Monday, March 31, 2008

Cuba's search for oil raises alarms in U.S.

March 25, 2008

HAVANA - Imagine oil rigs drilling in deep waters just 60 kilometres off the coast of South Florida. Refineries process the oil in Cuba and sell it across the Caribbean and beyond. Canadian and Mexican companies supply billions of dollars in equipment and services.

This could happen, as Havana invites foreign companies to explore its probable oil and natural gas reserves while Washington's embargo against the Communist-led island keeps U.S. companies locked out.

There are precedents for large and growing Canadian roles in Cuban industry.

Toronto-based Sherritt International Corp. is the largest current foreign investor in Cuba. Company operations on the island produce large volumes of oil, natural gas, nickel, cobalt and electrical power.

Montreal's Pebercan Inc. also produces oil in Cuba, although on a smaller scale than Sherritt, and recently announced a fresh drilling success.

Fidel Castro's government sent a delegation to Alberta in the mid-1990s, with an open invitation for the province's oil industry to expand in Cuba.

But few takers stepped forward. At the time, Alberta companies that exported oil and natural gas to the United States said they did not want to risk running afoul of American economic sanctions against trade with Cuba.

But in light of the ailing revolutionary leader's recent handover of power to his brother Raoul, South Florida is watching closely for potential new foreign involvement in Cuba's oil industry, amid debate over drilling near the American state's shores and concerns over U.S. energy policy. Oil companies increasingly seek to tap Cuba's deepwater reserves, now that oil prices are soaring and profits more likely.

"In 34 years following Cuba, I've never seen an issue like this -- so strategically important to the United States," said Kirby Jones, president of Washington-based Alamar Associates, who advises U.S. companies on Cuba and opposes the U.S. embargo.

Cuba is courting oil investors to slash its dependence on foreign fuels. The cash-strapped island can't afford to import all it needs, especially with today's oil prices topping $100 US a barrel. The island long relied on the Soviet Union for subsidized oil and now depends on cheap supply from Venezuela that it pays for with services from its doctors and other professionals.

Havana began opening to foreign investment in the early 1990s after the loss of Soviet aid, and now produces almost half the oil and natural gas it consumes. It drills mainly heavy crude on or near shore with Canadian firms' help.

But the big prize lies in deepwater reservoirs miles off the north shore in the Gulf of Mexico. By some estimates, the area holds nearly as much oil and natural gas as the coveted U.S. Arctic National Wildlife Refuge in Alaska -- enough to meet Cuban demand for years.

Havana is forging deals with companies from Norway, Malaysia, India, Vietnam, Spain and other nations to explore dozens of its 59 deepwater blocks. Brazil's president visited in January to seal contracts for Petrobras, the global leader in deepwater drilling.

Experts say it will take several more years, and hundreds of millions of dollars, for the companies to figure out where to drill in waters often 11/2 kilometres deep.

But if the pieces fall into place, offshore rigs could be working by 2012 not far from South Florida, said Jonathan Benjamin-Alvarado, a Cuba energy specialist at the University of Nebraska in

Omaha who has visited the island many times.

"Cuba also could become a trans-shipment point for oil, refined products and exports for the region," Benjamin-Alvarado said.

U.S. Sen. Bill Nelson, D-Fla., aims to head off those possibilities and keep drilling far from Florida shores. In a long-shot move, he seeks to scrap a 31-year-old accord that splits the 144 kilometres of water between the United States and Cuba and to redraw the borders.

"Soon, there could be oil rigs within 50 miles (80 kilometres) of the Florida Keys and the Florida Keys National Marine Sanctuary," Nelson wrote the Bush administration in late January, after Brazil's president met Cuban leader Fidel Castro.

"And, as the Gulf Stream flows, an oil spill or other drilling accident would desecrate part of Florida's unique environment and devastate its $50-billion tourism-driven economy."

Today, U.S. companies are the only ones banned from Cuba, under terms of Washington's 45-year embargo. All other nations trade with the island, the Caribbean's largest.

The American Petroleum Institute, representing U.S. oil industry companies, has long rejected U.S. go-it-alone sanctions, like the embargo on Cuba. It seeks greater access to oil reserves worldwide, said a spokeswoman in Washington.

Recent events in Venezuela have raised concerns about how long President Hugo Chavez can keep up oil largesse to Cuba, now estimated to top $2 billion a year.

Cubans worry that if Venezuela cuts off cheap oil, they will suffer widespread blackouts like they did after the Soviet Union halted oil aid in the early 1990s. Back then, with fuel in short supply and cash tight, lights went out up to 16 hours a day, and bicycles often replaced cars.

Cuba still faces hurdles to exploit its huge north basin reserves, estimated by the U.S. Geological Survey at 4.6 billion to 9.3 billion barrels of oil and nearly one trillion cubic feet of natural gas.

Deepwater rigs are in short supply worldwide and expensive to use -- sometimes $200,000 a day or more. Companies in Cuban waters also may be banned from using some cutting-edge U.S. technology because of the U.S. embargo. Older technologies could make exploration more expensive, said Benjamin-Alvarado.

As plans proceed, analysts are figuring out which U.S. companies stand to lose the most.

Big U.S. oil producers likely won't be shut out permanently, said Jorge Pinon, former president of Amoco Latin America and now an energy fellow at the University of Miami's Center for Hemispheric Policy.

© The Edmonton Journal 2008

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