Australian firm starts prospective oil drilling in Cuba as electrical blackouts continue

An Australian company has started drilling exploratory oil wells in Cuba, as a lack of maintenance on the island’s aging electricity system left the population without service for several hours over the weekend.

Australia’s Melbana Energy Ltd. said last week it began drilling the Alameda L, its first exploratory well near the town of Marti, in Matanzas, a province east of Havana with known oil fields and several refineries.

“It has been a good first week with the rig and the team advancing the program at a steady pace and safely. We have not had any significant interruptions or delays to date,” the company´s executive chairman Andrew Purcell said Tuesday.

With little experience in international projects, the company got the rights in 2015 to drill onshore in an area known as Block 9. In a statement, Melbana said it was tackling three targets, which could produce up to 141 million barrels of oil, according to its best estimates. In the past, companies have abandoned prospective drilling in Cuba because of the poor quality or complexities of extracting the island’s heavy oil. But Melbana believes the wells could produce light crude oil.

The announcement has caught the attention of experts because, in 2019, Melbana entered into a joint venture with Angola’s national oil company SONANGOL, which is mainly financing the exploration in Cuba.

Block 9 has been managed by CUPET, Cuba’s largest oil company, for 30 years, raising questions about why the Australian company believes it will now find crude oil.

“If it has potential, why hasn’t it been discovered in so many years, and why is a small Australian company the one to make the big discovery?” said Jorge Piñón, the director of the Latin America and Caribbean Energy and Environmental Program at the University of Texas at Austin.

“We might have some clarity in 45 days when we start seeing the results,” Piñón said. “But even if they find commercial volumes (we are not talking of large quantities but 10,000 to 15,000 barrels per day), it would take between 12 to 36 months to monetize the production because you need to build all the pipes and infrastructure needed.”

But more importantly, he said, no oil exploration will fix Cuba’s electrical grid problems in the short term. “It is very concerning; I don’t see a short-term solution,” he said.

The extended blackouts that were a fixture during the “Special Period,” the economic crisis following the end of Soviet subsidies in the 1990s, made a dramatic comeback this summer, helping to fuel unprecedented anti-government protests. But Cuban authorities can’t do much to avoid them right now, as government officials acknowledged that the island’s decrepit electricity system cannot generate enough power to keep the lights on.

“The useful life of a thermoelectric plant is between 30 and 35 years. In our case, except for the two Felton blocks [a plant in Holguin], which have been in [operation] for 25 and 21 years, the others have been operating for more than 30 years, and seven of them have been operating for more than 40 years,” said Cuban Minister of Energy Liván Arronte Cruz, in a television appearance Thursday to explain the frequent service interruptions.

The minister said lack of maintenance to the island’s eight power plants had diminished their generation capacity, which, in turn, has forced the state electricity provider, Electric Union, to schedule service cuts to maintain some energy reserve levels. Increased reliance on Cuba’s heavy high-sulfur crude oil has shortened the time needed for maintenance and their cost. And the cash-strapped government cannot afford them.

“Maintenance is very expensive and can cost between 40 and 80 million pesos,” and higher if the plant needs modernization, said Edier Guzmán Pacheco, an Electric Union official. Eighteen out of the 20 generating units in the island’s thermoelectric plants are behind their maintenance schedule.

On Friday evening, a failure in a transmission line between Nuevitas and Holguin left most of the country in the dark. On Sunday, Electric Union said the problem was fixed but more cuts were expected.

Guzmán Pacheco said the U.S. embargo played a role in delaying work in a new power plant based in Mariel. The Cuban government’s expropriation of Mariel’s port facilities in the 1960s is now part of a lawsuit in the U.S., under Title III of the Helms-Burton law. As a result, companies hired to transport parts needed for the power station in Mariel pulled out at the last minute, fearing litigation in U.S. federal courts.

The minister said the country was overpaying to buy oil in the international market due to U.S. sanctions.

But Piñon believes the problem is less fuel supply than generating capacity. Despite the U.S. sanctions against companies facilitating Venezuelan oil going to Cuba, the island received an estimated 55,000 barrels per day from the South American nation in the past three months, he said. He added that, plus about 40,000 barrels per day produced on the island, should meet most of what Cuba needs.

“The work they are doing with renewable energy is fantastic, but it’s not enough; they need to diversify,” he said. “They could be producing 10 percent of their electricity out of the sugarcane biomass, like Brazil,” he said.

But without significant capital investment to renovate the electrical grid, he warns the system could collapse.

“Their plants are too old,” Piñón said. “It’s like trying to run a Formula 1 race with a Soviet Lada car.”