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Lukoil Delays Plans To Purchase Cuban Refinery

Russian private company Lukoil has put plans to buy a refinery in Cuba on hold due to delays in signing exploration and production (E&P) contracts for Venezuelan projects, according to the company’s head Vagit Alekperov.
Alekperov told Russian newspaper Kommersant that the company can not afford to take the risks involved in acquiring a refinery without having a reliable source of supplies. Despite the risks connected to investing in Venezuela’s energy sector, Lukoil has expressed its interest to launch production projects as soon as possible. Lukoil, which is 20% owned by US major ConocoPhillips, has said that one of the reasons for its interest in participating in producing projects is the need to supply the US network.

Reliable Supplier?
Last year’s modernisation of the Cienfuegos refinery in south-central Cuba has increased the facility’s capacity to 76,000 barrels per day (b/d), with throughput of 65,000b/d, allowing the country to meet its own gasoline demands as well as produce some 9,000b/d for export, according to Cuban officials, turning the country from an importer to an exporter. With its spare refinery capacity and its geographic location in close proximity to the US, Cuba is in an ideal position to supply the US market. Further, although Cuba currently produces only small amounts of oil, its offshore areas are expected to hold large reserves, making it not only an interesting target for oil companies in terms of exploration but also over the longer term for companies looking to invest in its refining industry.

At present, Cuba receives oil at discounted rates from Venezuela and the two countries have close political relations. For foreign oil companies, however, investing in Venezuela’s energy sector is considerably more risky. According to BMI’s newly revised Upstream Business Environment Ranking Venezuela comes third in spite of its vast hydrocarbons resource base. As well as high scores for reserves, production growth potential and reserves-to-production ratios (RPR), Venezuela benefits from the substantial (but decreasing) number of international companies active within its upstream industry. However, while the country ranks first in the Latin America region in terms of oil and gas reserves, as well as oil RPR, and is second by oil production growth potential and gas RPR, Hugo Chávez’s re-nationalisation and regulatory/licensing issues have scared off foreign investors. Considering Venezuela’s risky business environment, it seems a sensible strategy for Lukoil to hold off any acquisition in Cuba before securing sources for the refinery.

De Americas Oil and Gas Insights