Viva La Oil Revolution In Cuba!
Tuesday, November 30, 2010
First Russia and now China have joined the growing list of foreign oil
companies looking to profit from Cuba's potential oil wealth.
Earlier this month, Russian state-backed energy firm Gazprom acquired a
30% stake in four offshore oil exploration blocks offshore Cuba. And
now, a unit of China's state-run China National Petroleum Corporation
(CNPC) has won a contract to expand Cuba's Cienfuegos refinery. The deal
involves CNPC developing a power plant and petrochemicals complex and
also building a liquefied natural gas (LNG) import terminal on the same
The CNPC refinery project alone could be worth up to $6 billion and is
part of a broader programme to develop Cuba's energy sector, which has
been long held back by protectionist US sanctions. The deal is also set
to strengthen the Caribbean island's links with China and Venezuela, as
the project will be bankrolled by Chinese loans secured on Venezuelan
oil revenues. The benefit for Cuba is that such links are likely to
allow it to modernise its out-dated refining infrastructure – a process
which is long overdue.
In terms of the numbers, the Cienfuegos refinery is expected to cost a
minimum of $4.5 billion while the LNG terminal would cost an additional
$1.3 billion. Such a high degree of investment by the Chinese – if
completed – could well mark one of the largest ever investments in the
Cuban nation. And as things stand, work on the project is expected to
start at the start of next year, with completion expected by the end of
On a more qualitative level, the move marks a major step forward for
China in its Latin American energy plans. While for Cuba, the
modernisation of its resources stands to provide an outlet for its hopes
to drill for oil in the Gulf of Mexico, while also laying the
foundations for the Communist island to become a key oil transport hub
for the broader Caribbean basin.
The deal with Cuba follows similar deals (involving the financing of
projects and inking joint ventures) by the Chinese over the past couple
of years; with other Latin American nations such as Venezuela, Brazil
and Ecuador the partners. The aforementioned projects combined are
expected to bring it at least 500,000 barrels of crude oil per day.
Without doubt, the region has become of heightened importance in terms
of China's overseas energy security policy.
Indeed, RoseAnne Franco, at energy and mining consulting firm Wood
Mackenzie in Houston, goes as far as to say that it is a match made in
heaven: "The regions are clearly of complementary interest. China is
looking for energy security while Latin America is eager for new
consumer capital markets."
All the political jockeying aside, what is the prize at stake? Well, the
Cuban government claims to have at least 20 billion barrels of oil off
its coastline. However, external (US) estimates are rather more
moderate. The U.S. Geological Survey estimates that Cuba sits on closer
to just 5 billion barrels of oil.
Either way, should relations between Cuba and its powerful neighbour the
US ever be restored, the Caribbean nation would be perfectly positioned
to supply the energy-hungry US market. No doubt China is happy in the
knowledge that the likelihood of this happening anytime soon is rather slim.