CUBA: IMPLICATIONS OF DEPENDENCE ON SOVIET OIL

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• Collection: General CIA Records
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• Document Creation Date: December 19, 2016
• Document Release Date: February 8, 2007
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• Publication Date: February 1, 1982
• Content Type: REPORT

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Intelligence
Cuba: Implications
of Dependence
on Soviet Oil
Secret
ALA 82-10017
February 1982
Copy ' 388
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Cuba: Implications
of Dependence
on Soviet Oil
Intelligence
Information available as of 1 December 1981
has been used in the preparation of this report.
This paper was prepared by Office of
Office of Imagery Analysis. Comments
and queries are welcome and may be directed to
the Chief Cuba-Caribbean Branch, ALA, on
I
This paper was coordinated with the National
Intelligence Officer for Latin America, the Offices
of Global Issues and Soviet Analysis, and the
Directorate for Operations.
Secret
ALA 82-10017
February 1982
25
25
25
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Secret
125X
Cuba: Implications
of Dependence
on Soviet Oil
Overview For Cuba, like other Third World countries, increased energy use is critical
to modernization. Havana faces particular economic and political compli-
cations in the absence of primary energy sources at home and the heavy
share that foreign-financed oil takes up in its import bill and development
costs
The Cuban economy has become almost totally dependent upon Soviet-
subsidized oil deliveries. This condition-which gives Moscow strong
leverage on the Castro regime-is likely to continue at least to the end of
this century. 25X
Soviet-supplied petroleum provides more than 75 percent of the island's
total energy consumption. Cuba has no large oil deposits and little hope of
finding any; domestic production amounts to less than 5 percent of total pe-
troleum requirements.
Havana has no realistic source of subsidized imports other than the USSR.
Despite Cuba's good relations with several oil-producing countries, none is
likely to match the Soviet price, which in 1980 was only about 40 percent
of average OPEC crude prices. Although Moscow apparently intends to
increase moderately the amount of oil it supplies to Cuba over the next five
years, deliveries probably will fall short of Havana's needs for meeting its
growth targets
The Castro regime, moreover, cannot afford to purchase substantial
amounts of oil on the world market. Cuba's estimated total hard currency
earnings for 1981 would be sufficient to finance only half of its current oil
consumption.
Other possible energy sources have little promise. The island's only
significant nonpetroleum energy source, bagasse-a byproduct of sugar-
cane-provides about 18 percent of Cuba's energy needs, but because of its
bulk it can be used only in sugar-harvest activities. There is no hydroelec-
tric potential, minimal coal deposits, or other energy source with short-
term potential.
have a significant impact during this century.
Long-term approaches such as gasohol or coal-oil mixtures are feasible but
could not become effective before the 1990s and would only moderately
reduce the country's oil dependence. Even the construction of nuclear
power plants-preliminary work on one began earlier this year-would not
Secret
ALA 82-10017
February 1982
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Cuba's dependence on the USSR for its petroleum is aggravated by the
nonconsumer orientation of Havana's economy. Even a 10-percent reduc-
tion in petroleum supplies would reduce economic activity. This vulnerabil-
ity is increased by limited oil-storage capacity; the island's storage tanks
can hold only a two-month supply, makin stock ilin for long-term
contingencies nearly impossible.
The Castro regime has little hope of achieving sustained economic growth
during the 1980s and possibly longer. Future economic expansion requires
not only the continuation of subsidized petroleum imports, but a steady
increase in the amount of those imports. Industrial growth and electric-
power generation are the most vulnerable. Havana's efforts to expand its
import substitution industries and construction sector also are likely to
experience setbacks. Overall agricultural production will not be affected
seriously, but plans for increased agricultural mechanization may have to
be postponed.
In the interim, the already weak economy would be hard hit by a major
shortfall in petroleum deliveries no matter what the cause. Lacking any
meaningful conservation options, a petroleum shortage would force Cuba
to curtail economic activity. In severe shortages or a total cutoff, the island
could operate at reduced economic activity for perhaps two months by
stretching out reserves. Over a longer period, however, modern economic
activity would virtually cease and the nation would concentrate on
subsistence.
The Castro regime's dependence on Soviet-subsidized oil also provides
Moscow with what amounts to substantial leverage that can be exerted on
major Cuban foreign policy decisions. Soviet influence on both internal and
external matters is so great that Castro has cautioned fellow revolutionary
chiefs of state to avoid policies that would lead to such dependency on the
USSR. At the same time, the Cuban leader is obliged to seek new ways to
ingratiate himself with Moscow to extract even greater levels of economic
assistance to stay abreast of mounting Cuban needs. His support for the
Warsaw Pact's invasion of Czechoslovakia in 1968, his somewhat belated
backing of the Soviet invasion of Afghanistan in 1979, and his justification
last year for East European intervention-if needed-in Poland are
examples of how the need for Moscow's approval has cost Castro heavily in
political terms.
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At the same time, Soviet subsidies are offset by the role Castro plays in
supporting Moscow's objectives in the Third World. Castro undoubtedly
will continue providing support for revolutionary insurgent movements in
Latin America and Africa. He also will continue providing military support
to leftist governments such as Angola, Ethiopia, and Nicaragua. If
necessary, he would be willing to increase the Cuban commitment to these
regimes. The Cuban leader recognizes that, by virtue of his Third World
credentials, he can often accomplish some of the objectives he shares with
Moscow more easily than the Soviets themselves.
