Obama's Cuba move won't spark energy bonanza

Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.
Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.
Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.

Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.

Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.

Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.

Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.

Reason to celebrate: A man waves a Cuban flag while celebrating the restoration of diplomatic relations after a half-century of Cold War acrimony between the island nation and the US.

US President Barack Obama's decision to normalise relations between the United States and Cuba may lead to more commercial opportunities for Americans within the island nation. But don't expect US oil producers to move swiftly to take advantage of them.

Although geologists believe billions of barrels of crude may be lurking off Cuba's coast in the Gulf of Mexico, oil companies have had a hard time finding that black gold. When Repsol, Petronas and other oil companies bored exploratory wells in 2012 and 2013, they turned up dry.

In some cases, oil wasn't found, and in others, the discovery was not big enough to justify commercial development.

That discourages other oil companies from plumbing Cuba's coast, said Jorge Piñon, an oil industry veteran who directs the Latin America and Caribbean Energy Program at the University of Texas.

Some geologists "think it is worth going back and taking a second look, but now is not the time to do it," he said. "Cuba has three big strikes against it."

The poor performance of international oil companies in 2012, along with the collapse in crude prices and the high cost of doing business in Cuba are factors dissuading deep-water drilling off the country's coast - especially as Mexico auctions off competing territory in the Gulf of Mexico.

The Obama administration's actions Wednesday do not explicitly authorise US oil business in Cuba and focus mainly on reestablishing diplomatic relations and permitting more travel between the countries. But in outlining the changes, Obama stressed that "American businesses should not be put at a disadvantage."

"Increased commerce is good for Americans and for Cubans," Obama added.

Separately, the White House noted in a fact sheet that longstanding policy against Cuba has at times "isolated the United States from regional and international partners (and) constrained our ability to influence outcomes throughout the Western Hemisphere."

Those constraints were on full display during the recent deep-water drilling in Cuban waters, when companies were forced to sink wells with Saipem's Scarabeo 9, because it did not contain more than 10 per cent American-made components, a limitation embodied in the US trade embargo against Cuba.

Some lawmakers and industry experts also warned that the embargo would hamper emergency response to an oil spill or other drilling accident. Oil spill containment equipment developed after the 2010 Deepwater Horizon disaster, chemical dispersants to break up crude and boom capable of corralling it all likely would be ensnared by the embargo - at least initially - because they are made by US firms.

The Obama administration said it is prepared to invite discussions with the Cuban and Mexican governments over unresolved maritime boundaries in the Gulf. A recent agreement between the United States and Mexico has unleashed oil development and leasing in territory near the country's shared Gulf boundary.

Similar discussions with Cuba and Mexico could open up opportunities in parts of the Gulf where ownership is murky.

Although previous agreements delimit the maritime space between the United States and Cubs within 200 nautical miles from shore, both nations and Mexico have extended continental shelf in an area of the Gulf where no boundaries have been defined.

Although oil producers may have tepid interest in exploring in and around Cuba right now, drilling contractors and oilfield service companies may see opportunities there.

Cuba, too, is believed to be interested in honing its own oil production, now about 50,000 barrels a day. To meet its energy needs, Cuba also imports about 100,000 barrels of crude daily from Venezuela, but production is declining there.

"Cuba getting closer to the US is an insurance policy against the possible loss of Venezuelan support," said the UT-Austin's Piñon.

He stressed that Cuban oil projects are recovering about 10 per cent of the oil in place, but the country could boost its harvest with US technology.

"If Cuba could get US service companies Halliburton and Schlumberger to come in and give them the technological assistance they need with enhanced oil recovery, Cuba could increase that recovery factor to 17 or 20 per cent,"  Piñon predicted.

The New York Times

This story Obama's Cuba move won't spark energy bonanza first appeared on The Sydney Morning Herald.