Trinidad and Tobago looks to export energy services to Cuba

Nov 13, 2008 01:00 AM

US President-elect Barack Obama has made it clear that he will advance a new policy towards Cuba, based around dialogue and diplomacy.
The Government has called for the US to remove its trade embargo and to enter into a new era in its Cuba relations.

One of the interesting factors in US relations with Cuba has been the issue of oil and gas exploration and development. The possibility of large hydrocarbon deposits being present in the waters between Cuba and the US has led to considerable interest from both business and policymakers and over the past couple of years legislative attempts have been made to exempt the energy services sector from the trade embargo.
For now, however, US-based service companies are not able to operate in Cuba. At the same time there is a growing demand for energy services as a number of international oil and gas exploration companies undertake exploration programmes or implement investment plans to increase current oil production.

Development of oil reserveshas become a central pillar of Cuba's economic expansion plans and a number of independent analysts have identified the energy sector as the most attractive area for investment in Cuba.
This situation presents an interesting and potentially lucrative opportunity for energy service companies from Trinidad and Tobago to enter the Cuban market, where they will not yet face competition from the US-based service companies. Potentially, this means that Trinidad and Tobago companies could also be well placed to take advantage of any future increase in business associated with new investment if and when the US embargo is eventually removed.

In order to take advantage of these opportunities, the South Trinidad Chamber of Industry and Commerce will be hosting an energy services trade mission to Cuba. Since the mid-1990s, Cuba has generally been open to direct foreign investment in some key economic sectors, especially tourism and energy. There are now reportedly companies from 50 countries doing business in Cuba.
While the process of economic reform has been proceeding slowly there are increasing opportunities in some sectors of the Cuban economy, though heavy Government bureaucracy can make doing business a difficult task.

Opportunities in energy services
Despite these problems, there is opportunity for growth and expansion in certain underdeveloped and developing markets such as the energy services sectors. Current companies doing business in Cuba may have the advantage, with the elimination of competition from US enterprises, of gaining first-mover advantage in the Cuban markets.
With both fairly significant potential hydro-carbon resources and a population of 11 mm people requiring energy, Cuba presents an interesting opportunity for energy service companies. Exporting energy services to Cuba could certainly be a strategic move for some Trinidadian companies as the Cuban market is currently underserved.

Current reserves and production
According to the US Energy InformationAgency (EIA), crude oil production in Cuba increased from under 20,000 bpd in the early 1990s to a high of almost 70,000 bpd in 2004. Since then crude oil production has fallen back to just over 50,000 bpd, but has stabilised at this level for the past couple of years.
There are conflicting reports on the possible extent of potential oil reserves in Cuba's offshore basins, with the US Geological Survey's "World Petroleum Assessment" reporting just under 500 mm barrels of oil as the total basin potential for Cuba, while the EIA cites "industry analysts" as reporting that there could be at least 1.6 bn barrels of crude oil reserves in these basins, in a recent Caribbean energy fact sheet.

International interest
Whatever the specific estimates, it is clear that there has been considerable excitement over exploration activities in Cuba's offshore basins, especially its portion of the Gulf of Mexico. However, exploration activities have, so far, been somewhat disappointing. In July 2004, Repsol-YPF announced that its exploratory well in the Gulf of Mexico had discovered high-quality crude oil, however the company noted that it had not discovered commercially viable quantities. Repsol is due to drill further exploration wells in 2009.
In 2007, Cupet and Venezuela's PdVSA concluded an agreement to jointly explore Cuba's offshore areas, and the country has signed other exploration agreements with Malaysia's Petronas, India's OVL, and Vietnam's PetroVietnam. Petrobras, Brazil's state-run oil company, recently signed an $ 8 mm agreement to explore for oil in deep waters north of Cuba.

The Canadian-based Sherritt International has long-standing operations in Cuba. Sherritt holds 40 to 100 % working interest in seven production-sharing contracts and derives most of its production from oil fields located at Yumuri, Varadero, Canasi, and Puerto Escondido along the north coast of Cuba between Havana and Cardenas. Sherritt believes that there is potential for growth in Cuba's oil and gas industry, and its primary focus will be to continue investing in its Cuban production and reserve base.
The corporation plans to grow its production through ongoing development drilling and by implementing heavy oil recovery technologies proven in western Canada and other jurisdictions.

These investments into the upstream oil and gas sector will obviously lead to opportunities for Trinidadian firms to export services in areas like drilling and completions, equipment supply and consulting services. Trinidadian experience in heavy oils will also be an advantage, given the composition of much of the expected production.
In addition, significant investment is required into Cuba's aging and unreliable electricity generation sector, leading to some potential opportunities for engineering and maintenance firms.

Energy services trade mission
The STCIC is working closely with the Government-funded Tidco Trade Facilitation Office based in Havana, Cuba, to plan an appropriate business agenda forthe visiting companies.
The trade facilitation office is actively trying to secure meetings with relevant companies, chambers of commerce, the ministry responsible for energy in Cuba and the ministry responsible for foreign investment in Cuba.

Source / STCIC
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