An important factor in these projections is that we have assumed that Cuban population growth will continue at the very modest growth rates of the past, roughly 0.5% per annum. This low rate reflects, to some extent, the higher education standards and better access to health care in Cuba. To the extent that current birth rates reflect other factors such as limited and crowded living space or pessimism about the future, population growth rates may increase. Indeed, the 1990s was a period of severe economic contraction. The estimates of future energy use would be markedly affected if higher population growth rates were to occur. For example, an increase in annual population growth rates to 1% would, under the Medlock/Soligo model generate an energy demand for 2015 of 408 thousand b/d, an additional 45 thousand b/d.

To summarize, we project that Cuban energy needs will increase by 148-184 thousand b/d by 2015. This increase will have to be met by additional imports or increases in domestic production of crude or natural gas. Using the modest population growth rate and the experience of Costa Rica and Jamaica, it would appear that Cuba would require additional electric generating capacity of 48-107 megawatts by 2015. That would bring Cuban per capita usage to the levels prevailing in those countries today. However, if electricity demand grows at 4% per annum, Cuba will need to install an additional 478 megawatts of capacity by 2015. Additional refining capacity for gasoline would have to increase by 30-38,000 b/d to bring Cuban usage in 2015 to current Jamaican and Costa Rican levels. These estimates should be regarded as a lower bound. Higher population growth rates or GDP growth rates will increase these investment requirements.

Cuba’s Energy Industry

Cuba has proven crude oil reserves of about 283.5 million barrels, while its proven natural gas reserves total 636 billion cubic feet. Due to its limited natural resources, the Caribbean island nation currently is dependent upon oil imports to meet about two-thirds of its 190,000 b/d domestic needs. In 2000, Cuba produced about 46,500 barrels a day (b/d) of crude oil, mostly from the north central coast in the state of Matanzas, and 600 million cubic meters of natural gas. State oil firm Cubapetroleo (Cupet) has also recently suggested that it plans to boost output from output from 52,000 b/d in 2001 to 120,000 b/d in 2005, though those figures appear speculative in light of recent exploration disappointments.

Approximately half of Cuba’s crude output is produced from wells operated by Canadian mining firm Sherritt International Corp., with most of the remaining accounted for by Cupet. Toronto-based Sherritt holds an indirect interest in seven exploration/production-sharing contracts with the Cuban government that encompass most of the island’s existing crude fields, totaling 3.55 million acres. Increases in oil output over the past two years have come primarily from new wells in the Puerto Escondido and Varadero West blocks east of Havana, as well as exploratory wells in the Yumuri, Canasi and Seboruco fields along the island’s north coast. Because approximately 90% of the crude that Cuba produces comes from the northern coast and is heavy oil with high sulfur content – 8 to14 degrees API gravity with about 8% sulfur -- it is only suitable for use in specialized plants that produce cement, electricity and nickel.

Cuba currently relies heavily upon crude imports from Venezuela. Prior to 1999, Cuba received almost all the oil it needed from a long-term sugar-for-oil barter arrangement with Moscow. That agreement collapsed in 1999 though Cuba continued to receive a very small volume of Russian oil in exchange for use of a monitoring station on the island. Venezuela, under populist leader President Hugo Chavez who came into office in 1999, moved to fill the void left by Moscow’s departure as a main crude supplier to the island state. Based on a new agreement inked in October 2000, Caracas now provides about 53,000 b/d of Venezuelan crude or refined products to Havana, while financing up to a fourth of the cost. The deal allows for additional Venezuelan oil supplies in exchange for Cuban medical services and advice on athletics and agriculture. According to the agreement, Havana must pay for a portion of the Venezuelan crude at international market prices within 90 days of delivery.

Chavez has been willing to stand up to the U.S. extraterritorial legislation, the 1996 Helms-Burton Act or Libertad Act, that has sought to penalize new investment in Cuba but which has never been strongly enforced by Washington. The U.S. government currently has sanctions in place under Helms-Burton against Sherritt and the B.M. Group, a Panama-based company controlled by Israeli investors, for their activities in Cuba, banning executives and large shareholders of those firms entry into the U.S. U.S. President George W. Bush in July 2001 continued the policy of his predecessor to waive a provision in the act that would permit legal action against those investing in properties once owned by Americas of former Cuban citizens that was expropriated by the Cuban government. Although Cuba may not have the energy potential of some of its Caribbean or Latin American neighbors, there is continued interest from foreign oil firms in exploring for crude and natural gas in the island state. Between 1991 and 1999, foreign investment in oil exploration and production in Cuba increased by about $600 million. Roughly half a dozen foreign companies are currently active in Cuban waters, either exploring for or producing oil, despite the threat posed by the Helms-Burton Act. In early 2000, Cuba offered up 59 deepwater offshore blocks in its 112,000 sq km exclusive economic zone in the Gulf of Mexico to a handful of international firms. About 20 of the 59 blocks that were tendered have subsequently been awarded to companies from the U.K., Canada, France, Spain and Sweden.

Spain’s Repsol YPF was awarded six exploration blocks totaling 10,200 sq km that are located along the island’s coast northwest of Havana. The Spanish firm is to provide start-up capital for at least two wells, and if drilling proves successful, will share the profits with Cuba. The exploration efforts in Cuba’s sector of the Gulf of Mexico are targeted on the “northern band,” an area that extends from Guanabo in Havana province to Corralillo, 150 km to the east. But, foreign investors are also eyeing the new offshore opportunities cautiously, following the decision by Brazilian state oil firm Petrobras and its junior partner Sherritt in June 2001 to withdraw from an agreement they had signed with Cupet in 1998 to explore Block 50,a 3,000-sq km area off the north central coast, after the consortium drilled a $15 million dry well in April 2001. The structure had previously been believed to hold as much as 500 million barrels of crude.