In an era in which the world must necessarily opt for clean energy to survive, Cuba produces 45,000 barrels of crude oil everyday and three million cubic meters of natural gas, supplying hydrocarbon fuels and meeting half of the national demand for electricity.

Given that the Cuban Petroleum Union, Cupet, has the difficult task of sustainably developing the energy sector and assuring self-sufficiency in oil and its derivatives, the company is focused on maintaining annual production around four million tons of oil equivalent, which has been achieved since the beginning of the 21st century on the island. Efforts are directed not so much toward increasing this amount, at this time, but toward maintaining it.

An aside is needed to clarify that oil equivalent is a term used to describe the amount of gas or oil needed to generate the same quantity of electricity. Cuba produces 75,000 barrels of oil equivalent every 24 hours, since along with every barrel of crude oil, between 60 and 75 cubic meters of gas are produced.

Responsible for exploration, production, imports, and exports of hydrocarbons; refining of crude oil; the manufacture of lubricant grease and oils; the wholesale distribution of fuel and lubricants; and the retail sales of domestic fuel, Cupet includes 36 state enterprises and five joint ventures, and is obliged to keep its eyes on what occurs on the world market.

A DIFFICULT INTERNATIONAL PANORAMA

 The recession which in 2015 led to lower oil prices weakened a significant section of the world economy, and discouraged investment in the industry of the historically coveted resource, that has been called “black gold”.

In Cuba, 2016 was projected as a year in which the demand for energy would increase. The growth of private businesses, foreign investment, and the expanding tourist industry, are factors which have had a direct impact on demand, requiring that efficiency in the exploitation of these resources be maintained at the current level of over 98%, according to Roberto Suárez Sotolongo, Cupet adjunct director.

Amidst such a situation, the nation must develop the oil industry using a diverse gamut of strategies. Thus Cupet simultaneously handles large volumes of its own production, as well as imports. For example, gasoline is one product that is rarely imported, since a relatively small amount is used in the country. Suárez reported that gasoline represents only 5% of the company’s domestic sales, and is almost entirely produced in Cuba.

FIVE YEAR PROJECTIONS

In addition to the search for sustainable growth in domestic production, projections through 2030 for Cuba’s state oil company, founded in 1992, include raising the volume of crude extracted from reserves on land and in the country’s territorial waters, and maximizing the exploitation of existing wells with the introduction of improved technology, called enhanced oil recovery (EOR).

According to Cupet’s head of exploration, Osvaldo López Corzo, EOR will allow for the extraction of 90% of the oil in these wells, especially in the Heavy Crude North Coast Field, which includes an area of 750 square kilometers between Havana and Varadero (Matanzas), where practically all of Cuba’s domestic oil is extracted.

The Varadero Field is the area’s most important, which, after more than 15 years in operation, still holds millions of barrels of crude, López reported, since only six or seven percent of its total reserves have been extracted thus far.

At the same time, Cupet would like to accelerate exploration, evaluation, and development of its Exclusive Economic Zone (EEZ) in the Gulf of Mexico; initiate exploration in the central-eastern region of the country; and conclude a first expansion of the Cienfuegos refinery, currently underway.

There are presently four refineries in Cuba. Along with the aforementioned, are those in Havana, Sancti Spíritus and Santiago de Cuba.

Cupet is a state enterprise group affiliated with the Ministry of Energy and Mines, and is organized in three regional enterprises, one for drilling and well maintenance, plus an offshore division. It is authorized to carry out all operations within the oil industry in Cuba, and during the next few years will focus on the modernization of its refining facilities and the use of liquefied natural gas as an energy source in the country.

Other immediate goals are raising the quality of Cuban petroleum products to meet international standards; expanding the country’s fuel storage capacity; rationalizing the industry’s logistics costs; and increasing joint production with international partners.

CUBAN OIL IN NUMBERS

Cuba’s oil company is a regional leader, which has quality control, security, professionalism, and respect for the environment as its principal attributes, and possesses infrastructure which continues to grow.

Its assets range from oil fields, production companies, collection centers, treatment plants, and pipelines, to refineries and natural gas processing facilities.

Cupet is likewise responsible for the exploration of 45 blocks on land and in territorial waters.

López, also a geologist, reported that Cuba generates more than 95% of its electricity with fossils fuels, that is with fuel oil and natural gas in thermoelectric plants. Fuel oil is number one, used to generate 45% of the country’s demand, as compared to 3.7% generated with the use of biomass, and less than 1% with other renewable resources: wind, solar, hydroelectric, etc.

