Friday, 15 July 2011

Cuba and China sign oil agreements

Chinese oil company signs offshore agreement
Source:, 09 June 2011.

After at least two years of ‘false alarms’ from U.S. politicians about Chinese oil rigs in the Gulf of Mexico, Chinese state oil company CNPC on June 5 agreed to contract five blocks in Cuban waters. Chinese involvement in offshore drilling in Cuba near U.S. waters is a politically sensitive issue in Washington.

CNPC will expand cooperation with CubaPetróleo (Cupet) in “exploring and developing new onshore and offshore oil blocks in Cuba,” CNPC said in a terse press release, without providing any details.

According to observers close to the negotiations, a framework agreement between CNPC and Cuban state oil company CubaPetróleo (Cupet) signed by the CEOs of both oil companies June 5 in Havana, in the presence of Vice President Xi Jinping and Raúl Castro, includes the contracting of blocks N19, N20, N21, N22 and N30 at the western edge of Cuba’s economic exclusive zone, adjacent to the maritime border with Mexico. China’s blocks are next to four blocks leased by Petrovietnam, and four blocks Angolan state company Sonangol is negotiating.

In addition to new exploration CNPC, under the “expanded cooperative framework agreement,” will provide help in reducing operating costs and raising output and recovery rates at existing on-shore oil fields.

The agreements also include a memorandum of understanding on “cooperation in engineering construction,” according to the press release. CNPC subsidiary China Huanqiu Contracting & Engineering Corp. agreed to be the contractor for the $6 billion expansion of a refinery in Cienfuegos, Reuters reported on Sunday. CNPC’s engineering construction may “help facilitate Cuba’s economic development and social progress,” the CNPC press release said, without providing any details.

The CNPC agreement is part of billions of dollars worth of economic support China agreed to provide during a visit of Vice President Xi Jinping to Havana. Xi is expected to be the next president of China.

China to play major role in Cuban oil development
Source: Reuters, 08 June 2011.

by Jeff Franks (Havana)

China looks ready to play a major role in the development of Cuban oil, including the island's soon-to-be explored fields in the Gulf of Mexico, after the signing of energy-related accords during a visit this week by Vice President Xi Jinping. The text of the agreements has not been disclosed, but they appear aimed at making China a significant oil partner with its fellow communist-run country, which is likely to raise eyebrows in the nearby United States.

State-owned China National Petroleum Corp said on Wednesday the accords committed the company to make "full use" of its oil expertise to help Cuba raise its oil output and "to expand cooperation with (state-owned) Cubapetroleo in exploring and developing new onshore and offshore oil blocks in Cuba."

Whether the agreement means CNPC has leased Gulf of Mexico blocks for exploration was not immediately clear.

But Jorge Pinon, a visiting fellow at Florida International University and expert on Cuban oil, said the Cubans have previously said they were discussing the leasing of five of their 59 offshore blocks to the Chinese. "All the pieces of the puzzle are finally falling into place," he told Reuters.

Those pieces include two other accords that commit the two countries to negotiate contracts for a major expansion of a Cuban oil refinery in the city of Cienfuegos, and the construction of a liquefied natural gas project, including a regasification plant, at the refinery.

Sources have said the projects would cost $6 billion, most of which would be provided by China and backed by oil from Venezuela. Socialist ally Venezuela and China are, respectively, Cuba's number one and two top trading partners.

Signatories to the three accords included Jiang Jiemen, the president of CNPC, indicating they were not idle promises. Xi and Cuban President Raul Castro attended the ceremony on Sunday in Havana. Xi is widely expected to succeed Chinese President Hu Jintao in 2013.

The agreements with China, which also is a major creditor to Cuba, come as Cuba awaits the arrival of a Chinese-built rig contracted by Spanish oil giant Repsol YPF to conduct the first full-scale exploration in Cuba's part of the Gulf of Mexico.

The high-tech Scarabeo 9 rig is expected to arrive in Cuban waters in late September or early October and start drilling the first of a series of wells planned by companies including Repsol, Malaysia's Petronas PETR.UL and a unit of India's ONGC.

Repsol's first well will be about 60 miles (100 km) from Florida, which is twice as close as drillers can get to the state's west coast in U.S. waters, due to a federal ban. Cuba says it may have 20 billion barrels of reserves, but the U.S. Geological Survey has estimated only 5 billion.

The prospect of Cuban drilling has touched off opposition from Florida lawmakers who say it threatens the state's environment and helps the Cuban government so hated by many in Miami, the center of the Cuban exile community.

They have filed bills in Washington attempting to thwart the drilling by punishing foreign companies and individuals who take part in Cuba's exploration. U.S. oil companies cannot work in Cuba due to the longstanding U.S. trade embargo against the island.

Repsol representatives met with U.S. Interior Secretary Ken Salazar last week to assure him they have solid safety plans in place should there be a blowout like that at the BP well last year off the Louisiana coast.

"It sounds as if the (U.S.) administration is trying to figure out how to work cooperatively with Repsol, and that is definitely in the U.S. national interest," said Cuba expert Phil Peters at the Lexington Institute think tank in Arlington, Virginia.

"Florida wants high standards of environmental protection in the gulf and Florida also doesn't want the U.S. to talk to Cuba. You can't have it both ways," he said.

Chinese involvement in Cuban waters would add a new element to the U.S. debate over relations with Cuba. Former Vice President Dick Cheney mistakenly said in 2008 that China was drilling in Cuban waters 60 miles (96 km) from Florida, and used it to argue the U.S. should step up its own drilling.

But China's presence also might be used by lawmakers who want to justify a hard line against Cuba's exploration plans. In 2005, the Chinese National Offshore Corp. tried to buy California-based oil company Unocal, but there was strong opposition in the U.S. Congress on grounds of national security. CNOOC withdrew its bid and China learned a lesson, Pinon said. "China learned how sensitive this country is to China's activities," he said. "China is a good political whipping boy."