Temper Cuba’s high expectations: Avoid ‘oil curse’
By Jorge Piñon
International oil companies are currently conducting oil and natural gas exploration activities in the Strait of Florida and southeastern Gulf of Mexico, within the deep waters of Cuba’s economic exclusive zone.
Expectations of a major oil discovery are high. Geological and seismic studies indicate the possible presence of 5-6 billion barrels of undiscovered oil reserves, which could well prove to be a long term turning point for Cuba’s future economic development and energy independence.
It is unknown, however, whether there are any additional recoverable hydrocarbon reserves in Cuba’s ultra deep northwest Gulf of Mexico and Eastern Gap waters. Some believe that there could be an additional 10-15 billion barrels of undiscovered oil reserves; bringing Cuba’s total undiscovered oil reserves within their Exclusive Economic Zone (EEZ)* to about 20 billion barrels.
What we know for certain is that it is unlikely that Cuba would become a net exporter of oil within the next 15 years.
Cuba currently consumes approximately 147,000 barrels per day of petroleum products, and produces approximately 50,000 barrels per day of crude oil; creating a deficit of about 100,000 barrels per day of imports.
If the current exploratory efforts are successful and major offshore oil resources are discovered, Cupet, the island nation’s oil company onshore and offshore total equity production within ten years could reach 100,000 -150,000 barrels per day, bringing Cuba’s supply-demand balance within equilibrium at current demand levels.
Rice University’s James Baker Institute estimates that in a post-embargo Cuba and under a decentralized economic system Cuba’ future petroleum demand could reach 250,000 barrels per day – making the net oil exporter scenario improbable.
Cuba, however, could make major improvements in its balance of payments by establishing a new energy mix and by the continuation of its energy conservation programs.
Oil or not, Cuba should continue to advance its current energy conservation and efficiency policies, programs, technologies, investments, and behaviors; and the economic development of renewable energy sources such as solar, wind, hydro, sugarcane biomass and bio-fuels, and other less-developed sources such as tidal power and sea currents as part of a comprehensive national energy plan.
With the visit this week of Brazil’s president Dilma Rousseff, Cuban leaders will have a unique opportunity to consider the re-capitalization of the sugarcane industry as part of a national energy policy. Sugarcane could play an important role toward Cuba’s objective of becoming energy independent by contributing fossil fuel substitutes such as ethanol and bio-mass for its transportation and electric power sectors respectively.
The resurgence of the sugarcane industry could generate significant economic benefits through a variety of mechanisms. Not only would it increase employment at both the farm level and within the processing sector, but it also would strengthen Cuba’s balance of payments by reducing the need to import oil and also providing new potential revenue streams from ethanol exports.
The role of liquefied natural gas as a fuel for the electric power sector could also become an important component to the national energy balance mix as it would substitute petroleum-based fuel oil which could then be further processed into higher value transportation fuels such as gasoline, diesel and jet fuel.
And finally, Cuba must deal with the danger of the “oil curse” or “Paradox of Plenty” where the news of a major oil find could carry the Cuban people into a false sense of belief of new riches and the need to no longer conserve.
Oil wealth is only temporary; the North Slope oil field in Alaska peaked at a maximum production of nearly 2 million barrels per day in 1988 compared to today’s production of less than 600 thousand barrels per day.
In the possible future event of Cuba becoming an oil exporter, it then becomes very important how the country manages its net oil import revenues and sidesteps the urge of spending its new riches lavishly instead of continuing a culture of frugality.
Regardless of how Cuba manages any possible future oil revenues, it should consider education and health care as a long term investment in future of the new generations to come, long after all the oil is gone.
* Under the law of the sea, an exclusive economic zone (EEZ) is a sea zone over which a state has special rights over the exploration and use of marine resources, including production of energy.
Jorge R. Piñon is a Research Fellow with the University of Texas at Austin Center for International Energy and Environmental Policy and former president of Amoco Oil Latin America. He can be reached at jrpinon@austin.utexas.edu
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