President Obama’s decision to normalise relations with Cuba could have an impact on offshore drilling in Cuban deep water. After a half century of isolation, the island will soon be able to use the latest technology developed by US firms.

Meanwhile, the US embargo and weak global oil prices will prevent any substantial development soon, but it is expected there will be a gradual move in oil supplies to Cuba and later a nascent oil industry on the island.

The new course taken by Washington towards Havana has surprised everyone! Although it was expected and more likely as time was passing, but the schedule was unknown. On December 17, 2014, one of the beautiful winter days in Caribbean region, Barack Obama and Raul Castro agreed to restore full diplomatic relations after half a century of frozen ties.

An economic decision at its core

President Obama’s new policy falls short of lifting the trade embargo. US sanctions are codified in legislation since the Helms- Burton Act of 1996. Still, the White house can take step to change this policy by allowing more interaction between the two countries. These steps forward will significantly soften restrictions toward Cuba and will receive full support from businessmen and lobbies from financial, industrial and agricultural sectors.

They all want to trade and invest in unspoiled Cuban market, just 90 miles away from Florida. In fact, interest for the Cuban market has skyrocketed since the launch of economic reforms by President Raul Castro in 2010. Now it’s a step clearer that sooner and not so much later, US sanctions will be lifted.

Oil and gas will be the core issue in the new relationship between Washington and Havana. At the centre of this geopolitical chessboard will be found the peaceful Gulf of Mexico’s waters. Under this warm sea straddled by United States, Mexico and Cuba, may lie huge reserves of black gold. The US Geological Survey estimated a mean of 4.6bn barrels of undiscovered oil reserves, a mean of 9.8tn cubic feet of undiscovered natural gas and a mean of 900mn barrels of undiscovered natural gas liquids in the North Cuba Basin.

The Cuban government estimates the hydrocarbon resources hidden in its offshore waters as between 5-9bn barrels. Cuba’s economic zone located in Gulf of Mexico, which is as large as 112,000km2, is divided into 59 oil blocks, while 22 have already been assigned to international oil firms, including PDVSA (Venezuela), Sonangol (Angola) and CNPC (China).

So far all attempts to discover crude oil in Cuban deep water have failed. Strong currents from Gulf Stream, compact geological formation and five decades of US embargo have significantly complicated all exploration campaigns. Sanctions on Cuba prohibit the use of products that contain more than ten per cent of US components. Without using advanced technologies, oil reserves hidden in deep water are hardly reachable and explorations are more costly. According to Jorge Piñon, an expert on Cuban oil sector, US embargo generates 15 to 20 per cent additional cost for oil exploration.

Meanwhile, the prospect of finding oil off Cuba’s northern coast has attracted a couple of foreign oil companies. To avoid US embargo, foreign firms used Scarabeo-9 oil rig, made in China on behalf of Saipem. Scarabeo-9 oil rig was designed to challenge several constraints: drilling in deep water, meeting US regulations on Cuba and protecting the environment, essential since the oil spill caused by Deep Water Horizon in 2010.

Scarabeo-9 oil rig generates a wave of hope. This new optimism gets stronger when companies started to look for oil. In January 2012, Spanish oil giant Repsol, in consortium with Norwegian oil and gas company Statoil and India’s ONGC, used Scarabeo-9 oil rig to drill an exploratory well. But the hope collapse as it appeared that the well was dry. Repsol suspended its operations in May 2012, and thereafter left Cuba in 2013.

Moreover, new tentative efforts by PDVSA (Venezuela) and Petronas (Malaysia) were also unsuccessful. The well drilled by Petronas was not commercially viable. Without any success, Scarabeo-9 oil rig left Cuba in November 2012. Despite all these setbacks, interests continue for Cuban offshore. The Angolan oil company Sonango will drill an exploratory well this year.

The failure of explorations campaigns is not surprising. Technological constraints and prohibitive costs have led the oil companies to drill only one exploratory well, where it would be better to drill several wells, best way to increase the probability to find commercially viable wells.

Without any offshore oil discovery and with sour crude oil production from its on-shore fields, Cuba is highly dependent on crude oil imports coming mainly from regional ally Venezuela. Caracas provides nearly 115,000 barrels/day to Havana, which meets two-thirds of the island’s consumption. However, the slump in oil prices, wherein crude oil has lost half of its value since June 2014, has put pressure on Venezuelan economy. Therefore, Caracas can hardly maintain its generous oil diplomacy towards ALBA countries (Alianza Bolivariana para los Pueblos de Nuestra América) together with bountiful social policies towards its population. Both policies are not anymore sustainable as oil prices plunged. In these circumstances, Venezuela will soon have no other choice but to reduce its subsidised oil deliveries to ALBA countries. For Cuba, these growing constraints on Venezuelan budget increase the risk for its own energy security.

New ‘Great Game’

But Cubans have a lucky star! After been supported by USSR, Venezuela, Brazil and Russia (all three countries are now passing economic turbulences), United States, which became one of the biggest oil producers since its shale revolution, is going to re-establish its official ties with Havana. Normalisation between US and Cuba will generate a new ‘Great Game’ as the one mentioned by Regis Genté (Monde Diplomatique, June 2007) about Caucasus and Central Asia regions. This New ‘Great Game’ in Caribbean Region that will occurs in the Southern borders of United States, between Texas and Florida, is likely to shake up the regional energy scheme. The tropical New ‘Great Game’ will probably take place in three steps: First, energy flows will gradually move, as US may progressively provide Cuba with ‘steady and cheap oil,’ by substitution to Venezuelan crude oil, which will become ‘less sure and less abundance.’

Once the embargo will be lifted, Cuban oil production from on-shore fields will increase, thanks to better oil-recovery technologies. According to Jorge Piñon, quoted by Reuters, “Better technologies will help Cuba to increase by 50 per cent of its on-shore production, from 50,000 barrels/day to 75,000 barrels/day”. A nascent oil industry in Cuba will be a new source of growth.

In long run, Cuba will experience a fast demand growth for energy. Greater energy needs in Cuba will increase the government desire to reduce its oil dependency and secure its energy supply.

Without US sanctions, offshore exploration will be easier. Besides, the use of advanced technology will increase the chances to find commercially viable wells. In the new context, offshore blocks acquisition will become an expensive auction game where US oil companies may grab all interesting places.

The big question is, can Cuba become a bigger oil producer? Possible, but after couple of years, if offshore explorations are successful. Who could believe, ten years ago, that US would become one of the main oil producers, and probably a future oil exporter? Likewise, who can forecast which path Cuba will take over the next ten years? But what is for sure, it is that once this path will be well known, it will be too late for those who are still hesitant about changes that are gradually occurring in Cuba. US-Cuba normalisation, more than a geopolitical turn, could also shift the regional energy scheme.

[Felix Mwenetombwe is the general manager of Carilink Corporation, a consulting firm focused on Central America and the Caribbean regions. He is a former French diplomat in Havana, Cuba. The views and opinions expressed in this column are solely those of the author and do not necessarily represent those of Muscat Daily]