He will also persist in his decade-long drive to expand Cuba's international
contacts and influence, focusing particularly on oil-producing countries,
partly to serve Soviet designs and partly to develop contacts that could
prove useful should Soviet oil supplies be reduced. His relationship with
Moscow, of course, dictates that there be no amicable relationship with the
United States and this-if Castro's own bitterly anti-US predisposition
were not enough-means that hostility will remain the basic in redient of
the Castro regime's attitude toward Washington. 2
_ . nnn-7rnntnn . rin DfDQaQnno)cDnnn1nnn-znnn1-7
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on Soviet Oil
Cuba: Implications
of Dependence
Cuba's Energy Dilemma
Cuba's lack of domestic energy resources has made
the Castro regime extremely dependent on Soviet oil
deliveries-a situation from which there is no obvious
escape. Imported petroleum-all which is subsidized
by the USSR, accounts for more than 75 percent of
Cuba's total energy consumption. The subsidies have
enabled Cuba to increase its consumption of petrole-
um without the severe dislocations experienced by
other oil-importing-developing countries (LDCs).
Cuba's economic fate-although subject to other fac-
tors as well-will be determined largely by whether
these concessionary prices are continued
Limited by low hard currency reserves, Havana could
not maintain current oil-import levels if forced to pay
average OPEC prices. For example, Cuba's entire
1981 estimated hard currency earnings would finance
only half of its oil imports. Moreover, this condition
will worsen during the next five years. The economic
targets set by the leadership for 1981-85 cannot be
met unless oil deliveries reach at least 13.6 million
tons in 1985-about a 25-percent increase over 1980
deliveries
The Castro regime is well aware of its vulnerability.
In a speech in mid-1980, the Cuban leader pointedly
noted that it would be difficult for a country without
petroleum to survive a naval blockade. Even a slight
decrease in Soviet deliveries would quickly cause
shortages in Cuba. Because of Cuba's lack of any
meaningful conservation options, a petroleum short-
age as small as 10 percent would force decreased
1 -1
The Castro regime has placed a high priority on
finding domestic oil, but despite considerable efforts
production still represents less than 3 percent of total
petroleum requirements.
Cuba's oil vulnerability is increased by its limited
refining capacity and storage facilities
no significant increases in refining capacity
will occur until another refinery under construction
becomes operational in 1985-86. In addition, the
island's storage tanks hold only about a two-month
supply, making stockpiling for long-term contingen-
cies nearly impossible.
Cuba's only significant domestic nonpetroleum source
of energy is bagasse, a byproduct of sugarcane. In
1980 this substance provided 18 percent of energy
supplies, but, because of prohibitive transportation
costs, it can be used only in sugar-harvest activities.
Its relative importance over the long term will contin-
ue to decrease as energy demand increases and sugar
output remains relatively stable.
Other potential sources hold little or no promise.
Cuba has:
? No additional hydroelectric potential.
? No significant coal deposits.
? Only small supplies of charcoal and fuelwood.
? Substantial deposits of peat, but exploitation costs
are prohibitive.
? Limited applications of solar energy because home
heating requirements are minimal.
A few options have long-run potential for moderately
decreased petroleum dependence. Approaches such as
coal-oil mixtures and gasohol are technically feasible,
but conversion costs could not be fully recovered until
some time in the 1990s.
Nuclear power offers little potential before the 21st 25X
century. A Soviet-sponsored nuclear project, in the
planning and survey stages in Cuba for seven years, is
not likely to be operational during this decade. Its
completion will enable Cuba to lessen its dependence
on oil imports by less than 10 percent. If more nuclear
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power projects are eventually built, Cuba would then
be dependent on imported uranium-albeit less costly
at current prices than the energy equivalent of import-
Growth in Energy Demand. Energy demand in Cuba
since the revolution has increased more than 165
percent-from 107,000 barrels per day (b/d) oil
equivalent in 1957 to 286,000 b/d in 1980. The
increase reflects:
? An overall growth in economic activity.
? The Castro regime's emphasis on expansion of the
industrial and transportation sectors.
? The mechanization of agriculture.
? A growth in population of almost 50 percent.
? A general improvement in social services.
Table 1 shows the dramatic shift in consumption
patterns since Fidel Castro assumed power. The in-
dustrial sector, which consumed energy at less than
half the rate of the agricultural sector in 1957, has
Figure 1
Relative Energy Consumption in
Cuba, 1957-80
10
become the single largest consumer. During the 1957-
80 period, the industrial sector more than quadrupled
its rate of energy consumption. This rapid expansion
reflects the creation of numerous agricultural-
associated industries, efforts to develop substitutes for
some imported products, and Castro's desire to ac-
quire some of the heavy industrial facilities that
symbolize modern development.
Energy consumption in the household sector also
increased sharply during the period. Much of this
expansion resulted from increased availability of elec-
tricity to private homes (particularly in rural areas).
The increase in consumption by the military sector
resulted from the expansion and modernization of the
armed forces initiated by Castro immediately after he
took power. The increase in consumption by the
transportation sector was also rapid.
In contrast, the agricultural sector showed a sharp
decrease in relative energy consumption, from one-
half of total energy consumption in 1957 to only about
one-fourth in 1980. The change resulted primarily
from the much faster growth rate in industrial con-
sumption. Most of the increased consumption by the
agricultural sector resulted from the mechanization of
sugar-harvesting activities.
