Thursday, August 2, 2007

Venezuela, Cuba, and oil

Venezuela is joining the search for offshore oil in Cuba’s Gulf waters, it was announced yesterday. The exploration will take place in “six blocks covering some 10 thousand square kilometers,” according to Presna Latina. Meanwhile, AP cites Venezuela’s PDVSA saying the project begins tomorrow.

Presumably, that means that meetings, not actual drilling, start tomorrow. A friend in the industry points out that high oil prices are a two-edged sword for Cuba – they make deep-water exploration attractive, but they also ensure that the rigs capable of exploring in Cuba’s deep Gulf waters are tied up in other areas that, like Cuba’s, used to be economically marginal but are now worth exploring. As a result, if a company decides today to drill off Cuba’s coast, it will take more than a year for a rig to arrive and for drilling to begin.

I don’t doubt that Cuba’s prospects for finding Gulf crude are promising, but they are long term. The real action, right now, involves the enhanced recovery that is boosting oil and gas production along the coast between Havana and Varadero.

Meanwhile, today’s Miami Herald reports on the increasing importance of Venezuela’s current support.


leftside said...

How does the Herald report totally exclude the basic piece of information to explain the rising value of the oil deal - that the price of oil has skyrocketed??? Not a word about that, so readers are left to scratch their head and get even more furious at Venezuela. Could it also be that Venezuela's allowance in exploring these blocks could be worth some portion of this (ALBA) deal?? Cuba is also sending a lot more than just doctors to Venezuela. The information is secret to prevent more US sabotage.

leftside said...

All previous indications is that Cuba pays for the Venezuelan crude one way or another. The biggest help is that Venezuela is financing the oil, at a 2% rate versus what Cuba would have to pay on the open market. The deals are stretched out 17 years. This is public information, but somehow the Herald could not find it.

Also, the Herald left out the fact that total oil imports to Cuba have actually been falling since 2000. They were 4.2 million tons of imports in 2000, but just 2.9 in 2005. that tells me something about Cuba's success in its energy revolution, also that domestic production has been remping up pretty well.

leftside said...

Also the Petrocaribe deal, portrayed as only for Cuba, actually extends to 13 other Carribean countries.

I see in the details that the financing arrangements are such that as oil prices go higher more and more can be long-term financed at favorable rates. With oil where it is today that is 40% can be long term financed, at a 1% rate (not 2%). So Venezuela is providing up front cash, not oil.

The bilateral ALBA deal with Cuba explicitly says Cuba will pay the international price for petroleum.

leftside said...

Cuba has just responded, saying they pay for more than 50% of its oil bill with services. Cuban officials also said they pay the same price for Venezuelan crude as other countries.