Cuba's Oil Quest to Continue, Despite Deepwater Disappointment

An unusual high-tech oil-drilling rig that’s been at work off the coast of Cuba departed last week, headed for either Africa or Brazil. With it went the island nation’s best hope, at least in the short term, for reaping a share of the energy treasure beneath the sea that separates it from its longtime ideological foe.

For many Floridians, especially in the Cuban-American community, it was welcome news this month that Cuba had drilled its third unsuccessful well this year and was suspending deepwater oil exploration. While some feared an oil spill in the Straits of Florida, some 70 miles (113 kilometers) from the U.S. coast, others were concerned that drilling success would extend the reviled reign of the Castros, long-time dictator Fidel and his brother and hand-picked successor, Raúl.

“The regime’s latest efforts to bolster their tyrannical rule through oil revenues was unsuccessful,” said U.S. Representative Ileana Ros-Lehtinen, a Florida Republican who chairs the House Foreign Affairs Committee, in a written statement.

But Cuba’s disappointing foray into deepwater doesn’t end its quest for energy. The nation produces domestically only about half the oil it consumes. As with every aspect of its economy, its choices for making up the shortfall are sorely limited by the 50-year-old United States trade embargo.

At what could be a time of transition for Cuba, experts agree that the failure of deepwater exploration increases the Castro regime’s dependence on the leftist government of Venezuela, which has been meeting fully half of Cuba’s oil needs with steeply subsidized fuel. And it means Cuba will continue to seek out a wellspring of energy independence without U.S. technology, greatly increasing both the challenges, and the risks.

Rigged for the Job

There’s perhaps no better symbol of the complexity of Cuba’s energy chase than the Scarabeo 9, the $750 million rig that spent much of this year plumbing the depths of the Straits of Florida and Gulf of Mexico. It is the only deepwater platform in the world that can drill in Cuban waters without running afoul of U.S. sanctions. It was no easy feat to outfit the rig with fewer than 10 percent U.S. parts, given the dominance of U.S. technology in the ultra-deepwater industry. By some reports, only the Scarabeo 9’s blowout preventer was made in the United States.

Owned by the Italian firm Saipem, built in China, and outfitted in Singapore, Scarabeo 9 was shipped to Cuba’s coast at great cost. “They had to drag a rig from the other side of the world,” said Jonathan Benjamin-Alvarado, a University of Nebraska professor and expert on Cuba’s oil industry. “It made the wells incredibly expensive to drill.”

Leasing the semisubmersible platform at an estimated cost of $500,000 a day, three separate companies from three separate nations took their turns at drilling for Cuba. In May, Spanish company Repsol sank a well that turned out to be nonviable. Over the summer, Malaysia’s Petronas took its turn, with equally disappointing results. Last up was state-owned Petróleos de Venezuela (PDVSA); on November 2, Granma, the Cuban national Communist Party daily newspaper, reported that effort also was unsuccessful.

It’s not unusual to hit dry holes in drilling, but the approach in offshore Cuba was shaped by uniquely political circumstances. Benjamin-Alvarado points out that some of the areas drilled did turn up oil. But rather than shift nearby to find productive—if not hugely lucrative—sites, each new company dragged the rig to an entirely different area off Cuba. It’s as if the companies were only going for the “big home runs” to justify the cost of drilling, he said. “The embargo had a profound impact on Cuba’s efforts to find oil.”

Given its prospects, it’s doubtful that Cuba will give up its hunt for oil. The U.S. Geological Survey estimates that the waters north and west of Cuba contain 4.6 billion barrels of oil. State-owned Cubapetroleo says undiscovered offshore reserves all around the island may be more than 20 billion barrels, which would be double the reserves of Mexico.