Dependence on Petroleum. The growth in energy
demand has been met almost totally by imported
petroleum, which has grown from one-half of total
energy supplies in 1957 to more than three-fourths in
1980 (see table 2 and figure 1). While the quantity of
other energy sources has increased only about 13
percent since 1957, imports of petroleum have quad-
rupled. This increase is the result of a conscious
decision made during the 1960s to take advantage of
low petroleum prices. Lacking any significant domes-
tic alternative source, Cuba had no other realistic
choice. Despite sharp increases in world petroleum
prices, subsidized Soviet oil supplies enabled Havana
to increase further its petroleum consumption. The
availability and price of Soviet oil has buffered the
Cuban economy from the severe problems expe-
rienced by other oil-importing LDCs. As a conse-
quence, however, Cuba's economic future hinges on
Soviet oil policy. Even a modest reduction in quantity
or an increase in price could have a serious impact
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Estimated Final Sector Energy Consumption a
(Barrels per day
oil equivalent)
(Percent)
(Barrels per day
oil equivalent)
(Percent)
(Barrels per day
oil equivalent)
(Percent)
Total consumption
107,000
100.0
286,282
100.0
369,873
100.0
Agriculture
54,571
51.0
74,947
26.2
105,677
28.6
Sugar
50,685
47.4
62,545
21.9
91,979
24.9
Bagasse
49,220
46.0
50,336
17.6
74,025
20.0
Oil
1,465
1.4
12,209
4.3
17,954
4.9
Other agriculture
3,886
3.6
12,402
4.3
13,698
3.7
Industry
23,540
22.0
98,427
34.4
126,233
34.1
Nickel d
NA
NA
15,263
5.3
27,713
7.5
Electric power
NA
NA
7,565
2.6
11,468
3.1
Other r
NA
NA
75,599
26.4
87,052
23.5
Transportation B
22,470
21.0
70,970
24.8
81,616
22.1
Household h
4,280
4.0
34,912
12.2
47,339
12.8
Military
302
0.3
4,468
1.5
5,479
1.5
a Because of rounding, components may not add to totals shown.
b Estimates are based on the amounts needed to achieve the
economic targets set for 1985.
Assuming that bagasse to milled cane ratio is 25 percent, that 90
percent of available bagasse is used as fuel by the sugar industry, and
that the moisture content of bagasse is 50 percent.
d Assuming that 20 tons of petroleum are consumed in the
production of 1 ton of nickel.
e Assuming that 285 tons of oil are consumed per million kilowatt-
hours generated, and that 15 percent of generation is lost internally
and through transmission.
r Other heavy users include: citrus, cement, and construction
industries.
B Assuming this sector consumes all gasoline, diesel, jet fuel and
aviation gasoline (except that portion which is reported to be
imported by the military). Although the agricultural sector con-
sumes some of the diesel fuel for crop transportation and the military
sector consumes some gasoline and diesel fuel, there is no data
available to quantify these amounts.
h Assuming this sector consumes all available kerosene, fuelwood,
and charcoal, and 30 percent of the electricity generated.
i Including consumption of electrical power by state ministries,
schools, hospitals, etc. and assuming that these sectors consume 5
percent of generated electricity.
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Estimated Energy Supply a
(Barrels per day
oil equivalent)
(Percent)
(Barrels per day
oil equivalent)
(Percent)
(Barrels per day
oil equivalent)
(Percent)
107,000
100.0
286,282
100.0
369,873
100.0
Imports
54,221
50.7
222,162
77.6
283,286
76.6
Total oil
53,258
49.8
220,192
76.9
281,316
76.1
Crude oil
27,694
25.9
132,543
46.3
NA
NA
Oil products
25,564
23.9
87,649
30.6
NA
NA
Coal and coke
963
0.9
1,970
0.7
1,970
0.5
Domestic production
52,780
49.3
64,120
22.4
86,587
23.4
Oil
522
0.5
5,800
2.0
7,411
2.0
Hydroelectricity
335
0.3
1,204
0.4
1,204
0.3
Natural gas
0
0
333
0.1
500
0.1
Ethyl alcohol
1,205
1.1
704
0.3
704
0.2
Bagasse
49,113
45.9
50,336
17.6
71,025
19.2
Fuelwood/charcoal
1,605
1.5
5,743
2.0
5,743
1.6
a Because of rounding, components may not add to totals shown.
b Estimates of oil imports based on what would be needed to
accomplish goals set in the five-year plan for 1985. Estimate for
bagasse based on Cuba meeting its 10-million-ton sugar goal in
1985.
Although the cost of Soviet oil has risen steadily since
1975, prices remain only about one-half the average
OPEC crude oil price (see table 3). The subsidy rate is
based on an average of the world price for the
previous five years. Even with this subsidy, Cuba's
expenditures for oil have tripled between 1975 and
1980.
These price breaks are becoming increasingly expen-
sive for Moscow. In 1980 foregone hard currency
earnings resulting from the petroleum subsidies grant-
ed to Cuba were equivalent to more than 5 percent of
actual Soviet hard currency earnings.
In recent years the Soviets have begun to cut their
costs by decreasing oil transportation expenses. For
example, since 1978, Moscow has pursued a number
of swap arrangements with third parties. Cuba re-
ceives about 10,000 b/d of crude from Venezuela
under a quadripartite arrangement whereby Venezu-
ela and the Soviet Union switch trading partners-
Venezuela delivers to Cuba and the Soviet Union
delivers to Spain. Cuba also receives fuel oil and
products from Curacao, and fuel oil from France,
both on the Soviet account at subsidized prices.
Possible future arrangements call for another oil swap
between Cuba, Mexico, the USSR, and one of Mexi-
co's European customers, probably Spain, and for a
Swiss firm to provide Cuba with crude from Curacao.
