Cuba's offshore oil hopes rise, US role uncertain
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- North America
- United States
- Business and Economy
- Science and Technology
- 06 / 17 / 2009
Industry players said finding a rig to drill in the deep waters was problematic because of the need to use equipment with less than 10 percent American technology, to comply with the long standing U.S. embargo against Cuba.
"It's a very sizable reserve that is well documented," said Jonathan Benjamin-Alvarado, political scientist at the University of Nebraska at Omaha.
Kirby Jones, president of Washington-based Alamar Associates, which advises companies wishing to enter the Cuban market, said an oil find would change the dynamics of the U.S.-Cuba relationship which have just begun to thaw under initiatives by President Barack Obama.
"The implications for Cuba are huge and the implications for U.S. relations are huge," Jones said. "It's the first time Cuba will have something of strategic importance to the United States." President Obama has pledged a new beginning with Cuba and announced easing of some restrictions in a relationship that has remained frigid for nearly half a century.
A consortium lead by Spain's Repsol-YPF will be the first to begin drilling after taking possession of the rig. Repsol drilled a test well in 2004 and at the time said it discovered traces of high quality oil, but it was not commercially viable at the time.
Repsol has an agreement with Cuba for exploration on six offshore blocks and will this time team with Norsk Hydro and ONGC Videsh of India on the project.
One industry source said the drilling platform could eventually be used by other foreign interests for drilling offshore -- especially if results are promising.
But U.S. companies will be missing out, unless the Obama administration moves soon to exempt American roughnecks from the embargo between the two old adversaries.
The fields off Cuba's northern coast are estimated to contain some 5 billion barrels of oil and 10 trillion cubic feet of natural gas, according to the U.S. Geological Survey.
In the past, Cuba has said it would welcome American participation and U.S. industry is also keen to get involved and not lose out to foreign interests. Cuba is also wary of being overly dependent on Venezuela, headed by the mercurial Hugo Chavez, according to analysts.
Brian Petty, senior vice president of government affairs at the International Association of Drilling Contractors in Washington, said the industry is very keen on Cuba's prospects.
"Because the seismic information that was developed offshore Florida, the eastern Gulf of Mexico in the (19)80s indicated very strong hydrocarbon potential, especially for natural gas," he said.
Not everyone is happy about drilling beginning offshore Cuba. Florida, a tourism-dependent state, is worried about spills and keeping its beach vistas free from unsightly rigs.
Cuba produces the equivalent of 75,000 barrels a day of oil and gas, or about 50 percent of its energy needs. It depends on Venezuela for the rest.
For the Obama administration, allowing Cuba to be independent of Venezuela might be of interest to the country.
"The U.S. ought to look at allowing Cuba to develop their oil development area because that is the way to lessen the political influence of Venezuela in the future government of Cuba," said Jorge Pinon, an Energy Fellow at the Center for Hemispheric Policy at the University of Miami.
Benjamin-Alvarado, of the University of Nebraska, said if Cuba became a big oil producer and refiner, the U.S. could seek strategic arrangements where it could buy refined products from the country when U.S. capacity is shutdown by hurricanes.
"It would probably be wise of the United States to seek opportunities and alternatives to the concentration of those resources in the Caribbean or nearby," he said.
Some U.S.-Cuba watchers doubt the administration will move quickly on further easing of ties, which could prove costly for the oil industry.
"If Cuba starts drilling tomorrow and they find oil and the embargo is still in effect, the U.S. sector is going to lose business and will never be able to recover that lost business in the petroleum equipment and service sector," said Pinon. (Additional reporting by Marc Frank in Havana; Editing by Christian Wiessner).