Cuba has launched a bold policy of oil development that could turn the country into an important supplier of fuel in the Caribbean - and the United States, should the embargo be lifted in the future.
But world economic turmoil might sidetrack Venezuela's commitment to underwrite the multimillion-dollar projects in Cuban refineries and ports.
Cuba's oil strategy consists of processing about 350,000 barrels of crude daily and supplying the big demand for oil byproducts in nearby countries beginning in 2013, according to sources in the Ministry of Basic Industry and the state-run oil firm Cuba Petroleo.
In a post-embargo era, one of the principal beneficiaries could be the U.S., an importer of crude and derivatives with a refinement capacity that covers 81 percent of its domestic demand.
However, the plans drawn up in 2005 during Venezuela's economic boom are today in trouble.
A drastic fall in Venezuela's oil revenues during the first few months of this year, operational difficulties in the state-owned Petroleos de Venezuela (PDVSA), and the liquidity problems affecting Hugo Chavez's government are not good news for the Cuban projects, which require a $10.8 billion investment between now and 2015.
Chavez and Cuban President Raul Castro will travel this week to Basseterre, the capital of St. Christopher and Nevis, to participate in the Sixth Summit of Petrocaribe.
The summit, which takes place Thursday and Friday, will be attended by 18 heads of state and will try to give "a strategic response" to the crisis affecting the countries in the region. The agenda will include an analysis of the projects under way in Cuba, Jamaica, Nicaragua and Haiti.
Cuba plans to go ahead with its development project even if the estimates of valuable reserves of crude off Cuba's northwest coast fall short. The area, called the Exclusive Economic Zone, is believed to contain 4.6 billion barrels of oil and 9.8 billion cubic-feet of natural gas, according to a 2004 study by the U.S. Geological Service.
The zone covers an area of 70,000 square miles, divided into 59 exploration blocs, approximately 1,250 square miles each. In 2001, the Cuban government began to sell concessions to foreign companies.
In October 2008, officials of Cuba Petraleo, or CUPET, estimated the reserves at 20 billion barrels, but international analysts doubt that estimate because the Cubans did not reveal their methodology.
In any case, the idea conceived by the Cuban government is to upgrade several refineries and ports to be able to process 4 million barrels per day that regional countries will need.
"Our project is intended not only to survive but also to make us self-sufficient and allow us to develop further, even if the results of the planned drillings are not the most encouraging," a CUPET engineer told El Nuevo Herald. He asked for anonymity because he was not authorized to speak about the topic. "It is a project with a future," he said.
If in a five- to-10-year period Cuba manages to raise its refinement capacity to 350,000 barrels, it would be able to shed its dependence on Venezuela. Cuba could also process crude oil from Russia, Angola, Brazil and from Cuba's own deep-sea wells.
"The strategy is intelligently designed because the future of the oil sector will depend on the available capacity to refine crude oil and transform it into fuel," said Jorge R. Pinon, former president of Amoco Oil Latinoamerica and researcher at the University of Miami's Center for Hemispheric Policy.
According to Pinon, instead of importing derivatives from Europe and the Middle East, the U.S. and other neighboring countries would have a competitive logistical center with unbeatable freight costs.
Other analysts are more skeptical about Cuba's plans.
"In a free market, this strategy is not profitable," said engineer Eduardo del Valle, president of EGDV Consulting, an energy projects consultant. "The problem is that the decisions until now have been more political than economic."
The initiative to consolidate an efficient system of refineries and ports in Cuba appears in a report by the Venezuelan Oil Chamber, written when a Venezuelan business delegation traveled to Cuba last October. Cuba was expected to put up 50 percent of the capital in its joint investments with PDVSA.
According to the document, the joint development plan envisions:
- Expansion of the Cienfuegos refinery, with an investment of $3.66 billion to boost its processing capacity from 69,000 barrels per day to 150,000 barrels per day. The project, which must end in 2012, includes the manufacture of four storage tanks for crudes, derivatives and distillates, and a plant to furnish gas to the refineries and thermoelectrical plants.
- Expansion and repairs at the Hermanos Diaz refinery (formerly Texaco) in Santiago de Cuba, at a cost of $850 million. Its capacity will be increased from 22,000 barrels per day to 50,000 for the production of high-quality gasoline. All work should be completed by 2013.
- Construction of a mega-refinery in Matanzas province with the capacity to process 150,000 barrels per day with deep conversion (the processing of heavy crudes). The construction will cost $4.33 billion and operations will start in December 2015.
- Prospecting bays in Cienfuegos and Matanzas, costing $1.6 million.
- Refurbishing of the Amistad oil pipeline between Matanzas and Cienfuegos, which has been unused since 1989.
Although not mentioned in the document, plans include the shutdown of the Nico Lopez refinery (former Shell/Esso) in Regla, Havana Bay, which at present processes about 25,000 barrels per day. A source linked to the Ministry of Basic Industry said there are plans to dismantle the Regla refinery in order to stop polluting Havana Bay and improve Havana's appeal to tourists.
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