OREANDA-NEWS. January 19, 2017. Venezuela's sharp cutback in crude and products supply to Cuba has sparked an energy crisis that threatens to harm the island's emerging tourism industry.

The 65,000 b/d Cienfuegos refinery, owned and operated by Cuban-Venezuelan joint venture Cuvenpetrol, is running 20,000-25,000 b/d of crude because of the feedstock shortage, an official of state-run energy company Cupet tells Argus.

The island is seeking to increase oil supplies from its erstwhile patron Russia, as well as Iran and Algeria.

The fuel shortages could be "damaging" to the government's efforts to expand tourism that has been growing following a thaw in relations with Washington, the official says. "The concern is not just more power cuts, but also fuel for ground transportation, and aviation fuel for the high numbers of flights to the island by US airlines."

The Cienfuegos refinery, located on the island's southern coast, "could be furloughed if new sources of adequate crude are not found as this level of processing is uneconomic, and there is uncertainty about the continuation of supply from Venezuela."

The refinery produces gasoline, diesel, LPG, naphtha, jet fuel and fuel oil. About 90pc of the product yield was consumed locally, according to Cupet, but all exports of refined products have ceased "to ensure there is enough to meet domestic demand," the official said.

Fuel supplies are being "redirected to sensitive operations" such as power plants in major cities, and gasoline is being "carefully apportioned" so "essential" ground transportation is not "seriously" affected.

Power cuts have increased since July 2016 when the reduced oil supplies from Venezuela forced the government to order an indefinite 50pc reduction in power and fuel use by state agencies.

Cuba's president Raul Castro told parliament in July 2016 that Venezuela had reduced oil supplies "despite the firm will of President Nicolas Maduro and his government to fulfill these supplies."

PdV had been supplying around 80,000 b/d of crude and products to Cuba under preferential terms as late as 2015, but supply was halved in 2016.

The dwindling imports from Venezuela supplement around 50,000 b/d of liquids and 20,000 b/d equivalent of natural gas, from Cuba's onshore and shallow-water reservoirs.

Discussions between Cuba and Russia about supplying oil started in September 2016.

"We have been getting some oil from Russia, but the intention is to increase the volumes, and to have a regular schedule of deliveries," the Cupet official says, adding that the negotiations are being conducted through Cuba's foreign trade ministry.

Cuba's foreign trade ministry has not responded to a request from Argus for details.

Moscow had been the prevailing source of Cuba's oil imports until the collapse of the Soviet Union in 1991. Under that arrangement, Cuba bartered sugar for the oil.

Cuba and the US signed an agreement in February 2016 allowing commercial flights between the two countries, 53 years after flights were suspended as part of Washington's economic embargo on the island.

The start of flights in August 2016 was accompanied by concerns about the availability of aviation fuel in the island in quantities needed by the airlines.

"This has not been a problem so far, but clearly the government has to ensure there are no shortages that can interfere with the flight schedules," the Cupet official says.