Cuba is already engaged in “information exchanges” with six companies from Europe and Latin America, though they did not name the firms. Benitez did not rule out the possibility that US companies will be able take advantage of this economic opening in the near future.

“The message we want to send is that we are ready to welcome foreign companies in the Gulf of Mexicoàas the possibility exists for working there under very advantageous conditions, which is important news,” commented industry expert Manuel Marreiro.

Foreign investment in Cuba’s petroleum sector is protected by the international agreements on maritime territorial rights, which establish the limits of national waters, and by Cuba’s Law 77 through which the government permits entry to, and regulates, foreign capital.

The joint production contracts will remain in effect for 30 years, including an initial exploration period of no less than six years, according to the model Cuba has applied since 1990 in its oil prospecting operations.

Cuban oil experts are optimistic and expect to find major oil fields, based on preliminary studies performed by US scientists who, with Havana’s permission, made eight under-sea perforations and found “live” manifestations of hydrocarbons.

In addition, a French geophysics company has conducted seismic studies of one part of the Cuban territorial waters in the Gulf, the results of which are expected by October.

The government strategy is to draw in foreign capital ventures by providing attractive contracts, explained the legal adviser to the Ministry of Basic Industry, Juan Fleitas, who stressed that the agreements include compensation measures based on risks and flexibility, with sensitivity to production levels and petroleum prices.

Fleitas said that advantages include “a clear and simple fiscal regimen, just one tax to pay the central government and the free disposition of the petroleum and gas obtained by the foreign partner.”

In the 1980s, Cuban oil experts set aside exploitation of the Gulf of Mexico, an enormous basin shared by Cuba, the United States and Mexico, due to the depths of the sea, but technological advances sparked renewed interest in 1990s, reopening the way for exploitation.

Ocean oil drilling around the world is now being done at depths of up to 2,000 metres, but experts believe that within seven or eight years they will be able to extract petroleum at depths of 3,500 metres below sea level.

Cuban analysts trust that if 80 percent of the blocs comprising the nation’s territorial waters are at a depth greater than 2,000 metres, the technology will eventually be available to explore and extract the oil existing there.

Oil drilling at sea is much more costly than on land. An oil well at 3,500 m below sea level is calculated to require an investment of nearly 10 million dollars.

The petroleum sector is among the most active in the Cuban economy, with this year’s production predicted to hit 2.8 million tonnes, four times more than in 1991. Meanwhile, gas production is expected to reach 660 million cubic metres.

Energy sector growth has created net benefits for the nation reaching approximately 650 million dollars – with 250 million dollars from last year alone as a result of export substitution.

Though Cuban crude is seen as excessively heavy and sulphurous, an increase in oil production would ensure 55 percent of the total electrical energy generation.

Cuba expects to initiate at least 10 new drilling areas in the next three to four years along the northern Havana-Matanzas coast, a project that would require a total investment of 70 million dollars.

Foreign investment capital for the project would be used to build the necessary infrastructure, such as oil and gas pipelines, treatment plants and storage centres.