Oil: The Equalizer in US/Cuba Relations?

Cuba's Undersea Oil Could Help Thaw Trade With U.S.
By Nick Miroff / May 16, 2009

Deep in the Gulf of Mexico, an end to the 1962 U.S. trade embargo against Cuba may be lying untapped, buried under layers of rock, seawater and bitter relations.

Oil, up to 20 billion barrels of it, sits off Cuba's northwest coast in territorial waters, according to the Cuban government -- enough to turn the island into the Qatar of the Caribbean. At a minimum, estimates by the U.S. Geological Survey place Cuba's potential deep-water reserves at 4.6 billion barrels of oil and 9.8 trillion cubic feet of natural gas, stores that would rank the island among the region's top producers.

Drilling operations by foreign companies in Cuban waters are still in the exploratory stage, and significant obstacles -- technological and political -- stand between a U.S.-Cuba rapprochement eased by oil. But as the Obama administration gestures toward improved relations with the Castro government, the national security, energy and economic benefits of Cuban crude may make it a powerful incentive for change.

Limited commercial ties between U.S. businesses and the island's communist government have been quietly expanding this decade as Cuban purchases of U.S. goods -- mostly food -- have increased from $7 million in 2001 to $718 million in 2008, according to census data.

Thawing relations could eventually open up U.S. investment in mining, agriculture, tourism and other sectors of Cuba's tattered economy. But the prospect of major offshore reserves that would be off-limits to U.S. companies and consumers has some Cuba experts arguing that 21st-century energy needs should prevail over 20th-century Cold War politics.

"The implications of this have the potential to be a sea change, literally and figuratively, for the Cubans," said Jonathan Benjamin-Alvarado, a political scientist at the University of Nebraska-Omaha who studies Cuba's energy sector.
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At a House subcommittee hearing last month on U.S.-Cuba policy, former oil executive Jorge Piñón told lawmakers that the United States has a strategic interest in helping Cuba tap its potentially vast hydrocarbon stores and that U.S. companies should receive special permission to do so.

"American oil and oil equipment and service companies have the capital, technology and operational know-how to explore, produce and refine in a safe and responsible manner Cuba's potential oil and natural gas reserves. Yet they remain on the sidelines because of our almost five-decade-old unilateral political and economic embargo," said Piñón, a member of a Brookings Institution advisory group on Cuba policy reform.

Cuba has said it welcomes U.S. investment, but American companies remain largely silent on the issue, at least in public, bound by trade sanctions that were established under the Kennedy administration. When Cuban oil officials and U.S. companies attended a joint energy conference at an American-owned hotel in Mexico in 2006, the Bush administration forced the facility to expel the Cuban delegation, attempting to thwart any potential for partnership.

"Until trade barriers are removed, Chevron is unable to do business in Cuba," said Chevron spokesman Kurt Glaubitz. "Companies like us would have to see a change in U.S. policy before we evaluate whether there's interest."

Robert Dodge, a spokesman for the American Petroleum Institute, said his organization is not lobbying for access to Cuba, and Texas congressional representatives with ties to the oil industry said they are focused on opening U.S. territorial waters to drilling. But observers of U.S.-Cuba relations say American companies haven't been sitting on their hands and remain in conversations with Cuban counterparts.

At the 2006 Mexico energy conference, U.S. oil companies "all had plans to move forward as soon as the U.S. government gives them the go-ahead," said Benjamin-Alvarado, who attended the conference.

If that go-ahead is granted, American companies would be entering a drilling contest crowded with foreign competitors. Several global firms, including Repsol (Spain), Petrobras (Brazil) and StatoilHydro (Norway) are exploring in the Gulf of Mexico through agreements with the Castro government, and state companies from Malaysia, India, Vietnam and Venezuela have also signed deals.

Sherritt International, a Canadian company, has had oil derricks pumping heavy crude along Cuba's north coast for more than a decade, extracting about 55,000 barrels a day, mostly for Cuba's domestic energy consumption.

But most of Cuba's undiscovered reserves are thought to be in two offshore areas. The oil and gas that make up the USGS estimate lie in an area known as the North Cuba Basin, a short distance off the island's northwest coast.

The larger deposit is thought to be in a section of the gulf known as the Eastern Gap, to which Mexico and the United States also have a claim. Cuban officials believe there are 10 billion to 15 billion barrels of crude stored there under more than 5,000 feet of seawater and 20,000 feet of rock-- costly to extract but accessible with existing technology. By comparison, U.S. proven reserves total 21 billion barrels.

The Eastern Gap area is also coveted by American companies, but in Florida, where anti-Castro and anti-drilling sentiments run high, the Cuban government's energy ambitions have alarmed lawmakers who see the threat of ecological calamity in Cuba's plans to drill in that part of the gulf.

"They'd be drilling right in the Gulf Stream," Sen. Bill Nelson (D-Fla.) said in a telephone interview, describing a nightmare scenario in which ocean currents could carry spilled crude into Florida's marine sanctuaries and blacken beaches along the Eastern Seaboard.

"There would be a monumental disaster," he said. "There simply should not be drilling out there."
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Other U.S. lawmakers said oil deals with the Cuban government would throw a lifeline to the island's feeble economy and the 50-year rule of Fidel and Raúl Castro. They also question how reliable a partner Cuba would be.

"What if we make those investments and then U.S. assets are nationalized?" Rep. Darrell Issa (R-Calif.) asked after last month's subcommittee hearing.

Because it would take three or more years for Cuba to fully develop its energy resources, according to Piñón, U.S. participation in the island's energy sector could benefit a Cuban government not necessarily led by Fidel, 82, or Raúl, 78. Helping Cuba develop its own reserves, he said, would allow the island to gain the political independence and economic footing needed to negotiate a reconciliation with the United States without outside interference.

"Since Fidel Castro's 1959 revolution, Cuba's communist government has had to largely rely on foreign providers -- first the Soviet Union, now Venezuela -- to fulfill its energy needs," Piñón said.

Cuba's "petroleum dependency" on Hugo Chávez's government "could be used by Venezuela as a tool to influence a Cuban government in maintaining a politically antagonistic and belligerent position toward the United States," he said.

Source / Washington Post

Thanks to Jeff Segal / The Rag Blog