But last week, Scarabeo 9 headed away from Cuban shores for new deepwater prospects elsewhere. That leaves Cuba without a platform that can drill in the ultradeepwater that is thought to hold the bulk of its stores. “This rig is the only shovel they have to dig for it,” said Jorge Piñon, a former president of Amoco Oil Latin America (now part of BP) and an expert on Cuba’s energy sector who is now a research fellow at the University of Texas at Austin.

Many in the Cuban-American community, like Ros-Lehtinen—the daughter of an anti-Castro author and businessman, who emigrated from Cuba with her family as a child—hailed the development. She said it was important to keep up pressure on Cuba, noting that another foreign oil crew is heading for the island; Russian state-owned Zarubezhneft is expected to begin drilling this month in a shallow offshore field. She is sponsoring a bill that would further tighten the U.S. embargo to punish companies helping in Cuba’s petroleum exploration. “An oil-rich Castro regime is not in our interests,” she said.

Environmental, Political Risks

But an energy-poor Cuba also has its risks. One of the chief concerns has been over the danger of an accident as Cuba pursues its search for oil, so close to Florida’s coastline, at times in the brisk currents of the straits, and without U.S. industry expertise on safety. The worries led to a remarkable series of meetings among environmentalists, Cuban officials, and even U.S government officials over several years. Conferences organized by groups like the nonprofit Environmental Defense Fund (EDF) and its counterparts in Cuba have taken place in the Bahamas, Mexico City, and elsewhere. The meetings included other countries in the region to diminish political backlash, though observers say the primary goal was to bring together U.S. and Cuban officials.

EDF led a delegation last year to Cuba, where it has worked for more than a decade with Cuban scientists on shared environmental concerns. The visitors included former U.S. Environmental Protection Agency administrator William Reilly, who co-chaired the national commission that investigated BP’s 2010 Deepwater Horizon disaster and spill of nearly 5 million barrels of crude into the Gulf of Mexico. They discussed Cuba’s exploration plans and shared information on the risks.

“We’ve found world-class science in all our interactions with the Cubans,” said Douglas Rader, EDF’s chief oceans scientist. He said, however, that the embargo has left Cubans with insufficient resources and inexperience with high-tech gear.

Although the United States and Cuba have no formal diplomatic relations, sources say government officials have made low-profile efforts to prepare for a potential problem. But the two nations still lack an agreement on how to manage response to a drilling disaster, said Robert Muse, a Washington attorney and expert on licensing under the embargo. That lessens the chance of a coordinated response of the sort that was crucial to containing damage from the Deepwater Horizon spill, he said.

“There’s a need to get over yesterday’s politics,” said Rader. “It’s time to make sure we’re all in a position to respond to the next event, wherever it is.”

In addition to the environmental risks of Cuba going it alone, there are the political risks. Piñon, at the University of Texas, said success in deepwater could have helped Cuba spring free of Venezuela’s influence as the time nears for the Castro brothers to give up power. Raúl Castro, who took over in 2008 for ailing brother Fidel, now 86, is himself 81 years old. At a potentially crucial time of transition, the influence of Venezuela’s outspoken leftist president Hugo Chávez could thwart moves by Cuba away from its state-dominated economy or toward warmer relations with the United States, said Piñon.

Chávez’s reelection to a six-year term last month keeps the Venezuelan oil flowing to Cuba for the foreseeable future. But it was clear in Havana that the nation’s energy lifeline hung for a time on the outcome of this year’s Venezuelan election. (Chávez’s opponent, Henrique Capriles Radonski, complained the deal with Cuba was sapping Venezuela’s economy, sending oil worth more than $4 billion a year to the island, while Venezuela was receiving only $800 million per year in medical and social services in return.)

So Cuba is determined to continue exploring. Its latest partner, Russia’s Zarubezhneft, is expected to begin drilling this month in perhaps 1,000 feet of water, about 200 miles east of Havana. Piñon said the shallow water holds less promise for a major find. But that doesn’t mean Cuba will give up trying.

You can return to the main Market News page, or press the Back button on your browser.