Cuba's oil a new frontier, surrounded by hopes and doubts

Cuba's oil a new frontier, surrounded by hopes and doubts

MIAMI -- One of the most prolific oil and gas basins on the planet sits
just off Cuba's northwest coast, and the thaw in relations with the
United States is giving rise to hopes that Cuba can now get in on the
action.

It's a prospect welcomed by Cubans desperate for economic growth yet
deeply concerning for environmentalists and the tourism industry in the
region.

But a Cuban oil boom is unlikely anytime soon even if restrictions on
U.S. businesses are relaxed because of low oil prices and far better
drilling opportunities elsewhere.

"(Cuba) is not going to be the place where operators come rolling in,"
says Bob Fryklund, chief strategist for oil and gas exploration and
production at the analysis firm IHS.

Although Cuba's oil and gas industry has long been open to foreign
investment, the U.S. embargo has denied it some of the world's best
deep-water drilling technology and expertise. As a result, Cuba produces
just 55,000 barrels of oil per day. About one-third of that is produced
by a Canadian firm called Sherritt International.

Cuba needs 155,000 barrels per day, and it fills the gap with oil from
Venezuela, part of a trade agreement established under former Venezuelan
President Hugo Chavez. By comparison, a single large oil platform in the
deep water U.S. Gulf of Mexico can produce 200,000 barrels per day.

The few major exploration projects in Cuba in recent years have had
little success. Most recently, the Spanish company Repsol abandoned a
yearslong exploration project in 2012 when an offshore exploratory well
failed to find much oil.

Fryklund says that U.S. oil services firms, which have been prevented
from working in Cuba, could provide technology to operators in Cuba to
help increase production somewhat. Also, U.S. refiners could find a new
market in Cuba for gasoline and diesel or refining technology. Cuba has
been struggling to find a partner to finance an upgrade an expansion of
its largest refinery, in Cienfuegos.

But a factor that helped push Cuba to seek closer ties with the United
States also could impede major oil exploration there: low oil prices.

A plunge of nearly 50 percent in the global price of oil has crushed the
oil-dependent economies of Venezuela and Russia, threatening aid from
Cuba's biggest benefactors.

"None of Cuba's friends have the financial capability to throw a safety
net or a safety line to Cuba," says Jorge Pinon, former Amoco Oil Latin
America president now at the University of Texas. Cuba suffered
enormously when foreign aid dried up after the fall of the Soviet Union,
and it wants to avoid similar economic pain now that Venezuelan aid is
uncertain.

Low oil prices also force drillers to shy away from risky projects
because the potential for a big financial return is so much smaller.

Even though Cuba sits relatively close to some of the biggest deep-water
oil fields in the Gulf of Mexico, the geology under Cuba's waters is
drastically different from that of the rest of the Gulf.

The U.S. Geological Survey estimates there are 4.6 billion barrels of
undiscovered oil in Cuba -- a substantial but not enormous amount
because not all of that oil could possibly be produced. The U.S. Gulf of
Mexico contains an estimated 10 times that much.

Also, there are also bigger and better-known fields in Mexico, which
recently amended its constitution to allow foreign investment in its oil
industry.

Cuba could offer very favorable terms to entice drillers to come,
however, and smaller firms willing to take bigger risks may give Cuba a
shot.

A major concern for environmentalists and the tourism industry in the
region is Cuba's ability to drill at international safety standards,
including its response to any spill, according to Bob Graham, who
co-chaired the national commission on the Deepwater Horizon oil spill.
They fear a spill could quickly spread to ecologically rich and
economically important reefs and beaches in nearby Florida and
throughout the Caribbean.

Under the U.S. embargo of Cuba, which remains in place, anything
comprised of more than 10 percent U.S. parts cannot be sold to Cuba or a
Cuban contractor. That covers almost all modern drilling systems, Graham
says. "It's going to require some modification of the embargo to allow
state-of-the-art equipment to be used for Cuban drilling."

The U.S. National Oceanic and Atmospheric Association has been working
with the U.S. Coast Guard and other state and federal agencies to study
the possible threats posed by offshore oil drilling near the Florida
Straits and the Bahamas, says NOAA spokesman Ben Sherman. The agency
also shares technical expertise on oil spill planning and response with
Caribbean nations, including Cuba, Sherman says.

When William Reilly, Graham's co-chair on Deepwater Horizon spill
commission and head of the EPA under President George H. W. Bush,
presented the commission's final report to Cuban regulators in Havana,
he found they had already made plans to follow the commission's
recommendations with the resources they had. That included sending staff
to Canada to learn English to improve communications in the event of an
oil spill.

Reilly says Cuban officials had high hopes for their oil industry. A
delegation had a telescope trained on an offshore rig that was exploring
for oil and gas, though it could be seen without a telescope. "It was
like a beacon of economic hope to Cubans in Havana," he says.

___

Story by AP writers Jonathan Fahey and Jennifer Kay.

Source: Cuba's oil a new frontier, surrounded by hopes and doubts |
NOLA.com -
http://www.nola.com/business/index.ssf/2014/12/cubas_oil_future_surrounded_by.html