Cuba is an island nation about the size of the state of Pennsylvania, located in the Caribbean basin. It has a population of 11 million of whom roughly 70% live in urban areas. Cuba’s GDP was estimated at around US$18.6 billion in 1999 with a growth rate of about 6%. About 20% of its 4.5 million person workforce is engaged in the agricultural sector where sugar, citrus, tobacco, coffee and rum are key exports. Cuba’s key trading partners are Russia, Canada and the Netherlands.

Cuba is strategically located close to US markets but the United States maintains economic sanctions against Cuba. The sanctions have resulted in lost opportunities for both countries. This report investigates the state of Cuba’s energy industry and the impact on that industry --were US sanctions against Cuba to be lifted. In looking at future Cuban energy needs and the Cuban energy industry, it can be clearly estimated that a lifting of sanctions against participation in the Cuban energy sector could provide over $2 to 3 billion annually in oil and gas trade business opportunities for U.S. energy firms.

Cuba’s waters could also provide a rich source of natural gas, potentially for export to Florida by pipeline. While it is hard to predict how much natural gas might be discovered in the coming years were U.S. sanctions against Cuba to be lifted, demand for the relatively clean fuel in Florida is expected to grow substantially over the next decade. A 2 MM tons a year or 0.27 bcf/d pipeline to Florida would represent a business opportunity of roughly $300 million a year.

Though it is slowly moving in the direction of a mixed economy, Cuba continues to have a command, planned economy where the government owns and runs the means of production. About 75% of the work force is employed by the state. The Cuban economy is still suffering from the aftermath of the collapse of the Soviet Union, which provided generous economic subsidies including energy supplies. To alleviate the economic downturn that began in the early 1990s, Cuba has introduced some market-oriented reforms including opening the economy to tourism, decentralizing agriculture and authorizing self-employment in 150 occupations. By the mid-1990s, tourism surpassed sugar as the primary source of foreign exchange. Roughly 1.6 million tourists visited Cuba in 2000 providing over $2 billion in gross revenues. Cuba has also invited foreign investment, including its energy sector to private international firms. Several firms have explored for oil and gas off Cuba’s coastline but with only limited success. Cuba’s refining sector is also in need of investment and upgrading.

Energy Demand Trends in Cuba

Almost all energy in Cuba derives from oil and gas. Of the 373.1 trillion BTUs consumed in 1998, 357.2 or 95.7% was in the form of petroleum products. Natural gas accounted for 4% with coal taking up the remaining 0.3%. Over 80% of the oil was imported as was all of the coal. According to the US DOE, Cuba generated 13.309 quadrillion BTUs of electricity in 1998, of which 94% came from thermal powered generators. Hydroelectric power is miniscule, accounting for less than 1%. These data are not fully consistent with claims from the Cuban Society for the promotion of Renewable Energy sources (CUBASOLAR) that non-fossil fuel, hydro and solar accounted for 30% of total energy consumption in 1997 [1]. The discrepancy may reflect the fact that energy production from renewable and biomas sources are not as easily observable as that from larger commercial scale generating units.

At the end of the 1970s, Cuba began to pursue an ambitious program of building nuclear generating capacity. Construction began in 1983 on the first of two planned nuclear reactors at Juraguá in Cienfuegos province. In 1992, work was suspended with the cessation of financing from Russia. The two 440 megawatt nuclear reactors are reportedly 75% and 30% respectively, completed. The USSR had paid for most of the US$ 1.1 billion invested in the project. A further US$ 750 is said to be needed to complete the first reactor. Subsequent to 1992, Cuba and Russia have talked about restarting construction but in 2000 they agreed to abandon the project. Each reactor when fully running would have saved Cuba around 600,000 tons of oil annually.

Almost all Cuban households (95%) have electricity, accounting for 35% to 40% of total energy consumption in 1997. Approximately 100 million cubic meters (3.53 billion cubic feet) of natural gas was also consumed by households (in Havana) in 1997.

Table 1 shows primary energy consumption during the 1990s. Reflecting the collapse of the Soviet Union and end of Soviet aid, energy consumption fell sharply from 1990 to 1991 and has remained surprisingly constant thereafter. The consumption data are surprising in light of the fact that GDP fell sharply, by almost 40%, during the “special period” in the early 1990s and then rose in the second half of the decade. The per cent change in GDP shown in Table 1 is measured in constant 1981 Cuban prices.