25X
25X
Increasing Energy Requirements. The 1980 Soviet-
Cuban trade protocol called for Soviet deliveries to
Cuba of 11.1 million metric tons (about 220,000 b/d)
of oil and products in 1980, and, although no official
data have been released, Cuba probably received this
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Imports
(Thousand metric tons)
7,812
8,240
9,245
9,500
9,600
11,116
11,500
(Million US $)
332
356
510
715
778
1,035
1,408
Average OPEC crude price b
(US $ per metric ton)
80.78
86.27
94.41
94.78
136.85
226.28
249.22
Soviet price to Cuba
(US $ per metric ton)
42.49
43.22
55.12
75.26
81.03
93.08
122.41
Soviet subsidy
(US $ per metric ton)
38.29
43.05
39.29
19.52
55.82
133.20
126.79
(Million US $)
299
355
363
185
536
1,481
1,458
a Estimated.
b F.o.b. prices set by the government for direct sales and, in most
cases, for the producing company buy-back oil. Weighted by the
volume of production.
This subsidy has been measured by taking the difference between
Soviet prices to Cuba and average OPEC crude prices. Because the
USSR exports both crude oil and products, measuring the difference
between Soviet prices and average OPEC prices probably under-
states the true value of the subsidy.
Cuba's petroleum needs, however, will grow substan-
tially during the next five years. The five-year plan for
1981-85 calls for a major expansion of the industrial
sector and in electric-power generation. Castro
claimed in December 1979 that Soviets had "guaran-
teed" delivery of 61 million metric tons over the
period. In a subsequent speech, however, Castro indi-
cated that fuel imports are expected to increase 10 to
15 percent during the current five-year plan, to a total
of 53-55 million metric tons. The decline in Castro's
expectations could mean that Moscow has reduced
planned fuel deliveries to Cuba because of:
? Prospects of stagnating Soviet oil production over
the 1981-85 period.
? The increasing hard currency cost to the USSR of
maintaining a high level of subsidized oil exports.
Cuba will need at least 13.6 million tons of oil in 1985
to meet targets set in the five-year plan-well above
the average annual delivery of 10.5-11 million tons
that were promised.' For example, the planned 50
percent expansion in electric-power generation will
require about 1.5 million tons more oil than used in
1980. To support increased nickel production as
planned, oil imports must grow by more than 600,000
tons. Planned increases in sugar output will require
another 285,000 tons. An additional 100,000 tons will
be needed to meet the demands of normal population
growth.
? Concern that East European importers of oil who
have been told not to expect any significant increase
in Soviet oil exports during the 1980s (East Ger-
many has already experienced cutbacks in planned
deliveries) would be angered by an increase of
shipments to Cuba.
' Energy needs are based on the following consumption rates: I
gallon of oil per ton of cane ground, 20 tons of oil per ton of nickel
produced, and 285 tons of oil per million kilowatt-hours of electric-
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Havana has no alternative to the USSR as a source of
subsidized oil imports. Castro has worked hard to
develop good relations with several oil-producing
countries (Mexico, Libya, and Iraq). Each may be
willing to export oil to Cuba, but none is likely to
match Moscow's subsidized prices.
Havana could not maintain current import levels if it
were forced to pay the world price. Its ability to
borrow abroad for this purpose is limited, and its hard
currency export earnings will not be sufficient to
finance oil-import needs. Cuba's estimated 1981 hard
currency earnings would finance only half of the
nation's consumption of petroleum at the average
Development of Domestic Resources 2
Oil Exploration. The Castro regime has devoted
considerable effort to finding oil, but present domestic
production, at less than 6,000 b/d, represents less
than 3 percent of total oil supplies.
F
Ethanol-manufactured from the residual syrup (mo-
lasses) obtained during the processing of sugarcane-
could be used as an alternative source, but would
require significant capital investment. Even with a
maximum effort, however, Havana could realize a
savings of less than 2 percent of total energy require-
ments.
Cuba possesses no known anthracite or bituminous
coal deposits. Some deposits of lignite coal have been
discovered, but these are small, and, therefore, un-
economical to develop. Rising coal prices caused sugar
mills and other major coal users to convert to oil in
the 1940s and what little coal is used today is
imported from the USSR.
One possible alternative would be conversion to a
coal/oil mix in thermalelectric power plants. Such an
approach could produce a total petroleum savings of 8
to 10 percent, but would require relatively large
capital expenditures.
Cuba's large deposits of peat offer little potential as
an alternative energy source. The principal obstacle is
that of high costs associated with extraction. Some
fuelwood and charcoal are produced for use as home
cooking fuel, but this amount has been steadily
decreasing since the late 1930s, and now represents
only 2 percent of energy consumption. There is almost
no potential for increased use of these fuels. Hydro-
electricity production accounts for less than 1 percent
of energy consumption because Cuba's hydroelectric
resources are limited. Most rivers are short, narrow,
though some small to medium reservoirs (up to 200
million barrels) may exist off the northern coast of the
island, exploitation of such reserves would require
state-of-the-art US technology. Even with highly ad-
vanced drilling procedures, however, Cuba has little
hope of finding significant oil deposits during the next
five years, if ever.
Nonpetroleum Energy Sources. Even over the long
term, Cuba has little hope of reducing its need for oil.
A full-scale effort to utilize all feasible alternatives
would have little impact before the year 2000. Other
than bagasse, a byproduct of sugarcane milling, Cuba
currently has no significant alternative sources of
energy.' In 1980 this substance provided an estimated
18 percent of total energy supplies. Its use as a fuel,
however, is limited almost exclusively to the sugar
mills, because its bulk and low caloric content make it
difficult and uneconomic to transport.
2 For a more detailed account of domestic and nonoil energy
sources, see annexi
' Bagasse is a moist, fibrous mass consisting of ground stalks and
leaves, which are byproducts from the milling of sugarcane. It has a
relatively low caloric value-1 ton of bagasse is equivalent to only
and shallow.
