Cuba Barrels Ahead Toward Energy Self-Sufficiency

He’s clearing his desk, packing up boxes and preparing to head home to his family in Brazil, but Demarco Epifania has a feeling he could soon be back in Cuba doing what he likes doing best--drilling for oil.

General Manager for Brasoil, Epifania is closing down operations at the Cuban arm of Petrobras of Brazil, after failing to hit oil off the island’s northern coast.

“We had a 13% chance of finding oil but we didn’t, so we’re leaving for now,” he said. “But we could be back at any moment.”

What might tempt Petrobras to return is talk of a massive deep-sea field of crude in Cuba’s section of the Gulf of Mexico. Cuba’s state oil company, Cupet, is teaming with Spain’s Repsol to start seismic studies, and drilling could start as early as next year.

“They’re talking of 59 deep water blocks,” said Epifania. “That will spark interest at a lot of oil companies, ours included.”

By opening up its oil sector to joint ventures with foreign companies, Cuba has quadrupled its oil production over the last decade.

Last year it produced almost 60,000 barrels a day, about a third of its needs. It imports another third under a barter deal with Venezuela and buys the other third on international markets.

More importantly, the production boost at mainly onshore wells in northern Matanzas province means Cuba now produces about 70% of its own electricity. Marcos Portal, basic industry minister, predicts 90% self-sufficiency in energy by year’s end.

That is a remarkable turnaround for a country that, just a decade ago, was completely dependent on oil-for-sugar swaps with its former ally, the Soviet Union.

After the collapse of the Soviet bloc, supplies to Cuba’s 14 Soviet and Czech power plants dried up, forcing the government to introduce crippling, 12-hour daily blackouts.

“At times I forgot what a [cold] beer tasted like,” said Rodrigo Sanpietro, a hotel worker in old Havana. “The refrigerator never had time to get cold.”

Today, Havana is still plagued by power cuts, but they are much shorter and less frequent.

“Looking at the last decade, the single most impressive commercial success story has to be the changes made in energy exploration, production and distribution,” said John Kavulich, president of the U.S.-Cuba Trade and Economic Council, a New York-based, nonprofit organization that studies the island’s economy.

But according to Kavulich, energy is still “the Achilles’ heel” of Cuba’s economic transition toward more free-market practices.

“With oil prices as volatile as they are, they eat up so much of Cuba’s [hard currency] resources,” he said.

Fuel oil and diesel make up more than 80% of imports.

In addition to finding more oil, Cuba is spending an estimated $100 million to modernize the Soviet and Czech power stations and adapt them to run more efficiently on Cuba’s heavy, sulphurous crude.

The United Nations Development Program is also helping to fund a pioneering biomass generating plant that modernizes traditional Cuban methods of making power from the leftovers of the sugar crop.

So far, the system has only been used on-site at sugar mills, but Jafet Enriquez, UNDP project officer in Havana, estimates that as much as 30% of Cuba’s energy needs could be produced by burning biomass--a renewable and environmentally friendly source--in new, high-tech plants.

In a good year, Cuba’s harvest can produce more than 20 million tons of bagasse and sugar cane leaves.

“Cuba is interested in becoming self-sufficient in energy, and it could be, no problem,” said Enriquez.

For now the government is focusing more on oil.

So far, Repsol has signed on for six of the 1,250-square-mile deep sea blocks.

With each one costing as much as $50 million to prospect--three times as much as a coastal, shallow-water well, according to Epifania--Repsol will probably be looking for partners.

According to Manuel Marrero, petroleum advisor to Portal, four to six major oil companies have been negotiating leases on the deep-water blocks, and several others--including U.S.-based companies--have shown interest.

“It’s unlikely that the deep-water prospecting is going to produce meaningful results in the near future, mainly because of the costs of exploration,” said Kavulich.

Those costs are higher because of the 42-year U.S. trade embargo against Cuba, Epifania said. To drill one well even in coastal waters, Brasoil had to sign more than 70 contracts and bring in machinery from Venezuela, Trinidad and Tobago, Canada and Europe.

“What would normally take three years, you can calculate five here,” said Epifania. “We are only 90 miles from the United States, but it’s as if that country doesn’t exist.”