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Last Updated: Thursday, 13 November, 2003, 18:30 GMT
Cuba's new oil industry

By Tom Fawthrop
reporting from Havana, Cuba

Cuba's fast-improving energy sector - with domestic oil production now at 4.1m tons a year and accounting for 80% of the country's electricity needs - is expected to eventually ease the country's current economic woes.

Shop where rations can be obtained
Food and other consumer goods are strictly rationed
The Cuban economy has been crippled since the end of Soviet oil subsidies in 1990, which also spelled the end of mass sugar exports which were subsidised by the USSR.

Since then, the economy has grown increasingly dependent on tourism in order to gain hard currency to pay for needed imports, forcing strict rationing.

But with domestic oil and natural gas production growing at 10% a year, Cuba has begun to meet most of its energy needs without the need for imports.

Now it is also opening its offshore oilfields to foreign development.

Foreign oil companies are actively engaged in offshore exploration in the Gulf of Mexico, with six blocks awarded to Spain's Repsol and an adjacent four blocks being drilled by Canada's Sherritt Corporation in Cuba's exclusive zone of 112,000 square kilometres.

The Brazilian state-owned oil company Petrobras has opened an office in Havana to discuss new drilling in 10 blocks in the Gulf.

Those discussions have now narrowed down on two blocks and an agreement is thought to be imminent.

The scaling down of Petrobras's plans may have something to do with a previous drilling attempts in a different location two years ago which proved abortive, although geological experts consider there is a good chance that there are some oil reserves in the region.

UK firms

Nutec, a UK company based in Aberdeen, has signed a contract with the Cuban government to train 100 Cuban engineers in operational skills and safety in the management of offshore oil-rigs, in preparation for the day when light crude oil starts to flow for the first time in the Cuban zone of the Gulf of Mexico.

Petrobras workers offshore in Cuba
Petrobras carried out the first oil exploration in the Gulf
The first batch of ten Cubans have started the training course in Aberdeen.

The British Ambassador in Havana, Paul Hare, told the BBC that "this kind of UK-Cuba cooperation fits very well with our policy of constructive engagement," in contrast to Washington's policy of continuing to impose a 41-year old trade embargo.

Economic salvation

The high density domestic crude oil that now provides 90% of Cuba's electricity needs has forced power stations to introduce costly conversions to cope with its high sulphur content.

But the long term savings in foreign exchange and the reduction in power cuts are expected to provide a considerable boost to the economy.

The island's continuing black-outs are no longer due to fuel shortages, but the result of inadequate maintenance of transmission lines plus increasing demand from the tourist sector and hotels.

Transport roadblock

The transportation sector also desperately needs increased fuel supplies in order to achieve full normalisation.

Old car passes revolutionary slogan in Havana
Transportation is ancient and petrol is lacking
The country has the technology to extract biomass from sugar-cane production and intends to utilise such new energy sources in the future.

For the moment, Cuba largely depends for those needs on imports of light crude from Venezuela, which provides preferential rates to Caribbean countries under the San Jose Agreement.

In addition, a wide-ranging bilateral agreement between the two countries has enabled Cuba to pay partly in cash, and partly in training and medical services for the oil.

Several thousand doctors, and hundreds of teachers, engineers and sports trainers have been dispatched to assist Venezuela's development programmes in return for 53,000 barrels of oil per day being shipped to Cuba over a five year period.

And oil experts from Venezuela have come to Cuba to help develop the domestic oil industry and to adapt its power stations, as well as advising on its offshore development.

Tourism industry

With the decline and restructuring of the sugar industry, Cuba is now dependent on its growing tourism industry for hard currency to keep the country afloat, plus the export of nickel and some other minerals.

The island economy is pinning its hopes on striking oil in the Gulf of Mexico to garner oil for export in order to invest more in the country's creaking infrastructure and fund the country's comprehensive free education and health system.

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