Nuclear energy offers the principal means by which
Cuba can lessen its dependence on oil. A Soviet-
sponsored nuclear power project has been in the
planning and survey stages in Cuba since 1974, but
preparations for construction did not begin until this
year. Even if large-scale construction of the facility
begins immediately, it would not be operational until
the late 1980s at the earliest. This schedule is not
likely to be met, however, and it is unlikely that
Cuba's nuclear power station will be operational
before the early 1990s.
25X1
25).
25X
25X
25X
25X
25X
25X
25X1
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Even with nuclear power, Cuba's dependence on
Moscow as an energy supplier will not be significantly
decreased since Cuba has no known deposits of urani-
um. All the necessary uranium will probably be
obtained from the USSR, which has vast sources of
the mineral. Another possible supplier is Namibia,
which also has considerable deposits of uranium;
Cuba-with its presence in neighboring Angola-is a
strong supporter of the guerrilla struggle against
South Africa's hold on Namibia
Soviet-sponsored nuclear power projects represent an
attractive alternative to the increasing cost and possi-
ble decreasing supplies of Soviet oil. It is likely,
therefore, that Cuba will seek one or two additional
nuclear generating facilities.
Refining and Storage Facilities. At present there are
only three oil refineries in Cuba, with a combined
production of about 138,000 b/d. Despite consider-
able expansion, the capacity of these refineries has not
kept pace with the surge of imported petroleum,
especially in recent years. Between 1975 and 1980
imports of refined oil products increased by 121
percent, while imports of crude increased by only 13
percent
Efforts are under way, however, to reduce imports of
refined products. Modernization and expansion of the
two largest existing refineries is continuing. Construc-
tion of a fourth refinery, in Cienfuegos, has recently
begun.
Cuba's dependence on steady oil imports is increased
by its limited petroleum storage facilities. Although
storage capacity has increased by about 18 percent
since 1975, there are still only 11 sizable storage sites
on the island, which at capacity hold only about 20
percent of annual petroleum requirements just over
a two-month supply. Moreover, the two largest sites-
at the refineries in Havana and Santiago de Cuba-
constitute over half of Cuba's total petroleum storage
capacity. A major breakdown at either of the two
principal sites could thus seriously affect the econo-
my.
No reliable information is available concerning the
amount of petroleum reserves on the island, but
estimates have ran ed from a low of four to five days
to over a month.
Impact of an Oil Shortage
The already weak Cuban economy would be hit hard
by a shortfall in petroleum deliveries, no matter what
the reason. Cuba probably is most concerned about
the possibility of a reduction in oil deliveries from the
Soviet Union. Because of its own hard currency
shortage, Moscow is not being as generous with its
largess as in the past.I
unlikely Moscow will decrease significantly oil deliv-
A more probable alternative for Moscow would be an
increase in the price it charges Cuba for oil. Moscow
opted for such a course with Ethiopia recently. Cur-
rently Cuba pays a price based on the average world
market price of the previous five years (see table 3). If
Moscow significantly decreased this subsidy level,
Cuba would be forced to decrease its consumption of
oil, or decrease its consumption of other Soviet im-
ports (many of which are basic consumer, industrial,
and agricultural goods and raw materials).
The primary petroleum consumers-industry (44 per-
cent) and transportation (31 percent)-would be most
affected. Agriculture consumes only 11 percent as
most of its energy requirements are satisfied by
bagasse. The military sector would be least affected,
because it consumes less than 3 percent of total
petroleum supplies. During a temporary shortage the
armed forces could receive small allocations from
other sectors and still maintain normal levels of
activity.
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Figure 2
Comparison of Cuban and US Energy Consumption by
Sector, 1980
Although each of the major sectors is undoubtedly
inefficient in its use of energy, conservation efforts
offer little potential for savings during the next five
years-probably not more than 5 percent. During the
past five years, a major effort to reduce wasteful
consumption of oil in the sugar refineries and the
electric-power industry has been under way-the total
savings amounted to almost 4 percent of petroleum
consumption in 1980. Greater savings in these sectors
requires more efficient equipment-something Cuba
cannot readily obtain, given the shortages of foreign
exchange. The transportation sector could also save
10 to 15 percent of its gasoline by converting to
gasohol, but even this would reduce oil consumption
by only 2 percent and would require several years to
accomplish.
? Increase of rates for electric power during hours of
peak demand.
? Termination of illegal hookups to the electric-power
system by private homes.
These sectors, however, offer little potential for a
substantial reduction in energy use. With few private
automobiles, domestic electric applicances, and com-
mercial establishments, these consumers account for
only 14 percent of Cuba's petroleum demand, com-
pared with 35 percent in the United States (see figure
2). For example, even if consumption of the household
sectors was decreased by 20 percent, less than 3
percent of total petroleum consumption would be
saved. Because of the general nonconsumer orienta-
tion of Cuba's economy, such a reduction would have
a sharp impact on an already austere lifestyle. It
would, moreover, counter recent promises of greater
The Castro government also has initiated conservation
measures directed at individual households and com-
mercial sectors including:
? Use of more fluorescent light in homes.
? Decrease of gasoline rations.
consumer welfare.)
25
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Short-Term Options a Petroleum Savings b
(Percent)
Reduce household consumption by 20 to 30 2 to 3
percent.
Reduce consumption of light industry by 5 2 to 3
percent.
Stop mechanical harvesting of sugarcane. 2
a Possible Cuban response to a sudden decrease in Soviet supplies.
b Savings are expressed as a percent of total petroleum consumption
in 1980.
