Oil Found Off Cuba Shores, But No Windfall For Castro

by Patricia Grogg

(IPS) HAVANA -- Economists in Cuba reacted cautiously but without losing their sense of optimism July 29 to the first news from a Spanish company drilling in Cuba's waters in the Gulf of Mexico that it has found oil reserves of "high quality."

They quickly added, however, that the first well is not considered commercially viable.

"The news is encouraging anyway," Santiago Rodriguez, a researcher and expert on oil affairs at the Center for Studies on the Cuban Economy, at the University of Havana, told IPS.

He said it must be taken into account that this is the first time drilling has been carried out in that untested area and that "perhaps the conditions" for beginning to commercially exploit the area are not yet in place.

The possible discovery of large oil deposits in Cuban territorial waters in the Gulf of Mexico sparked a flurry of rumors across the country, in stark contrast with the government's silence.

When announcing the call for tenders, Cuban experts were already emphasizing that the area was especially rich in crude oil and located close to major oil-producing countries like Mexico and Venezuela. "Why shouldn't fortune smile on us too?" is the gist of off-the-record statements by experts.

But despite all the talk and high expectations, President Castro made no mention of any oil discovery during his July 26 speech at the anniversary celebrations for the 1956 assault on the Moncada barracks, celebrated on the island as National Revolution Day -- a major national holiday.

The feeling shared by many Cubans who dream of such an announcement is that they could do with a strong injection of optimism. But it did not arrive. Others continue watching the president's face closely for signs.

"He looked happy yesterday, so there might be good news," said Oscar Reynoso, a retired transport worker following a public appearance by Castro last week.

But whatever people on the street might be saying, everyone agrees any discovery of "light" oil would be positive from all points of view. In fact, it could totally turn the vulnerable Cuban economy around; its Achilles' heel is precisely its dependence on oil imports.

Reynoso pointed out that public transit was one of the sectors hardest hit by the abrupt cut in fuel supplies from the Soviet Union Up until 1989 Moscow supplied Cuba with 13 million tons of crude oil. "The pipeline closed when the Soviet Union and the East European socialist bloc disappeared," he said.

The 60 percent reduction in crude imports caused a fall of up to 70 percent in Cuba's refining capacity. Industry and public transport were pushed to the brink of collapse by the lack of fuel.

According to official figures, the country produced some five and a half million tons less of oil by-products between 1990 and 1998, with substantial reductions in petrol, fuel-oil, diesel and industrial naphtha.

Ramon Blanco, chief operating officer of the Spanish firm Repsol-YPF, which has been drilling off of Cuba's northern coast since June, said during a conference call with analysts in Europe Thursday that "the first well drilled in Cuba has partially met our initial expectations."

He added that the company had confirmed the existence of "a petroleum system" in that area, and had detected reserves of high-quality crude oil, according to press reports from Madrid.

Blanco said, however, that the first well is considered "noncommercial," and that "at this stage the group is defining future exploration activities in the area."

After the announcement, the company's shares began to drop, financial sources reported.

Rodriguez and other economists consulted by IPS, who preferred not to be identified, said more information is needed before they can provide a more thorough evaluation of what the findings could mean for this socialist island nation.

Last June, Repsol-YPF, which has invested heavily in Latin America, began drilling in Yamagua-1, one of the four blocks identified for prospecting under risk contracts with Cuba.

The company was granted mining rights on six of the 59 exploration blocks opened to tender in mid-1999 by the government of Fidel Castro, in an area of 112,000 sq km within the country's exclusive economic zone on the Gulf of Mexico.

Seismic tests previously carried out indicate that Yamagua-1 has a potential capacity of 1.63 billion barrels of crude. It is located around 30 km off the northern coast of Cuba.

The other possible drilling areas identified by Repsol-YPF are Ocuje, with an estimated capacity of 435 million barrels, Obatala with 1.24 billion, and Caraguito with 2.82 billion barrels.

The UBS Investment Bank of Switzerland had estimated that the Spanish firm could take in earnings of $1.7 billion if the initial results of its deep-water drilling were positive.

UBS analysts estimated the likelihood of success in unexplored areas at one in ten. Any underwater well discovered at a depth of 1,600 metres would have to be developed by a system of floating production platforms, which significantly drives up production costs, they pointed out.

It cost Repsol $195,000 a day just to lease a Norwegian semi-submersible platform. The drilling operation lasted under two months.

The Cuban government has so far maintained a discreet silence on the oil prospecting, although last December it stated that it was not basing its socioeconomic development plans on the possibility that oil would be found.

But it did give special importance to the "steady growth" of Cuba's "onshore" oil and gas output, adding that the island has reserves that will last "dozens of years."

Domestic oil production is concentrated in a band 200 km long and between 10 and 20 km wide on the northern coast of the provinces of Havana and Matanzas, located some 100 km from the capital.

According to official estimates, proven reserves in that area, where firms from Spain, Canada, France, Sweden and other countries are operating under exploration risk contracts, surpass 100 million tons, although only low-quality heavy crude with a high sulphur content has been found.

That crude is basically used by the cement and nickel industries and to generate electricity.

Cuba's energy supplies depend heavily on oil, of which it imports around 100,000 barrels a day, while producing some 75,000 barrels a day of natural gas and oil.

An official statement published last December by the daily newspaper Granma, the newspaper of the ruling Communist Party, said the Cuban government had "no objection" to the idea of U.S. oil companies participating in prospecting and drilling in its exclusive economic zone "on terms that would be mutually beneficial."

The communique came in response to reported pressure from U.S. oil firms that want the four-decade U.S. economic and trade embargo against Cuba to be lifted, in order to do business with this Caribbean island nation of 11.2 million.