LIFTING U.S. EMBARGO AGAINST CUBA COULD RESULT IN $2 BILLION TO $3 BILLION ANNUALLY FOR U.S. ENERGY INDUSTRY,

ACCORDING TO NEW REPORT BY TWO OF NATION’S TOP ENERGY ECONOMISTS

December 17, 2001, Washington - Lifting the U.S. embargo against Cuba could provide U.S. energy firms $2 billion to $3 billion annually in new revenue. That’s the conclusion of a new report, “The Potential for the U.S. Energy Sector in Cuba,” by two of the nation’s leading energy industry economists: Amy Myers Jaffe, senior energy adviser at the James A. Baker III Institute for Public Policy at Rice University, and Ronald Soligo, a Rice University professor of economics who specializes in economic growth as well as in Latin America.

In their report released today, which they wrote as independent consultants, Jaffe and Soligo state the embargo is blocking promising ventures that could help enhance U.S. energy security, create a diversified energy supply for Florida, and help ease an expected shortage in U.S. local refining capacity.

The report was commissioned by the Cuba Policy Foundation, a Washington, D.C.- based organization led by senior diplomats from Republican Administrations who believe lifting the embargo against Cuba would be in America’s best economic and national interests, as well as hasten democratic reform on the island.

In their report, Jaffe and Soligo state that Cuba’s waters could also provide a rich source of natural gas, potentially for export to Florida by pipeline. Though it’s 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. Gas finds in Cuba might also be profitably converted to liquid fuel products such as gasoline or diesel fuel through the construction of a gas-to-liquids plant.

Jaffe and Soligo project that per capita energy demand in Cuba in 2015 will become similar to that of other “comparable” countries in the region in 1998 and could 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 oil 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, according to the study. The authors note that the future growth rate for Cuba will depend on a number of factors, including future US policy towards the island.

Though 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 on the island. Between 1991 and 1999, foreign investment in oil exploration and production in Cuba increased by about $600 million. While the growth potential is not considered large, the country’s geographic position near to growing markets in the U.S. and Mexico make it an interesting possible entry point for energy project development.

Combined with a base oil import market of 100,000 b/d or more, high-end growth possibilities of the Cuban oil import market potential could represent gross sales business value of over $1.4 billion to $1.65 billion a year beyond the next decade. Electricity sector expansion could also represent a substantial business opportunity for American firms. Many existing Cuban power plants are also aging and in need of refurbishment or upgrading. Finally, Cuba’s strategic location would also make it well suited as an energy-trading entrepot in refined products, oil storage and natural gas development and transshipment.

For more information contact the Cuba Policy Foundation.

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