In an era in which the world must necessarily opt for clean energy to survive, Cuba produces 45,000 barrels of crude oil everyday and three million cubic meters of natural gas, supplying hydrocarbon fuels and meeting half of the national demand for electricity.
Given that the Cuban Petroleum Union, Cupet, has the difficult task of sustainably developing the energy sector and assuring self-sufficiency in oil and its derivatives, the company is focused on maintaining annual production around four million tons of oil equivalent, which has been achieved since the beginning of the 21st century on the island. Efforts are directed not so much toward increasing this amount, at this time, but toward maintaining it.
An aside is needed to clarify that oil equivalent is a term used to describe the amount of gas or oil needed to generate the same quantity of electricity. Cuba produces 75,000 barrels of oil equivalent every 24 hours, since along with every barrel of crude oil, between 60 and 75 cubic meters of gas are produced.
Responsible for exploration, production, imports, and exports of hydrocarbons; refining of crude oil; the manufacture of lubricant grease and oils; the wholesale distribution of fuel and lubricants; and the retail sales of domestic fuel, Cupet includes 36 state enterprises and five joint ventures, and is obliged to keep its eyes on what occurs on the world market.
A DIFFICULT INTERNATIONAL PANORAMA
The recession which in 2015 led to lower oil prices weakened a significant section of the world economy, and discouraged investment in the industry of the historically coveted resource, that has been called “black gold”.
In Cuba, 2016 was projected as a year in which the demand for energy would increase. The growth of private businesses, foreign investment, and the expanding tourist industry, are factors which have had a direct impact on demand, requiring that efficiency in the exploitation of these resources be maintained at the current level of over 98%, according to Roberto Suárez Sotolongo, Cupet adjunct director.
Amidst such a situation, the nation must develop the oil industry using a diverse gamut of strategies. Thus Cupet simultaneously handles large volumes of its own production, as well as imports. For example, gasoline is one product that is rarely imported, since a relatively small amount is used in the country. Suárez reported that gasoline represents only 5% of the company's domestic sales, and is almost entirely produced in Cuba.
FIVE YEAR PROJECTIONS
In addition to the search for sustainable growth in domestic production, projections through 2030 for Cuba's state oil company, founded in 1992, include raising the volume of crude extracted from reserves on land and in the country's territorial waters, and maximizing the exploitation of existing wells with the introduction of improved technology, called enhanced oil recovery (EOR).
According to Cupet's head of exploration, Osvaldo López Corzo, EOR will allow for the extraction of 90% of the oil in these wells, especially in the Heavy Crude North Coast Field, which includes an area of 750 square kilometers between Havana and Varadero (Matanzas), where practically all of Cuba's domestic oil is extracted.
The Varadero Field is the area's most important, which, after more than 15 years in operation, still holds millions of barrels of crude, López reported, since only six or seven percent of its total reserves have been extracted thus far.
At the same time, Cupet would like to accelerate exploration, evaluation, and development of its Exclusive Economic Zone (EEZ) in the Gulf of Mexico; initiate exploration in the central-eastern region of the country; and conclude a first expansion of the Cienfuegos refinery, currently underway.
There are presently four refineries in Cuba. Along with the aforementioned, are those in Havana, Sancti Spíritus and Santiago de Cuba.
Cupet is a state enterprise group affiliated with the Ministry of Energy and Mines, and is organized in three regional enterprises, one for drilling and well maintenance, plus an offshore division. It is authorized to carry out all operations within the oil industry in Cuba, and during the next few years will focus on the modernization of its refining facilities and the use of liquefied natural gas as an energy source in the country.
Other immediate goals are raising the quality of Cuban petroleum products to meet international standards; expanding the country’s fuel storage capacity; rationalizing the industry’s logistics costs; and increasing joint production with international partners.
CUBAN OIL IN NUMBERS
Cuba’s oil company is a regional leader, which has quality control, security, professionalism, and respect for the environment as its principal attributes, and possesses infrastructure which continues to grow.
Its assets range from oil fields, production companies, collection centers, treatment plants, and pipelines, to refineries and natural gas processing facilities.
Cupet is likewise responsible for the exploration of 45 blocks on land and in territorial waters.
López, also a geologist, reported that Cuba generates more than 95% of its electricity with fossils fuels, that is with fuel oil and natural gas in thermoelectric plants. Fuel oil is number one, used to generate 45% of the country’s demand, as compared to 3.7% generated with the use of biomass, and less than 1% with other renewable resources: wind, solar, hydroelectric, etc.
Cupet management reported that, as of the end of 2015, 14.1% of the nation’s electricity was generated with natural gas, noting that of the total amount of gas produced, two thirds is used for the generation of electricity. The rest is allocated for domestic use in Havana.
The transportation of oil and its derivatives around the island is accomplished via a variety of means: 48% is distributed by sea; 28% via pipelines; 13% by rail; and 11% in trucks, Suárez explained.
FOREIGN INVESTMENT
The energy industry is looking to take advantage of Cuba’s new Foreign Investment Law, although partnerships have existed for some time in oil. Since 1992, 42 Petroleum Sharing Agreements (PSA) have been signed, the first, in fact, for the exploitation of fields south of Varadero.
Noteworthy among the proposals offered by this sector to investors from abroad are those related to exploration and production within the country’s Exclusive Economic Zone, inland and offshore; as well as enhanced recovery projects in existent wells; plus work in non-conventional fields.
The National Office of Mineral Resources certifies potential investors, while Cupet can provide financial services, engineering, and technical support, plus technology, equipment, and industrial resources.
While the principal terms of such contracts are defined within a special regimen, flexibility exists. A PSA can remain in effect for a period of 25 to 35 years; taxes are not paid for the first eight years, be they municipal, regional, or those on the repatriation of earnings or products. Bonuses are not paid upon signing, and taxes are levied by the National Tax Administration only on net annual earnings.
In the opinion of Cupet’s adjunct director, government support, the company’s experience as a partner, and the availability of qualified personnel are the most significant advantages offered foreign investors interested in the country’s oil industry.
To these features, Suárez adds the existence and potential of significant petroleum resources; the country’s political and social stability; an attractive fiscal system; in addition to transparency in terms of policies and standards, among other advantages.
Canada, Russia, Venezuela, Australia, and Algeria are among countries which have worked in Cuba’s energy sector, with the Canadian company Sherritt being the largest international investor.
A POTENTIALLY OIL-RICH AREA
It must be kept in mind that enhanced recovery projects, the development of non-conventional oil reserves, and offshore exploration all require advanced technology, which is in the hands of transnational oil companies. These are the most feasible means to avoid an abrupt fall in Cuban oil production, and the consequent impact on the country’s ability to generate electricity. Thus, the nation’s Exclusive Economic Zone in the Gulf of Mexico is a great hope.
This EEZ, covering approximately 2,000 square kilometers, includes 59 deep water blocks, and has been open to foreign investment since 1999. Four exploratory wells have been drilled, one in 2004 and three in 2012, all revealing positive signs of petroleum, Suárez explained.
Once a regional evaluation of potential hydrocarbons has been conducted under Cupet direction, scientific arguments with a certain degree of validity, depending on the areas investigated, will allow a determination to be made if the area has strong potential.
Suárez reported that, among other data, the geological structure of the zone is known; along with the thickness of sedimentary rock and its characteristics; the level of bedrock; and estimated potential for hydrocarbons.
Nonetheless, only when development wells are drilled, to actually extract oil, will the quantity and quality of oil in each field be proven. The geologist Osvaldo López adds that when such wells are drilled, industry-wide there is a 10% chance of success; 90% of the time, there isn’t much oil.
