NS4054 Fall Term 2015 Cuban Energy Security

Cuban Energy Security I December 17, 2014 announcement between President Obama and Raul Castro of plans to normalize U.S. Cuban relations. Will be a difficult process. Cuban oil needs and rising U.S. shale production could be a factor in driving progress Enlightened self interest could overcome entrenched political views in both countries to drive progress in the normalization process Given rising shale output, US companies will be interested in exporting oil products and gas to Caribbean markets Oxford Analytica, Cuba: Oil Politics May Strengthen US Rapprochement, February 26, 2015

Cuban Energy Security II U.S. exports to Cuba could potentially begin to weaken bilateral ties between Cuba and Venezuela over the long term. Heavily embargoed since he U.S. broke off diplomatic relations over 50 years ago, Cuba relied on the Soviet Union for oil supplies until its collapse. Then it suffered extreme austerity until the late 1990s when Hugo Chavez became president of Venezuela An agreement to supply much needed Venezuelan oil to Cuba soon followed. In 2014 Cuba consumed 170,000 b/d of oil, producing just under 50,000 b/d Around 100,000 b/d came from Venezuela heavily subsidized

Cuban Energy Security III Cuban oil development With oil reserves of only 124 million barrels Cuba tried unsuccessfully to develop its offshore oil Problems Poor geology and US embargo constraints Any drilling equipment with over 105 US content cannot be sold to Cuba or used in Cuba Foreign companies including Brazil’s Petrobras, Spanish Repsol, Malaysian Petronas and Venezuelan PDVSA Have failed to find commercial oil

Cuban Energy Security IV Venezuelan Connection Relationship between Chavez and Fidel Castro developed into a controversial exchange of strategic resources at a time of rising prices Cuba provided expertise in a number of areas – medical services, and Venezuela becoming Cuba’s major oil supplier on highly advantageous terms. With low oil prices expected to last for at least several years, difficult to see how Venezuela can avoid reducing sales of subsidized oil to Cuba and members of Petrocarbe On other hand, should Cuba be forced to seek alternative sources of supply in the current context, the immediate financial impact would be less severe than in a high oil price scenario

Cuban Energy Security V Oil and geopolitics Cuba is aware of the implications of an oil shortage, but strategically its choices are limited: Russia also suffering from the impact of low oil prices is not well placed to help materially China might be willing to assist Cuba, but Cuba a small country with little oil is far less strategically interesting to China then Venezuela Conversely some strategic logic in U.S. encouraging trade and investment with Cuba and, weakening the link with Venezuela

Cuban Energy Security VI Problem Will take an Act of Congress to roll back the Helms-Burton legislation restricting trade with Cuba – changes unlikely to happen quickly Assessment Cuba has had only limited success in meeting its needs from domestic oil production and is very exposed to cutbacks from Venezuela U.S. oil companies will be attracted to what is potentially the largest Caribbean market and may exert political pressure on US opponents of Cuban normalization and trade growth.