Because Cuba lacks any meaningful conservation
options, a petroleum shortage would force it to curtail
economic activity. With storage tanks full, Cuba
would have enough oil for two months at 1980
consumption rates. If petroleum were also stored in
containers in warehouses, this period would be length-
ened. There is no evidence, however, that warehouse
storage has begun.
In the event of modest shortages (10 to 15 percent),
every attempt would be made to preserve industrial
and agricultural production-particularly that which
provides hard currency earnings (see table 4). Cuts
would be made first in household consumption, par-
ticularly of electricity. Because this accounts for only
7 percent of petroleum consumption, however, other
cuts would be necessary. The next targets for de-
creases would probably be light industry, nonessential
public transportation, and mechanization of sugar-
cane harvesting. These measures could be accom-
plished without severely disrupting the economy, but
some damage would result from reduced production
and the postponement of long-term expansion efforts.
In addition, public discontent would follow decreased
availability of consumer products, electricity, and
Sharp reduction in the already austere
lifestyle.
Virtual termination of all personal travel,
increased worker absenteeism, lower labor
productivity.
Decrease in the supply of consumer goods,
such as shoes, clothing, and detergents.
Requirement for 100,000 to 140,000 addi-
tional persons to accomplish harvest.
transportation. If such shortages were perceived as
being caused by US actions, however, the majority of
the population would rally behind Castro
In the event of severe shortages or a total cutoff,
drastic measures would have to be taken. Industrial
production, electric-power generation, and transporta-
tion services would be greatly reduced, eventually
halted, and the economy would concentrate on pro-
duction of food and goods for subsistence. Sugar
production could continue in the short term, but,
because of its dependence on mechanization, output
would be reduced. The nation could probably manage
at a reduced level of economic activity during the first
two months by stretching out its petroleum stockpiles,
but for a more prolonged period, modern economic
activity would virtually cease.
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Secret
Annex: Domestic Energy
Sources and
Storage Capacity
New Energy
The Castro regime, fully aware of its energy vulner-
ability, has devoted considerable effort to finding new
oil, but domestic production remains grossly inade-
quate. Commercial production, which began in 1915,
provides less than 3 percent of total oil supplies (see
table 2).
Cuba has nine oil-producing areas. The most produc-
tive fields are Guanabo, with 50 drilling sites, and
a new field at Veradero was expected
to produce at east as much as Guanabol
Domestic production in 1981 may thus have
been even less than the modest level of 5,800 b/d in
Until recently, Cuba depended on Soviet and East
European technical assistance. In December 1980,
however, Mexico and Cuba signed a collaboration
protocol calling for trade in processed petroleum
products; assistance from Petroleos Mexicanos
(PEMEX), the Mexican Government-run petroleum
company, in improving Cuba's Nico Lopez refinery in
Havana, to be accomplished in the midterm; and long-
term Mexican aid in oil exploration. The agreement
did not provide for sales of Mexican crude oil to
Cuba, but a quadripartite exchange may be arranged
with the USSR and one of Mexico's European cus-
tomers
Domestic Refining and Storage Facilities
Cuba's three oil refineries are Nico Lopez in Havana,
Hermanos Diaz in Santiago de Cuba and the much
smaller Cabaiguan refinery 25
Their estimated production is shown in the tabulation
below. 2
 Figure 3
Guanabo
Havana a Or. Varadero
+Mariel `Matanzas"
Zapata
Swamp
Cuba
:.14Cabaiguan
Juragua iJatibonico
C Trinidad
L
630552 11-81
1 Major oil field
it Oil refinery
c Oil storage facility
Nuclear facility
Peat deposit
0 Kilometers 75
Santiago do Cuba as
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Nico Lopez
97,000
70.3
Hermanos Diaz
37,000
26.8
Cabaiguan
4,000
2.9
These refineries, despite considerable expansion, have
not kept pace with the surge of imported petroleum,
especially in recent years. Between 1975 and 1980
imports of refined oil products increased by 121
percent, while imports of crude increased by only 13
percent (see figure 2)
Efforts are under way, however, to reduce imports of
refined products. Both the Nico Lopez and Hermanos
Diaz refineries are being modernized and expanded.
Construction of another refinery, in Cienfuegos, has
recently begun, and the first phase is scheduled to be
completed during the current five-year plan
Cuba's dependence on oil imports is increased by its
limited petroleum storage facilities. Although storage
capacity has grown by about 18 percent since 1975,
there are still only 11 important storage sites on the
island (see figure 6). Even at capacity these tanks hold
only about 20 percent of the island's annual petroleum
requirements just over a two-month supply. More-
over, the two largest sites-located at the refineries in
Havana and Santiago de Cuba-possess nearly 60
percent of Cuba's total petroleum storage capacity.
Most of the remaining storage tanks are located at
eight large petroleum depots across the island. Be-
cause of this extreme concentration of storage capa-
city, a major breakdown at either of the two principal
sites could seriously affect the economy. The tabula-
tion below specifies the capacities of Cuba's oil-
storage sites.
Capacity Total Capacity
(barrels) (percent)
15,330,626 100.0
9,103,095 59.4
Nico Lopez (Havana) 5,319,642 34.7
Hermanos Diaz 3,509,035 22.9
(Santiago de Cuba)
Cabaiguan 274,418 1.8
Depots 6,227,531 40.6
Nuevitas 1,087,524 7.1
Matanzas 953,887 6.2
Cienfuegos 658,309 4.3
Moa 535,243 3.5
Mariel 514,607 3.4
Trinidad 348,794 2.3
Puerto Padre 296,811 1.9
Nueva Gerona 82,356 0.5
Other small depots 1,750,000 11.4
Nonpetroleum Energy Sources
Even over the long term, Cuba has little hope of
reducing its need for oil. A full-scale effort to utilize
all feasible alternatives would have little impact be-
fore the year 2000 (see table 5).
