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Sunday, December 12, 2010

Cuba’s Offshore Oil Development: Background and U.S. Policy Considerations

Neelesh Nerurkar
Specialist in Energy Policy

Mark P. Sullivan
Specialist in Latin American Affairs

Cuba is moving toward development of its offshore oil resources. While the country has proven oil reserves of just 0.1 billion barrels, the U.S. Geological Survey estimates that offshore reserves in the North Cuba Basin could contain an additional 4.6 billion barrels of undiscovered technically recoverable crude oil. The Spanish oil company Repsol, in a consortium with Norway’s Statoil and India’s Oil and Natural Gas Corporation, is expected to begin offshore exploratory drilling in 2011, and a number of other companies are considering exploratory drilling. At present, Cuba has six offshore projects with foreign oil companies while two more projects are being negotiated. If oil is found, some experts estimate that it would take at least three to five years before production would begin. While it is unclear whether offshore oil production could result in Cuba becoming a net oil exporter, it could reduce Cuba’s current dependence on Venezuela for oil supplies.

In the aftermath of the Deepwater Horizon oil spill in the Gulf of Mexico, some Members of Congress and others have expressed concern about Cuba’s development of its deepwater petroleum reserves so close to the United States. They are concerned about oil spill risks and about the status of disaster preparedness and coordination with the United States in the event of an oil spill. Dealing with these challenges is made more difficult because of the longstanding poor state of relations between Cuba and the United States. If an oil spill did occur in the waters northwest of Cuba, currents in the Florida Straits could carry the oil to U.S. waters and coastal areas in Florida, although a number of factors would determine the potential environmental impact. If significant amounts of oil did reach U.S. waters, marine and coastal resources in southern Florida could be at risk.

With regard to disaster response coordination, the United States and Cuba are not parties to a bilateral agreement on oil spills. While U.S. oil spill mitigation companies can be licensed by the Treasury and Commerce Departments to provide support and equipment in the event of an oil spill, some energy and policy analysts have called for the Administration to ease regulatory restrictions on the transfer of U.S. equipment and personnel to Cuba that would be needed to combat a spill. Some have also called for more formal U.S.-Cuban government cooperation and planning to minimize potential damage from an oil spill. Similar U.S. cooperation with Mexico could be a potential model for U.S.-Cuban cooperation, while two multilateral agreements on oil spills under the auspices of the International Maritime Organization also could provide a mechanism for some U.S.-Cuban engagement on oil pollution preparedness and response.

Beyond U.S.-Cuban cooperation in anticipation of an oil spill, some U.S. businesses and policy groups have called for Congress and the Administration to allow U.S. investment in Cuba’s offshore oil sector, while others oppose any support for the development of Cuba’s offshore oil reserves. In the 111th Congress, legislative initiatives reflected two contrasting policy approaches toward Cuba’s development of its offshore oil reserves. One approach, as reflected in S. 774, H.R. 1918, and S. 1517, would allow for U.S. involvement in Cuba’s offshore oil sector, while a second approach, as reflected in H.R. 5620, would impose sanctions on foreign companies and individuals who assist the development of Cuba’s petroleum resources and would not affect current prohibitions on U.S. firms’ economic dealings with Cuba. Interest in Cuba’s offshore oil development is likely to continue in the 112th Congress, especially if exploratory drilling begins as anticipated in 2011.

Date of Report: November 29, 2010
Number of Pages: 19
Order Number: R41522
Price: $29.95

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