The Future of Cuba's Energy Sector: Challenges and Opportunities

A. F. Alhajji, PhD and Terry L. Maris, PhD

This paper provides a brief synopsis of Cuba's energy sector and outlines future opportunities and challenges. Cuba offers unique opportunities. Based on historical energy trends in Cuba and countries in transition, and based on trends in IOC's investments, energy consumption and production in Cuba can only grow. Historical trends in Cuba confirm this point. Since Cuba suffers from one of the lowest levels of per capita energy consumption in the world and has one of the lowest levels of cars per capita in the world, consumption may grow faster than production and imports to the extent that Cuba may face energy shortages and possibly an energy crisis.

Under any scenario, several investment opportunities exist in the Cuban energy sector. These include renewable energy. During any sort of transition, energy production, consumption, and investment will boom. Even if US sanctions remain, Cuba will likely become a net oil exporter. Regardless of the political future of Cuba, lifting US sanctions alone will speed up the development of Cuba's energy sector and increase its energy production, especially of oil and gas. However, several countries (Iran, Iraq, Libya, Sudan, and Syria) developed their energy sectors despite sanctions.

Under any scenario, Cuba will face several challenges. Technical challenges include the remote location of its offshore fields and the low quality of its crude. They also include lack of advanced deepwater technology and shortage of qualified personnel. Economic challenges include lack of funding and difficulty in attracting foreign investment. Legal challenges include establishing a legal framework that encourages investment, creates a fair and stable tax system, and protects property rights. They also include settling property rights issues with foreign oil companies that lost their assets to nationalization. If Cuba moves toward a market economy and goes through a transition, additional challenges will emerge. The most important transitional challenges would be the political, economic, social, and legal ramification of liberalization and privatization of its energy sector. The increase in energy demand during a transition and how to meet such a demand is another important challenge with which any future government must deal.

(In M. Font [Ed.], Cuba Today: Continuity and Change in the 'Periodo Especial', pp. 97-113, New York: Bildner Center for Western Hemisphere Affairs)