Cupet management reported that, as of the end of 2015, 14.1% of the nation’s electricity was generated with natural gas, noting that of the total amount of gas produced, two thirds is used for the generation of electricity. The rest is allocated for domestic use in Havana.

The transportation of oil and its derivatives around the island is accomplished via a variety of means: 48% is distributed by sea; 28% via pipelines; 13% by rail; and 11% in trucks, Suárez explained.

FOREIGN INVESTMENT

The energy industry is looking to take advantage of Cuba’s new Foreign Investment Law, although partnerships have existed for some time in oil. Since 1992, 42 Petroleum Sharing Agreements (PSA) have been signed, the first, in fact, for the exploitation of fields south of Varadero.

Noteworthy among the proposals offered by this sector to investors from abroad are those related to exploration and production within the country’s Exclusive Economic Zone, inland and offshore; as well as enhanced recovery projects in existent wells; plus work in non-conventional fields.

The National Office of Mineral Resources certifies potential investors, while Cupet can provide financial services, engineering, and technical support, plus technology, equipment, and industrial resources.

While the principal terms of such contracts are defined within a special regimen, flexibility exists. A PSA can remain in effect for a period of 25 to 35 years; taxes are not paid for the first eight years, be they municipal, regional, or those on the repatriation of earnings or products. Bonuses are not paid upon signing, and taxes are levied by the National Tax Administration only on net annual earnings.

In the opinion of Cupet’s adjunct director, government support, the company’s experience as a partner, and the availability of qualified personnel are the most significant advantages offered foreign investors interested in the country’s oil industry.

To these features, Suárez adds the existence and potential of significant petroleum resources; the country’s political and social stability; an attractive fiscal system; in addition to transparency in terms of policies and standards, among other advantages.

Canada, Russia, Venezuela, Australia, and Algeria are among countries which have worked in Cuba’s energy sector, with the Canadian company Sherritt being the largest international investor.

A POTENTIALLY OIL-RICH AREA

It must be kept in mind that enhanced recovery projects, the development of non-conventional oil reserves, and offshore exploration all require advanced technology, which is in the hands of transnational oil companies. These are the most feasible means to avoid an abrupt fall in Cuban oil production, and the consequent impact on the country’s ability to generate electricity. Thus, the nation’s Exclusive Economic Zone in the Gulf of Mexico is a great hope.

This EEZ, covering approximately 2,000 square kilometers, includes 59 deep water blocks, and has been open to foreign investment since 1999. Four exploratory wells have been drilled, one in 2004 and three in 2012, all revealing positive signs of petroleum, Suárez explained.

Once a regional evaluation of potential hydrocarbons has been conducted under Cupet direction, scientific arguments with a certain degree of validity, depending on the areas investigated, will allow a determination to be made if the area has strong potential.

Suárez reported that, among other data, the geological structure of the zone is known; along with the thickness of sedimentary rock and its characteristics; the level of bedrock; and estimated potential for hydrocarbons.

Nonetheless, only when development wells are drilled, to actually extract oil, will the quantity and quality of oil in each field be proven. The geologist Osvaldo López adds that when such wells are drilled, industry-wide there is a 10% chance of success; 90% of the time, there isn’t much oil.

Continuing the analysis begun in the pages of Granma International last week, we will now focus on oil exploration and drilling in Cuba, two processes which constitute the backbone of the industry worldwide.

Before getting into details of how fossil fuels are obtained, or could be obtained, on the island, it’s worth recalling that exploration only allows for estimates about the existence of underground deposits; information is not obtained directly.

Since there is no technology or equipment that determines the presence of hydrocarbons, oil exploration is a risky business, with 80% of exploration conducted with the use of seismic techniques.

According to Osvaldo López Corzo, head of exploration for the Cuba Petroleum Enterprise Group (Cupet), exploratory wells strike oil between 8-20% of the time. In other words, for every five to 12 wells drilled, only one is successful.

Nevertheless, without exploration, there are no new fields. The geologist López insists that oil companies are obliged to take the risks implicit in exploration.

He explains that drilling is conducted to explore unknown areas, or further develop fields in use, and that these efforts are concentrated on the earth’s land surface, where sedimentary rock storing 90% of the planet’s hydrocarbons is located.

Taking into account the most advanced research available, a practice was introduced in Cuba at the end of the 1990s that revolutionized the oil industry here: horizontal drilling. López explained that in a field where a vertical well produces 100 to 200 barrels a day, a horizontal well can extract 2,000 barrels in the same amount of time.

