Cuba policy changes are overdue

US oil and gas interests will benefit from renewed diplomatic relations with Cuba

Richard D. Slack, Oildex, Denver

President Obama recently ordered the reinstatement of full diplomatic relations with Cuba as well as the opening of the first embassy in Havana in more than half a century. The unexpected announcement and historic turning point came at the end of 18 months of secret talks negotiated with the help of Pope Francis.

Apparently, the pope had encouraged the talks with a series of letters written to both the US and Cuban presidents. He also asked that the Vatican host a meeting in October of this year to finalize the terms of the deal. Most recently, during a phone call lasting more than 45 minutes, President Obama discussed an agreement with President Paul Castro. This communication represented the first direct and substantive contact between the two countries in more than 50 years.

"We will end an outdated approach that for decades has failed to advance our interests, and instead we will begin to normalize relations between our two countries," President Obama said in a televised statement from the White House. The agreement, he added, will "begin a new chapter among the nations of the Americas" and move beyond a "rigid policy that is rooted in events that took place before most of us were born."

As diplomatic relations warm between the two countries, oil and gas companies may already be beginning to set their sights on the large oil reserves off Cuba's coast. As it stands, Cuba produces about 50,000 barrels per day of oil and relies on Venezuela for around another 100,000 bpd. Unfortunately Venezuela, like many other countries at the moment, is not immune to the pain from the recent drop in oil prices and could consider cutting its oil production and exports. Such a move could drastically hurt the Cuban economy. However, a renewed commitment by the US to normalize relations may allow Cuba to buy more oil on the open market. The restoration of relations may also mean that US energy companies may be able to bring their expertise to tap into the country's offshore reserves.

Pavel Molchanov, an energy company analyst with Raymond James reports "there is not going to be a Cuban oil rush." It is likely that Cuba's 124 million barrels will remain inaccessible as earlier offshore efforts by Brazilian and Malaysian companies have yielded overall unsuccessful results. However, by leveraging US oil and gas firms such as Halliburton and Schlumberger, Cuba could help boost production through better drilling technologies. This would significantly increase the amount of oil it gains from its current wells and perhaps put Cuba into a somewhat more self-sustaining state. Jorge Pinon, director of the Latin America and Caribbean Energy program at the University of Texas suggests that this could be beneficial to Cuba as they may face increased hardships if falling oil prices continue to hurt Venezuela.

ThinkProgress reports that a major leap into Cuban oil may be doubtful for economic or geological reasons, but there may be a benefit in the increase in safety measures and precautions in the drilling and refining that does take place there, including responses to any spills. Cuba borders the Gulf of Mexico and is susceptible to offshore disasters. If President Obama is successful in normalizing relations with Cuba, which means lifting the embargo, spill containment equipment developed to deal with drilling and refining accidents would not be held up as they currently are.

Lawmakers in the Republican-controlled congress have made it very clear in the weeks following the announcement that they will resist lifting the 54-year old trade embargo. At the moment the President has the support of nearly 6 in 10 Americans, the Catholic Church, the US Chamber of Commerce, Human Rights Watch, and major agricultural interest groups.

As President Obama gave his speech on Wednesday December 17, President Castro spoke simultaneously on Cuban television announcing that "we have been able to make headway in the solution of some topics of mutual interest for both nations." He declared. "President Obama's decision deserves the respect and acknowledgement of our people."

President Castro also discussed the reopening of diplomatic relations. "This is no way means that the heart of the matter has been resolved," he said. "The economic, commercial, and financial blockade, which causes enormous human and economic damages to our country, must cease." But, he added, "The progress made in our exchanges proves that it is possible to find solutions to many problems."

The future of oil and gas in Cuba is uncertain but for the first time in over 50 years, the door is open.

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