September 24, 2019 / 12:58 PM / 20 days ago

Explainer: What is causing Cuba's acute shortage of fuel?

(Reuters) - Long lines of drivers at gas stations in Cuba and hours of wait for public transport are signs of the impact of sanctions imposed by the United States this year on the Caribbean island and its main ally, oil producer Venezuela.

President Miguel Diaz-Canel this month warned Cubans of difficult times ahead due to limited fuel imports. He exhorted citizens to show solidarity and do their utmost to improve energy efficiency.

WHEN DID THE FUEL SHORTAGE START?

Cuba has relied for decades on crude purchases from allies to feed its refineries. It also imports fuel to help satisfy consumption of about 145,000 barrels per day by power plants, industrial complexes, gas stations, airports and homes.

Fuel shortages have gradually grown worse since Cuba’s main ally, Venezuela, started reducing oil shipments as far back as 2016 after its own production declined and its economy slipped into a deep recession.

A bilateral pact signed in 2000 allows Cuba to pay for Venezuelan oil imports by offering services to the South American country ranging from doctors to advisers.

Venezuela had until 2015 supplied Cuba with about 90,000 bpd of crude and fuel. But a first round of U.S. sanctions on Venezuela in 2017 limited PDVSA’s access to financing, aggravating its output decline and curtailing investment in the industry.

As of 2017, Cuba produced just 51,000 bpd of crude, according to the most recent available data from the country’s National Office of Statistic and Information.

Analysts say it is hard for Cuba to cover the shortfall with its fuel consumption by importing at market prices, given it is strapped for cash.

Faced with fuel shortages, the country has implemented a series of austerity measures in recent years like cutting public street lighting and air conditioning usage in state institutions.

WHY DID THE SITUATION SUDDENLY GET SO MUCH WORSE?

The Trump administration imposed sanctions in January banning U.S. firms or U.S. subsidiaries of foreign firms from selling fuel to Venezuelan state oil company PDVSA both for domestic consumption and for re-exports. The measures also ban any trade in dollars with PDVSA or its units.

Washington in July also sanctioned specific vessel operators covering the Venezuela-Cuba route and the entity receiving Venezuelan oil, state-run Cubametales. The nations have since struggled to find tankers to transport the oil.

Cuba imports not only crude from Venezuela but also gasoline, diesel, fuel oil, lubricants and cooking gas, according to internal PDVSA data.

IS VENEZUELA SUPPLYING CUBA AMID SANCTIONS?

Yes. But volumes have decreased. Venezuela this has sent year some 55,300 bpd of crude and fuel to Cuba, below the average of the last decade, according to internal PDVSA data and Refinitiv Eikon data.

A vintage car passes by a thermoelectric plant in Santa Cruz del Norte, Cuba, September 23, 2019. REUTERS/Alexandre Meneghini

In 2018, PDVSA supplied Cubametales with some 89,000 bpd of crude and products, according to PDVSA’s internal data.

PDVSA in turn has increasingly had to import refined fuel for its own domestic market, according to company data.

HOW IS VENEZUELA TRANSPORTING OIL TO CUBA?

PDVSA is no using a large portion of its own fleet to transport Venezuelan crude and fuel to Cuba, including tankers Manuela Saenz, Icaro, Terepaima and Yare.

Vessels owned by a joint Venezuela-Cuba transportation company, Transalba, also are covering the route, but the number of vessels operators and maritime crew willing to touch Venezuelan or Cuban ports has decreased in recent months due to the sanctions, according to shippers.

IS CUBA IMPORTING FROM OTHER COUNTRIES?

Yes, but the island still overwhelmingly relies on oil supplies from Venezuela.

From July through mid-September, Cuba imported 50,000-100,000 bpd, mostly from PDVSA. Vessels loaded with imports coming from Russian ports, Caribbean terminals and oil hubs such as Rotterdam also arrived at Cuban ports in recent weeks, according to the Refinitiv data.

Reuters was unable to identify all the companies chartering vessels to the island.

WILL THERE BE A PROMPT RECOVERY?

Cuba’s president has said the situation should normalize in October as shipments have already been guaranteed for that month.

Analysts are not so confident. Cuba does not have a large number of oil suppliers since the U.S. government imposed an embargo on the island nearly 60 years ago and growing problems to find vessels are creating new obstacles to imports.

The country is also strapped for cash.

Other than Venezuela, Algeria historically has supplied up to 5,000 bpd as barter, mostly for ophthalmology services received from Cuba, said Jorge Pinon from the University of Austin in Texas.

WHAT IS CUBA DOING TO PALLIATE THE CRISIS?

Cuba this month reduced the frequency of public transport and cut industrial production in order to save energy so it can ensure basic services like hospitals and food distribution.

Slideshow (10 Images)

Government officials have been encouraging citizens to make the most of natural daylight to save electricity and have urged the use of more animal power to save on diesel.

So far, there have been no major blackouts. The president has warned there could be but, if so, said they will be planned and announced beforehand.

Reporting by Marianna Parraga and Sarah Marsh; Editing by Dan Grebler

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