Cuba Scrambles As Venezuela's Oil Industry Collapses

Tyler Durden's picture

Authored by Haley Zarumba via OilPrice.com,

As Venezuela’s oil industry goes down it flames, it’s looking like it may just take Cuba down with it.

Venezuela, once the crude powerhouse of South and Central America, is no longer able to produce enough oil to sustain its own economy, much less those of other countries. Cuba is frantically drilling in search for new reserves and reaching out for new suppliers, but there is no guarantee they’ll be able to stabilize their oil income any time soon.

Cuba became dependent on Venezuelan oil in the 1990s, when they were sold cut-price crude in exchange for the services of skilled laborers in order to bail them out of economic collapse in the wake of the fall of the Soviet Union. Currently, Cuba relies on foreign oil for more than two thirds of its daily consumption, with over 100,000 barrels of crude flowing from Venezuela every day for years. Now, quite suddenly, their dependence on Venezuelan oil has been forced to come to a bitter end.

In the midst of political unrest and economic devastation, Venezuela’s oil exports have plummeted by 40 percent in the last 3 years. During an export drought that lasted the better part of last year, the Cuban government has been combatting the stemmed fuel flow with regular energy rationing. In an attempt to avoid blackouts, the government has ordered cuts in electricity and fuel consumption to most state-run companies and entities (a huge pool in a communist country) by 50 percent, resulting in workers hours slashed and access to vehicles severely restricted. This April, they also began restricting sales of premium gas to government officials and diplomats.

After this eight-month moratorium on exports to Cuba, Venezuela once again began to export light oil to Cuba and Curacao in March, but at a great cost to their own refineries. As of this month, the 187,000-barrel-per-day Puerto la Cruz refinery is running at just 16 percent of its capacity thanks to a deficit in light oil and a lack of maintenance in ill-funded refineries. With this unsustainable model and no sign of improvement in the country’s economy, Cuba is looking for new sources of crude, and quickly.

Cuba is currently probing for oils in its own offshore wells, with some hope for a vast untapped reserve, but so far they’ve run dry. In response, they’ve reached out to an old friend--Russia. Just last month, Russia exported its first shipment of oil to Cuba in decades. The tanker, carrying 250,000 barrels of Russian oil, was just the first installment of a total 1.9 million barrels to be sent by the Russian government-owned oil company Rosneft. It’s unknown if the deal is to be extended after the total is reached.

It is almost certain that Cuba’s weak economy will continue to need the aid, but the Russian government has made it clear that this is not a hand-out--there will be no more oil if Cuba doesn’t have the cash to back it up. Unlike Venezuela, who allowed Cuba to build up an unpaid tab for oil imports, Russia has announced that they will give no leniency to the cash-strapped nation.

If oil is found in Cuba, it will be a game-changer, but not necessarily for the Cubans. Australia-based Melbana Energy Ltd. has estimated that their Cuban assets contain as much as 637 million barrels of recoverable oil and the company is beginning an intensive two-well drilling campaign slated for 2018 with a budget of $30 million.

As Cuba desperately drills for new reserves and looks to Russia to replace the Venezuelan vacuum of low-cost crude, the future of the already-unstable communist country grows more and more uncertain. With no luck so far in their own probes, some of their most promising potential reserves owned by outside interests, and their Russian allies promising a swift cut-off if Cuba can’t pony up for oil imports, the poverty-stricken country may very well bankrupt themselves in the effort to power their nation.

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stokr's picture

Capitalist FRACKING kills socialist monopoly, try eating the stuff Maduro!

franzpick's picture

"Socialism is fine until you run out of somebody else's oil...".

Fixed it. Now live with that Raul...

Flybyknight's picture

"capitalism has reached the point in its descent that it cannot exist without public subsidies for the people dispossessed by capitalism." Quote Paul Craig Roberts 

Live with that franzpick.

CHoward's picture

I have a 1/2 quart of 10-40 out in my shed if anyone needs it.

SantaClaws's picture

Seems like Puerto Rico has been inadvertently left out of this discussion.

Teja's picture

I was thinking that, too....  Cuba would vote Republican for sure, if you look at the Cubans in Miami. So Cuba+ Puerto Rico would be a well balanced package, like Hawaii(1) and Alaska. Their debts are not relevant, compared with current US debts.

 

(1) Disclaimer: Mentioning Hawai'i here does not mean I accept the occupation of the Kingdom of Hawai'i by the United States. Still illegal, and of course this means Obama was not born on US soil.

silverer's picture

It's always a great idea to nationalize oil production to help the environment.  Because the government greed of sucking too much profit out of production and failing to reinvest profits eventually does its damage and lowers output.  Socialism - sooner or later you run out of oil faster than the capitalists.

Offthebeach's picture

Paging Sean Penn, paging Sean...

AKKadian's picture

Start rolling those cigars faster cuba, you are going to need some cash. Round up all those old cars and start an auction, could bring in a pretty penny.!!!

whatamaroon's picture

Just a reminder the oil and gas bidness was created here in the good ole USA, and Texas by us white folks. Thank god the oil and gas bidness hasn' been infected/infested by AA types or we would really be fucked.

sinbad2's picture

Actually the British created the oil bidness, in Iran. The Iranians were already drilling for oil in 1600, but the British Americanised them with lead, and took over.

The Chinese were drilling for oil in 347AD

PodissNM's picture

"the company is beginning an intensive two-well drilling campaign slated for 2018 with a budget of $30 million"

Really? 2 wells is an intensive campaign?

slipreedip's picture

VENEZUELA AND CUBA COUNTRIES THE AMERICAN GOVERNMENT ATTEMPTED TO INFLUENCE ELECTIONS IN.....PERHAPS WE SHOULD PUNISH THEM WITH SANCTIONS?

thinkmoretalkless's picture

Maybe they can vote for statehood

Davidduke2000's picture

This story is nonsense , Venezuela will still give Cuba oil, I do not see a right winger taking over , Maduro controls the army, of course the us is trying to buy the generals.

DeathingerStar's picture

The notion that Cuba has room to move downward? Meh...

dunce's picture

They can organize the women as prostitutes and turn their county into a brothel and drug emporium to get the currency to pay for the oil.

dogismycopilot's picture

Forget Afghanistan, let's take Venezuela. Super HAWT women, lots of oil, lots of food, beaches, and culture. 

 

Sapere aude's picture

How strange ZH covers this, but conveniently forgets to use Venezuala in calculations of the non oil glut?

Just like it forgets depletion.

Its no good being anti establishing and being the messenger of real news if you then engage in fake news without qualifying things.

Venezuala is one of the many whose oil production is falling off, although you won't get Saudi admitting it, China has.

But then again we will be bombarded with how much oil there is.