Cuba is Potential Fruitful Market for U.S. Energy Sector
As business between the United States and Cuba grows following President Obama’s historic Havana trip, forging ties in the energy sector would benefit both countries.
Cuba’s energy infrastructure is an odd mix of old and new. On the one hand, Cuba still burns crude oil for most of its electricity, one of very few countries to do that. Its antiquated electric grid includes decaying, half century-old equipment. Its vehicle stock is famous for Buicks and Pontiacs dating to the 1950s.
At the same time, an energy revolution launched a decade ago transformed the island’s lighting, eliminating the use of old-fashioned incandescent light bulbs. Millions of inefficient consumer appliances were replaced with modern energy-saving versions as well. A local factory sells photovoltaic panels to solar power projects, which provide a small but growing percentage of the island’s electricity.
For years, Cuba has relied on Venezuela to supply deeply discounted oil as part of a bargain that includes Cuban doctors and teachers working in Venezuela. Venezuelan President Nicolas Maduro visited Cuba last Friday to reaffirm the longstanding ties between the two countries. But discounted oil for Cuba is deeply controversial in Venezuela, which is reeling economically from the government’s economic policies and the recent oil price collapse. Cuba cannot count on the same favorable terms it has enjoyed for Venezuelan oil continuing for the indefinite future.
Cuba’s domestic oil and gas resources are substantial. Many billions of barrels are believed to lie beneath deep water off Cuban’s north coast, although exploratory wells drilled by Spanish and Malaysian companies in 2012 came up dry. Current low oil prices make additional offshore exploration unlikely in the short- and perhaps medium-term. Onshore, Cuba produces roughly 50,000 barrels per day of heavy crude oil, which supplies roughly a third of Cuba’s oil demand.
Cuba’s renewable energy resources are also substantial. The tropical sun beats down on the island almost year round. Strong winds blow much of the year. Scores of rivers offer considerable potential for hydroelectricity. Cuba’s fertile soils produce many kinds of biomass that can be used in energy production, including sugar that can be converted to ethanol and waste products from sugar plantations and sawmills that can be burned for electricity.
Recognizing the island’s renewable energy potential, the Cuban government aims to expand renewable energy from roughly five percent of electricity generation today to 24 percent by 2030. New wind farms, solar plants and bioelectric stations are all under construction.
With its antiquated electric grid and substantial energy resources, Cuba offers an important potential market for U.S. businesses. With its capital, technical know-how and export potential, the United States has much to offer the Cuban energy sector as well.
Start with renewable energy. U.S. vendors could supply equipment, U.S. engineers could offer expertise and U.S. banks could offer capital to help Cuba’s renewable energy industry grow quickly. U.S. utilities and national laboratories could offer technical assistance on integrating variable renewable energy into power grids. A U.S.-Cuba clean energy partnership could build bridges between the two countries and help modernize Cuba’s electric grid. U.S. hotel chains exploring the Cuba market, including Marriott and Starwood, could become charter members by committing to run their Cuban properties on renewable energy to the extent possible.
Cuba could also be a destination for natural gas from the U.S, which exported its first liquefied natural gas in February. Converting Cuba’s oil-fired power plants to natural gas would cut air pollution and diversify the island’s fuel sources. Although the conversions would be expensive, fuel costs would likely to be lower over the long-term.
U.S. oil service firms could bring enormous expertise to the Cuban market, helping increase recovery from existing wells. Strong working relationships between the U.S. and Cuban oil industries may be especially important as part of a strategy to minimize the risk of spills off Cuba’s north coast, which could have devastating effects on the U.S. coastline. With offshore exploration unlikely in the short-term due to the global oil price outlook, now is the time to start building those ties.
But while the opportunities for the U.S. and Cuba to work together in the energy sector are big, so are the barriers.
Relations between the U.S. and Cuba are only starting to warm after more than a half century of deep freeze. The two governments continue to have profound disagreements on a range of issues. They are more used to acting as adversaries than partners, which will continue to affect the relationship for years to come.
In addition, significant legal barriers to normal business relations remain in both countries. Fully realizing the potential for the U.S. and Cuba to work together in the energy sector will require the U.S. Congress to lift embargo legislation and the Cuban government to revise trade laws and reorganize its electricity sector. That will take years and require steady progress in difficult aspects of the relationship.
President Obama’s recent trip to Cuba is an important step forward in the relationship between the U.S. and Cuba. Building ties between our energy sectors would pay dividends for both countries.
David Sandalow, Inaugural Fellow at Columbia University’s School of International and Public Affairs Center on Global Energy Policy, has served in senior positions at the White House, State Department, and the U.S. Department of Energy.