Bagasse. Bagasse, a byproduct of sugarcane milling,
is Cuba's only significant alternative source of energy.
Bagasse traditionally has been an important source of
Cuba's energy needs. In 1980 this substance provided
an estimated 18 percent of total energy supplies. Its
relative importance, however, has decreased since the
late 1950s when it provided nearly one-half of total
requirements. The use of bagasse as a fuel is limited
almost exclusively to the sugar mills, as its bulk and
low caloric content make it difficult and uneconomic
to transport.
25X
25X
25X1
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 Approved For Release 2007/02/09: CIA-RDP83B00225R000100030001-7
Long-Term Options for Reducing Oil Consumption
Petroleum Savings a Constraints
(Percent)
Conversion to gasohol. 2
Conversion of thermal electric power plants to 8 to 10
accommodate a coal/oil mix.
Completing nuclear facility under construe- 10
tion.
Construct another 880-megawatt nuclear fa- 10
cility.
a Savings are expressed as a percent of total petroleum consumption
Ethanol. Manufactured from the residual syrup (mo-
lasses) obtained during the processing of sugarcane-
ethanol, or ethyl alcohol, has been used to produce
gasohol (90-percent gasoline and 10-percent ethanol)
as a domestic cooking fuel, and as a raw material for
the chemical industry. After 1969 its use as an energy
source declined sharply as a result of government
policies diverting molasses from ethanol production to
cattle feed production and to exports. Kerosene was
promoted as a replacement for ethanol as a domestic
cooking fuel because it was cheaper. Most ethanol
produced is now used as a raw material-official
Cuban trade data indicates that no ethanol has been
exported since 1974.1
Cuba has, however, recently shown some renewed
interest in the use of ethanol to manufacture gasohol.
Havana could save up to 10 to 15 percent of its
gasoline consumption by doing this. Production of
ethyl alcohol, however, would have to almost double
to achieve this rate of savings, assuming all ethanol
was used to make gasohol. Should it continue to be
used by the chemical industry, production would have
to at least triple.
Would require a minimum of three to five
years to implement and a significant capital
outlay.
Not scheduled to be completed until late
1980s.
Would not be operational before 21st
century.
This could not be accomplished quickly. No new
distilleries have been built since Castro came to
power, so existing ones are almost certainly inefficient
and probably inadequate for a substantial increase in
output. Moreover, a major expansion would have
negative financial consequences:
? Unless financed by a third country, expansion would
require substantial hard currency investment as
opposed to Cuba's existing soft currency arrange-
ment with the Soviet Union for imported gasoline.
Payoffs would occur only in the long run, if then.
? If Cuba wanted to maintain its level of hard curren-
cy earning from sugar exports and expand ethanol
production simultaneously, more sugar would have
to be produced.
Even if production of ethyl alcohol were increased to
the level where Cuba would save 15 percent of its
gasoline consumption, it would produce a savin s of
l cs than 2 nercent of total energy requirements
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Coal. Cuba possesses no known anthracite or bitumi-
nous coal deposits. Some deposits of lignite coal have
been discovered, but these are small, in remote parts
of the island, and therefore uneconomic to develop.
Cuba is thus forced to import all its coal from the
USSR. Coal, however, accounted for less than 1 per-
cent of energy consumption in 1980. Rising coal
prices caused sugar mills and other major coal users
to convert to oil in the 1940s.
Table 6 Million US $
Electricity Generation: Fuel Costs for Oil
and Coal-Oil Mixes a
Coal
Electricity
generation if only
oil is used
Currently, coal is used mainly by gas-manufacturing Soviet oil b 0
plants and as fuel for steam locomotives. It is unlikely World market 0
oil
that
l
w
coa
ill
aga
i
n
b
ecome an important source of
energy since all thermal power plants are designed to
use oil. Conversion from oil to coal is expensive-
practically unfeasible for a country with little invest-
ment capital.
A more likely alternative for Cuba would be conver-
sion to a coal-oil mix in its thermoelectric power
plants. Coal can be ground and mixed with oil up to a
proportion of 30 percent by weight; this would repre-
sent a total petroleum savings of 8 to 10 percent. Oil-
fired plants require only minor renovations to accom-
modate the dense mixture. In addition, preparation
facilities would have to be constructed at each site.
Table 6 provides the estimated total cost of several
possible options
Although Cuba's present energy sources are the most
economic for the short run, some combination of oil
and coal may be necessary in the long term. A
combination of oil and coal would be particularly
favorable if the Soviet Union provided economic
assistance for the conversion and construction costs.
Moscow may favor this approach because it would
decrease its subsidized oil exports by 700,000 tons
(about 5.1 million barrels), representing an annual
savings of about $85 million.' For Cuba, long-run
costs would be decreased as coal, on the BTU basis, is
Electricity
generation using a
coal-oil mix d
Soviet oil 32
and coal d
Soviet oil and 64
world market
coalf
World market 64
oil and coal
Oil
Total
Conversion
Costs
366
36
00
746
746
0
282
314
240
282
346
240
574
638
240
a Based on estimated 1981 electricity generation of 10.5 billion
kilowatt-hours.
b Based on estimated subsidized price of $16.70 per barrel ($122.41
per ton).
c Based on estimated average OPEC crude price of $34.00 per barrel
($249.22 per ton).
d Costs are based on using a 30-percent-by-weight coal
concentration.
e Assuming a subsidized coal price of $32.50 per ton.
f Based on average delivered US price of $65.00 per ton of coal.
