A future in oil for Cuba?

Interview with Jorge Piñón

By Roberto Veiga and Lenier González

HAVANA – Progreso Semanal talked with energy affairs researcher Jorge Piñón, a Cuban-American who left the island during Operation Peter Pan and these many years later continues to talk in first-person-singular when referring to Cuba.

Piñón has worked in the oil industry and was president for Latin America of AMOCO Oil Co. At present, he is a researcher for the Center for Energy and Environmental Resources of the University of Texas at Austin. The interview was held at the Meliá Habana Hotel in Cuba.

The future in Cuba for oil exploration in deep waters

Every exploration program, especially in frontier zones, that is, in new areas that have never been explored, has different stages. There is always a very important stage, geological studies, where investigators estimate the potential for the existence of hydrocarbons.

That is the process we have conducted for the past 10 years in Cuba, which includes a study by the U.S. Geological Survey. This study, done for the first time in 2004, estimates that in Cuba’s geological north strip, off shore, from Pinar del Río Province to northern Matanzas province, there are oil reserves.

The surveyors raise the possibility that from 4 billion to 6 billion barrels of crude are still to be found. These geological studies are very environmental, but historically they are highly trusted by our industry. That doesn’t mean that they guarantee the amount of oil, but it’s the first step in that stage.

We are beyond the stage of studies; now we are in the stage of exploration. Four wells have been exploited by serious international oil companies – each well has cost at least $100 million – so, in other words, it wasn’t a political “game.”

So far, the hoped-for results have not materialized; at least, that’s what I’m told by sources I’ve consulted. We still have the rest of the Gulf of Mexico, the deep waters in the rest of the Gulf of Mexico, adjacent to the United States’ exclusive zone. I think that there are possibilities there.

In my opinion, in the next three to five years, unfortunately, I don’t see a high probability that Cuba will maintain the level of exploration in deep waters such as we’ve seen in the past two or three years.

The chances of finding oil; challenges to the effort

Finding oil in Cuba would not be a major problem from a technical point of view. Today, there is a technology to bring offshore oil to dry land, where it can be refined or carried in tankers to other markets.

Reaching maximum production would take from three to five years. Each field could have 5, 10, 15 or 20 wells that could reach an adequate production. Neither I nor the people with whom I’ve talked believe that Cuba’s potential in deep waters will exceed 200,000 or 300,000 barrels per day.

Eventually, if we find what we hope for, within five to seven years, Cuba could produce 250,000 barrels per day.

Other sources of energy for the future of Cuba

We’re facing a stage of growth and use of natural gas everywhere in the world. Many countries are discovering shale gas, and I think that natural gas will be a very important source for Cuba in the future.

Cuba is thinking of building a terminal in Cienfuegos for the reception of liquefied natural gas. I think that that’s a great potential for Cuba’s future. One of the most interesting factors in our industry nowadays is that the great producers (of crude or gas) are looking for markets, and when there are several producers and only one number of consumers, well, we all try to sign long-term contracts to make sure we get a slice of the cake.

How can we make sure that we get part of that market? Cuba is in a good situation, because many of those countries will come around and say, “I will not only supply you with gas but also build you an electric plant.”

In other words, if you grant me a concession, I’ll build you a power plant. In the concessionary concept, someone else builds it but you own it. I’ll build you a power plant in Cienfuegos, Nuevitas or Mariel and sign a long-term contract with you, say 25 years, to supply you with liquid natural gas for that plant at market prices. The State doesn’t have to spend a cent. That State money can then be used for health care, education or other important projects – and you have an international partner, the concessioner.

That model already exists in Cuba with Energás. The State never loses its sovereignty over hydrocarbons. The State remains forever the owner of the hydrocarbons, of the land, of the concession. All it allows is for a third concessioner to invest risk capital, and all the concessioner wants is a lease that guarantees him a 6-to-10-percent profit for 25 years, so he can regain his investment.

At the end of the 25 years, he says goodbye and goes home. You keep the assets.

I believe that natural gas is an extremely important source of energy for us. Remember that, among hydrocarbons, natural gas is the cleanest source. So, to protect the environment in a country like Cuba, which depends on tourism, natural gas (instead of the oil we’re using, with a high sulphur content) is extremely important.

The other issue is ethanol and the sugar industry in Cuba. I may be one of the few people in the industry who disagree with the use of grain, the use of food, to produce ethanol, a fuel used only by the middle class or the rich, because the poor don’t own cars.

From a social point of view, I recognize ethanol’s high cost. So I agree with those who say that we shouldn’t use corn or other grains, that we shouldn’t engage in deforestation to plant raw materials for ethanol production. I’m against that.

Now, the cases of Cuba and Brazil are totally different, because you’re talking about a raw material that’s sugar cane. In Cuba, you can regain one million hectares of land that historically was always sugar land, so we’re not talking about deforestation.

The studies we’ve done show that a totally recapitalized sugar industry can contribute about $3.5 billion a year to the Cuban economy. That’s because ethanol is priced at $2 per gallon and sugar is priced at 18 to 20 cents.

You can bring in Brazilian companies in a joint venture with Cuban companies. Gentlemen, everyone can participate here, so long as the State grants everyone a concession. It’s not that the land will go into private hands. The land remains in the hands of the State. But you allow that experience, that capital in partnership with the State, to create a Cuban sugar industry that could make an incredible contribution to Cuba, not only in economic terms but also in strategic terms.