Logically, from this moment on, all Cuban wells were drilled horizontally or almost horizontally, although this is a more complicated process. Currently, the majority of these reach a length of over 6,000 meters.

Thus it was economically feasible for a barrel of crude, costing 13 to 14 USD to produce, to be sold at 30 USD, and to use almost all of the 75,000 barrels produced daily to generate electricity, meeting half of the country’s demand for electrical energy.

Given that, over the last 12 years, Cupet has maintained only a stable level of production, and that the productivity of wells which have been in operation for more than a decade tends to decline, greater volumes are needed to meet the national economy’s needs – greater volumes which can be obtained via the deepening of some wells and by attracting foreign investment.

Cupet is in constant contact with international companies to promote exploratory projects within the country or territorial waters, in an effort to increase the production of hydrocarbons.

Ninety-nine percent of Cuban oil comes from the Heavy Crude North Coast Field, which includes an area of 750 square kilometers between Havana and Varadero (Matanzas), and Cupet plans to continue exploring since estimates indicate that there are some 11 million more barrels available there, López explained.

Given that Cuban crude is heavy and of high-viscosity, only five to seven percent of the oil underground is extracted, a figure known as the “recovery coefficient.”

Wells produce primarily with the oil flowing to the surface on its own, or with the use of different types of pumps. When the oil cannot be extracted either way, enhanced recovery methods are used, like the injection of water, chemical products, steam, or foam, which according to López Corzo, require costly financing.

Cupet adjunct director, Roberto Suárez Sotolongo, recalled that the northern field has been exploited for more than four decades now, producing more than 245 million barrels over the last 15 years.

López reported that while exploratory wells have been drilled more than 500 kilometers to the east of the North Coast Field, the majority of such activity through 2020 will be concentrated between Havana and Santa Cruz del Norte, an area which offers a high probability of striking oil, estimated at 17 to 18%.

This is possible thanks to the discovery – via exhaustive 3D seismic studies – of geological structures indicative of oil in the known fields of Boca de Jaruco, Santa Cruz, Canasí, Puerto Escondido, Yumurí, Seboruco and Varadero.

Petroleum experts have divided Cuba into two regions: North and South. While, as previously noted, most Cuban oil is produced in the northern region, there are surface features indicative of oil throughout the island, features which make visible underlying geological formations and the location of bedrock. Such characteristics exist, for example, in the provinces of Pinar del Río and Las Tunas.

Over the next five years, five or six exploratory wells will be drilled on land, and others will be drilled in areas where oil is discovered. Since the pressure is on to find deposits outside of the North Coast Field, exploration throughout the island is being followed closely.

Without projecting the use of hydraulic fracturing or fracking, which raises serious environmental concerns, Cupet is beginning extraction of non-conventional resources, and the use of non-conventional techniques.

This includes recovery of dense crude oil in highly porous rock above oilfields, which has escaped the deeper reserves.

Along these lines, Cuba has begun to use thermal methods (injecting steam to reduce viscosity and increase fluidity) and multi-connection wells are being planned, where they do not threaten the water table.

Experts agree that the best way to increase the production of natural gas is to increase the extraction of oil and obtain the accompanying gas, also a useful fuel.

Cuba’s offshore zone includes three parts: the Exclusive Economic Zone in the Gulf of Mexico; the East-Central Exclusive Economic Zone bordering Bahamian territorial waters; and the southern sea.

The most studied among these areas, with the most potential within a mega-basin well-known for its reserves, is that off the coast of Mexico.

This is not the best time for Cuba to do business in the oil industry, but Cupet does have the Canadian company Sherritt as a longstanding partner and investor.

Likewise companies in Russia, Britain, Spain, Portugal, the U.S. and Japan are currently evaluating blocks and data in both sea and land areas, which could lead to the signing of contracts in 2017.

López emphasized that the company must seek investors to operate offshore fields, since Cuba simply cannot afford them. Such foreign investment is decisive, he explained, since the cost of just one well in water 1,500 meters deep can be 200 to 300 million dollars.

“The complications lie in that, to find any deposit, at least 10 wells must be drilled, and add to this the cost of installations underwater, on the surface, or floating, plus that of operations,” he said.

López continued explaining that if the cost of production of a barrel of oil in Cuban waters is 20 to 30 USD, and is sold on the world market for 45-50 USD, the profitability of such efforts would be low.

He added that Cupet has planned a land campaign as well, south of currently operating oilfields, with the goal of finding deeper deposits, with perhaps less volume, but better quality crude. Beginning this year, López reported, two-dimensional seismic studies will be conducted in an area of some 575 square kilometers, at a cost of 40 million dollars.