Why Cuba’s energy crunch is getting worse

A combination of external and domestic factors has made Cuba's energy shortage more acute in recent months, leading to long lines at gas stations and blacked out streets at night.  

“Due to the close political and commercial relations between Havana and Caracas, now Cuba is suffering again” José Chalhoub, a political risk and independent oil consultant based in Caracas, told BNamericas. 

US sanctions against Venezuela began in January, but they were subsequently ratcheted up to include specific tankers that sail between Venezuela and Cuba, curtailing crude shipments to the island. 

In one case reported by Argus Media, the lurch has led Cuban agents to commandeer a Venezuelan tanker at gunpoint, bring on a Cuban captain and crew, and sail the ship to Cuba. 

Government newspaper Granma reported earlier this month that Cuba was not about to enter a new special period.

The Soviet Union’s collapse brought an end to massive subsidies for Cuba, leading the government to institute a years-long special period of hardship that brought the economy to its knees. 

The ailing economy only gained momentum when Venezuela stepped in with lavish aid packages, a centerpiece of which was oil supplies.   

A decade ago, Venezuela shipped 100,000b/d of oil to Cuba and although recent figures are not available, these shipments could have dropped by more than half in the past 10 years.

CIENFUEGOS REFINERY

The 30-year old Camilo Cienfuegos refinery, once hailed by late Venezuelan president Hugo Chavez as “a jewel” in Cuba’s energy future, has seen output steadily slip and it has dragged down the country’s domestic energy production. 

“The acute gasoline shortages in Cuba comes especially based on a long-standing refining problem present at its most iconic refinery Cienfuegos,” said Chalhoub, who added that low domestic oil production also contributes to the problem.

The Cienfuegos refinery has a capacity of 65,000b/d and there were expansion plans to bring capacity to 150,000b/d, potentially allowing it to almost single-handedly meet Cuba’s oil demand. 

By 2017 though, Cienfuegos was refining an estimated 24,000b/d, according to The Economist Intelligence Unit. 

It is plausible that the refinery’s output is now even lower since Venezuela was the only country with refinery expertise that was supporting Cuba, Chalhoub said.

Firms from Spain, Angola, Russia and China have been helping Cuba on the production side, he added.

JOINT VENTURES

While Cuba is a nation that receives limited amounts of foreign investment, state oil company Cupet has actively sought to attract international investment in the past several years, according to Chalhoub. 

Cupet has partnered with several other NOCs, including Venezuela’s PDVSA, Brazil’s Petrobras, Angola’s Sonangol and Russia’s Rosneft.   

Some deals have also been signed for firms to develop energy assets in Cuba. Australia-based Melbana Energy is for example working on two onshore blocs.  

According to a project summary recently published by Melbana, potential results are expected in the near term. 

In the long term, these ventures could help Cuba solve its energy needs as could significant reserves in the Cuban section of the Gulf of Mexico, said Chalhoub.

NO SHORT-TERM FIX

None of Cupet’s arrangements are however on the cusp of solving the country’s current energy problems, leaving the government to scramble for oil deliveries amid sanctions and growing uncertainty about supplies from Venezuela. 

Cuban President Miguel Diaz-Canel said recently that contracts have already been signed for oil shipments to the island in October, potentially promising relief - albeit temporarily. 

The provision of gas remains uncertain for Cuba in the face of US sanctions, its close ties with troubled Venezuela, and the declining refining output at Cienfuegos. 

“Nowadays, it has become insurmountable for Venezuela to keep its shipments to the Caribbean, and Cuba has been the one suffering the most with the added element of US sanctions against both Cuba and PDVSA,” said Chalhoub.