If we can sow one million hectares that will produce 60 to 70 tons of sugar per hectare, the harvest will give us much, in terms of ethanol. The advantage of this in the sugar industry (such as Brazil’s), is that when the guarapo [sweet extract] or honey arrives at the mill, you can choose whether it goes to the distillery or to the sugar factory. In other words, you can now send it to two markets.

If the better profit comes from sugar, you turn to the sugar, but if it comes from ethanol, you turn to the ethanol. Today we have that flexibility. Besides, remember that you’re producing plenty of electricity, because you have all that chaff going into those new, efficient plants, so you’re also contributing with electricity to the national system.

That’s another added value that we sometimes forget but is humongous for Cuba.

Cuba could produce 70,000 barrels of ethanol per day. That means that, in Cuba’s economic future, if you import cars from Brazil – cars that can use either 100 percent ethanol or 100 percent gasoline – you would not need a single drop of oil for transport fuel.

All those different pieces need to be studied long-range. The salvation of a country that is not self-sufficient in energy depends not on one product but on several.

Oil infrastructure and energy future

There’s the refinery at Cienfuegos, the pipeline from Cienfuegos to Matanzas, the storage for 600,000 barrels that was built in Matanzas. There’s the port of Mariel. Cuba is strategically located. That is why Cuba’s national shield bears the picture of the key to the Gulf. That gives Cuba a very advantageous position.

The Panama Canal will be reopened with more capacity to accommodate larger tankers. Natural-gas terminals are being built in the Dominican Republic and Puerto Rico. So, if Cuba doesn’t find any crude, that’s not a problem, far as I’m concerned.

Because Cuba – due to its geographic location and infrastructure – will have a very preferential position to receive various types of oil-based fuel, at international prices. The oil will not be given away, but you’ll be in a competitive position to obtain that oil at 50 cents or one dollar and pennies per barrel (or less) due to your logistic location.

Puerto Rico has shut down its three refineries and relies 100 percent on imported products. If you look, every month, for the source of the oil that goes into Puerto Rico, you might think that it comes from the United States, because it’s the closest market.

No. They import oil from Russia, gasoline from Russia, fuel oil from Argentina, from different parts of the world, because they have a good storage system, good ports and fuel terminals and are always looking for sources of cheaper oil. They can also import oil that, from the point of view of quality, may not always be the best, but they can alter and improve it in their local plants.

Eventually, Cienfuegos will have a better refinery. What happens in Cienfuegos is that it doesn’t have facilities for improvement, for the processing of crude. That’s what they’re planning to build.

The future refinery at Matanzas is a little bit different. Strategically speaking, the refinery at Santiago de Cuba needs to be maintained and improved to process 50,000 barrels per day. The one in Havana should be closed, because it has worked very hard in the past 50 years. Its operators have done a fantastic job trying to maintain it so it won’t affect the environment and the potential value of Havana Bay, from the point of view of tourism.

[The Havana plant] is a very high-cost refinery, not only economically, from the point of view of processing, but also from the environmental point of view, etc. Remember that there’s a pipeline connecting Matanzas with the Havana refinery, so the Havana refinery could be turned into a distribution point.

From the terminals in Matanzas you send the gas-oil, diesel or gasoline via pipeline to Havana, where trucks distribute it to the various gas stations. So [the Havana plant] could still be useful. But from the point of view of remaining a refinery, no.

Model of consumption

Energy self-sufficiency is not an issue that can be resolved. And Cuba is not the only country with this problem. We [Cubans] must recognize that. There are many countries in Central America, in other places, that are not self-sufficient. That’s what nature gave us.

But we have many things we [Cubans] can use – ethanol, the oil we have today, ways to optimize it, our geographic location, the infrastructure – to ensure that we have competitive sources and never be in a position to pay top dollar for energy, compared with other countries in the region. Cuba must have a competitive position from the point of view of energy.

Another issue is related with our model of consumption. If we found oil in Cuba, the mere news would lead us to think, “Goody, now I can turn on all the lights, do all that, and now I don’t care.” Conversely, if we find oil, we must adhere to the concept of savings, recycling, using public transportation.

Do you want to reduce Cuba’s energy dependency? Build good and efficient public transportation. You have the railways. My father was a railroad man, and Cuba’s geography enables us to have a rapid train from Havana to Santiago. Cuban railroads could be the most efficient in the world. You wouldn’t have to drive.

In the future, you could get up in the morning in Havana and ride a train to Camagüey for a business meeting, have lunch and return to Havana that same night. As I did when I lived in Spain: I traveled to Seville in the morning, had a business luncheon, and by 5 in the afternoon I was back at my home in Madrid.

So, Cuba has a great energy potential, not only in energy production but also in the rational use of energy. That is very important and is something that we [Cubans] need to maintain, not only our generation, which unfortunately had to learn it through the difficulties we experienced.

You’re going to say, “Jorge Piñón, you’re telling me that I must continue to live as I live today, because of the economic difficulties the country is going through.”

And I say to you, yes, you can improve your standard of living, but at least the awareness you developed after the Special Period is a good awareness. Maybe the reasons you came to it were wrong, but it’s an awareness you need to maintain and it’s an awareness that you must hand down to the next generations.