This project would become even more favorable if
Moscow were willing to provide coal at subsidized
prices. There are indications that Moscow's exports of
coal to Soviet Bloc countries are priced significantly
below US coal prices, although there are no specific
data available. Nevertheless, the cost to Moscow
would be considerably less than the present arrange-
ment. Assuming the subsidized price was one-half the
only about three-fourths the price of subsidized oil. world price, the savings to the USSR would be
' This figure is based on estimated average 1981 world-market price
of oil of $34 a barrel, a $16.70 subsidized price, and assuming that
Cuba would pay the market price for coalf
reduced from about $85 million to $50 million.I
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Thermal Power. Cuba, with Soviet aid, is reportedly
planning to construct a large ocean thermal power
plant off the southern coast. This is an advanced
process-no completed technology exists yet. The
Soviets possess only limited knowledge in the field and
are attempting to acquire assistance from the Japa-
nese. Even the Japanese are in the experimental
stages, however, indicating that the Cuban project
will require a developmental phase of at least five to
10 years. Thus, this technology will have no impact on
Cuba's energy picture before the 21st century.
Solar. Cuba reportedly is exploring potential uses of
solar energy. It is unlikely, however, that this form of
energy would significantly decrease dependence on
petroleum. Solar energy is used primarily for heating
purposes, and Cuba's heating requirements are mini-
mal.
Nuclear. A Soviet-sponsored nuclear power project
has been in the planning and survey stages in Cuba
since 1974, but construction did not begin until this
year. The generating facility, to be located at Jura-
d
l
Peat. There are considerable deposits of peat in the
Zapata swamp in southern Cuba-estimates range
from 300 to 900 million metric tons. Even the low
estimate represents a substantial amount, but plans
for exploitation apparently have been scrapped for
several reasons:
? Drainage of the swamp and transportation of the
peat would be costly.
? The peat would have a high moisture content, and
therefore would be an inefficient energy source.
? Extraction could irreversibly alter the hydrogeologi-
cal balance of the area and lead to flooding.
Wood. Some fuelwood and charcoal are produced for
use as a home cooking fuel, but this amount has been
steadily decreasing since the late 1930s, as kerosene
and oil-fired stoves gradually replaced wood-burning
models. Although fuelwood and charcoal accounted
for about 8 percent of energy supplies in 1938, they
now supply only 2 percent. There is almost no'poten-
tial for increased use.
u e
gua, on the southern coast of the island, will mc
two 440-megawatt reactors and is similar to Soviet
projects in Eastern Europe.
In late 1974, Castro announced plans to begin work
on one reactor during 1977 or 1978, with completion
expected by 1984. This schedule was significantly
delayed because the first site selected was situated on
a geological fault. Although construction at a new site
has not yet begun, worker and technician housing as
well as a training facility have been built. The Soviet
Union also has surveyed the new site and trained
Cuban scientists in nuclear physics. Even if large-
scale construction of the facility begins this year, it
would n be o erational until the late 1980s at the
earliest.
Although projects of this size normally take only
seven to eight years, additional delays of several years,
perhaps into the early 1990s, are likely because of:
? Constraints on Soviet resources because of high-
priority Soviet nuclear programs under construction
in the USSR and Eastern Europe.
? A substantial testing period because of Soviet wish-
Hydroelectric. Although hydroelectricity production
has increased over time it still accounts for less than
one-half of 1 percent of energy consumption because
Cuba's hydroelectric resources are limited. Most of
the rivers in Cuba are short, narrow, and shallow.
These disadvantages are magnified by the seasonal
flow of the water, which reaches flood proportions
during the rainy season and is meager at other times.
There are only two hydropower plants on the island-
Guase El Guiro, which even at peak flow is marginal,
and Cumanayagua Hanabanilla, which generates
about 1 percent of Cuba's electricity.
es to allay foreign concerns over reactor safety.
? The inherent inefficiency of the Cuban economy.
The completion of the nuclear plant will enable Cuba
to lessen its dependence on oil imports. At a 60-
percent operating capacity, the 880-megawatt facility
would produce the equivalent in electricity of about
23,000 b/d of oil-10 percent of Cuba's total 1980 oil
imports. This will also improve the island's electrical
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Secret
generating capacity-if completed by 1990, the facili-
ty would provide 20 to 25 percent of Cuba's anticipat-
ed total electricity requirements. In addition, the
nuclear power plant would reduce-albeit slightly-
the impact on Cuba of a possible reduction in Soviet
oil supplies during the 1990s.
Cuba's dependence on Moscow as an energy source
will not decrease significantly, however, because Cuba
has no known deposits of uranium. All the necessary
uranium will probably be obtained from the USSR,
which has vast sources of the mineral. Another possi-
ble supplier is Namibia, which also has considerable
deposits of uranium. Cuba and its forces in Angola
support the guerrilla organization struggling against
South Africa's occupation of Namibian territory.
Soviet-assisted nuclear power projects represent an
attractive alternative to the increasing cost (uranium,
on a BTU basis, is considerably cheaper than either
oil or coal) and possible decreasing supplies of Soviet
oil. Cuba, therefore, probably will seek additional
nuclear generating facilities. The Cuban press has
reported that nuclear power will account for more
than 50 percent of the total installed electrical gener-
ating capacity in the 1990s, suggesting that at least
one, and probably two or more additional 880-
megawatt facilities are planned. There are indications
that Cuba plans to build one plant in the province of
Holguin, to accommodate increased industrial activity
in the area. Neither a schedule for construction nor
size of the plant have been determined yet.
 Secret
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