Cuba's Energy Future: Strategic Approaches to Cooperation

2. Extracting Cuba's Oil and Gas: Challenges and Opportunities

Potential offshore oil deposits were identified in Cuban waters in 2004, yet amid widespread speculation as to their magnitude and potential, there has been little exploratory work undertaken to evaluate the actual amount of oil and gas reserves that are present, the feasibility of extraction, and the deposits’ eventual productive capacity. In the recent as in the more distant past, there have been hints that there may be an oil giant in the Florida Strait ripe for investment from its neighbors to the north. Insofar as Cuba remains off-limits to American firms, the notion becomes all the more alluring and heightens the sense of possibility: What might a United States–Cuba oil partnership lead to? The primary objective of this chapter is to provide an analysis of the upstream oil and natural gas potential in Cuba, in the following areas: —Actual potential hydrocarbon (crude oil and natural gas) production figures —Potential realized oil prices from joint-venture projects —The possible role of Cuba’s offshore Exclusive Economic Zone (EEZ) 21 two Extracting Cuba’s Oil and Gas: Challenges and Opportunities JORGE R. PIÑÓN AND JONATHAN BENJAMIN-ALVARADO Now . . . the possibility of Cuba’s harboring a great oil reservoir is again under investigation. “Cuban Dream,” Time magazine, August 15, 1938 “Oil Exploration Pushed in Cuba as Major Companies Get Rights” New York Times, January 8, 1958 “Why Cuban Dreams of Major Oil Discoveries Might Come True” U.S. News & World Report, March 4, 2009 —Types of concessions that could be granted in the Cuban EEZ —An assessment of the future upstream oil and natural gas development challenges These analyses should provide ample basis for the broader discussion of the challenges in the electrical power sector in Cuba, energy balances, and the potential for biofuels discussed in chapters 3 and 4 of this volume. In the appendix to this chapter are tables of data relevant to Cuban energy development (the Cuban supply/demand balance; Cuban gasoline prices; Cuban lubricants–motor oil production figures; Cuban refinery production figures; Cuban estimated annual petroleum import values; Cuban-Venezuelan estimated petroleum debt). All told, the data and analysis presented in this chapter are designed to serve as the basis of discussions of the broader implications of Cuban energy development: both the direct challenges implied for Cuban policymakers and the possible opportunities that these challenges present to potential American partners and policymakers as they relate to energy cooperation and energy security concerns. Onshore and Coastal Oil Resources Since early colonial days we find reports of Spanish explorers and conquistadores waterproofing the hulls of their galleons with bitumen-tar-like material found in the vicinity of Havana and Cardenas harbors in eastern Cuba. The first major Cuban field to be discovered, in 1881, was the shallow Motembo oil field in central Las Villas province, consisting of light condensates.1 Even though expectations ran high during the first half of the twentieth century for the discovery of more oil fields in Cuba, exploration results were disappointing, and only several small oil fields were discovered. The situation changed during the 1970s, when, with Soviet assistance, the Varadero oil field, on the coast east of Havana, was discovered in 1971.2 Foreign Participation in Cuban Oil In 1993, after the fall of the Soviet Union in 1991, Cuba opened its oil and gas exploration and production sector to foreign oil companies. Thirty-three onshore and coastal blocks were offered during its first international round of bidding (see figure 2-1).3 (“Onshore” means on dry land; “coastal” refers to coastal waters—from the water’s edge to the coastal shelf;“offshore”refers primarily to deepwater resources—beyond the coastal shelf.) In order to attract foreign oil companies to explore and produce Cuba’s potential 22 JORGE R. PIÑÓN AND JONATHAN BENJAMIN-ALVARADO Source: Jorge R. Piñón. Figure 2-1. Cuba’s Land and Marine Oil Blocks, 2009 hydrocarbon resources, the Cuban government, through Unión Cubapetróleo S.A. (Cupet), the state oil company managed by the Ministry of Basic Industry (Minbas), adopted a contractual format known as a production-sharing agreement (PSA), an arrangement used by many countries and generally accepted by major international oil companies.4 Legal Status of Oil Reserves All subsoil hydrocarbon reserves are the property of the state and are under the ultimate control of the government of Cuba. Under its PSA, Cupet awards the rights to a...