“Scramble” for Cuba’s oil

A story on new international interest in Cuba’s offshore oil rights made the front page of the New York Times in May. But very interesting that the London Times gives it similar top billing Aug. 5, just as Fidel has (ostensibly temporarily) stepped down, ceding executive powers to his younger brother and security chief Raul for the first time since 1959.

Cuban oil grab sparks row in US over embargo of near neighbour
As the Spanish, Chinese and Canadians move in on Cuba’s reserves, US politicians are fighting over what their response should be

A SCRAMBLE for Cuba’s untapped oil wealth is fuelling a political and diplomatic row over future relations between America and the communist island state.

As speculation mounts over Cuba’s leadership in the post- Fidel Castro era, a Spanish oil company is finishing a seismic survey in Cuban waters off the coast of Florida.

Repsol YPF is surveying the geology of some 3,000 sq km of seabed using three-dimensional seismic mapping technology. It is early days but in May Repsol signed a joint venture agreement with Norsk Hydro and ONGC, the Indian state oil company, to share the Spanish multinational’s licence over six blocks covering some 10,000 sq km.

While the Spanish firm joined forces with Norwegians and Indians, American legislators sparred in Congress over America’s enduring embargo against trading with its long-standing island enemy. In May, two Republicans, the Idaho Senator Larry Craig and Jeff Flake, a Congressman from Arizona, sponsored joint bills in the Senate and the House of Representatives that would allow US companies to explore for oil in Cuba.

The embargo, in place since 1961, has done nothing to loosen President Castro’s political grip but has cost America little in economic terms. That could change, with Senator Craig pointing to the presence of Chinese drilling rigs in Cuban waters. “China is trying to lock up resources around the world, and they are locking up resources in our own backyard where we can’t even compete and play ball,” he said.

Sinopec is exploring in shallow waters off Cuba’s north coast, as is a Canadian resource company, Sherritt International, which has also acquired deepwater blocks adjacent to Repsol. Cuba first discovered oil in 1971; the Varadero field, east of Havana, produces some 75,000 barrels a day — not enough to supply the country with fuel.

Signs of increased exploration have prompted a fierce backlash from Florida, where Cuban exiles are in alliance with the leisure and real estate industry, which is opposed to any activity that might threaten Florida’s beaches. A 1977 agreement allows Cuba to engage in commercial activity near the Florida Keys and drill for oil within 40 miles of the US coast. Bills have been tabled in the House and Senate seeking to strengthen the embargo and threaten foreign oil companies that invest in Cuba.

Legislation sponsored by Miami Republicans would deny visas to any employee of a company that “contributes to the development of Cuba’s oil exploration program and impose sanctions on their companies”.

Still, US oil companies have been eyeing the Cuban activity with interest. The US Geological Survey estimates that there could be five billion barrels of oil in Cuban waters. Soaring oil prices have excited hopes that the vast oil reserve on the US continental shelf in the Western Gulf of Mexico extends to the east and last week Congress reacted, passing two Bills that would open up the Eastern Gulf to more exploration.

Repsol drilled its first well, Yamagua-1 in 2004 in water depths of almost two kilometres. It cost the company $50 million. The company found oil, but not in commercial quantities and the find was abandoned. According to Norsk Hydro, Repsol’s partner, seismic work is almost complete on the new acreage and work on a second well could begin late next year or in early 2008.

Since Repsol’s first venture the stakes have risen; the oil price has almost trebled and the cost of drilling the same well would be much higher. Given that day rates for deepwater rigs have soared to almost $500,000, only very large discoveries are worth pursuing.

“It is high risk and costly,” said Gero Farrugio, of Wood Mackenzie, the oil consultancy. “It is likely the play extends across the US [maritime] border. Should a discovery be made, it will have interesting implications to the debate regarding upstream activity in waters surrounding the Florida coastline.”

Will this development play into the hands of Washington and Miami hardliners, upping the pressure for “regime change” before US rivals like China beat gringo petro-imperialism to the punch? Or will the pragmatists who seek an end to the embargo reap the propaganda and political benefits?

See our last posts on Cuba and the Florida Straits oil scramble.