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As fuel prices rise, new bills seek to let U.S. companies sign oil deals with Cuba
CubaNews / June 2006

By Larry Luxner

Spanish, Norwegian, Indian and Chinese companies have announced they’ll soon be drilling for oil only 50 miles off the Florida coast in Cuban waters — setting off a political firestorm in Washington over whether U.S. companies should be allowed to do the same.

On May 23, Spain’s Repsol YPF formally teamed up with Norsk Hydro and India’s ONGC Videsh to explore six offshore blocks in the Gulf of Mexico where high-quality crude was discovered two years ago.

Under that deal signed with Cuba’s state-run Cubapetróleo (Cupet), Repsol will get a 40% stake in that project, while Norsk Hydro and ONGC Videsh will get 30% each. Reuters quotes Egil Gloppen, international business development director at Hydro Oil & Energy, as saying exploration plans include 3,000 sq kms of 3D studies to be completed this month.

“2008 is probably the earliest [we could start drilling], unless we come across a rig that can be used immediately, but that is not very likely,” Gloppen told the news service, explaining that there were only 20 to 30 rigs in the world than can drill at such depths.

Cupet, meanwhile, recently signed an oil production-sharing accord with China’s Sinopec Corp. to produce heavy oil with Cupet in western Pinar del Río from onshore wells. China is reportedly renting towers for directional drilling in oil fields run by Canadian companies Sherritt International and Pebercan Inc. along a coastal oil belt producing heavy oil and gas used to generate electricity.

All this infuriates Rep. Jeff Flake, an Arizona Republican whose anti-embargo views are well-known (see our exclusive interview with Flake in the December 2003 issue of CubaNews, page 8).

In May, Flake introduced a bill, H.R. 5353, that would allow U.S. companies to develop energy resources in Cuban-controlled waters. Sen. Larry Craig (R-ID) has introduced a similar bill in the Senate.

“Congress has kicked around a lot of silly ideas about how best to ease our energy crunch,” Flake said in a prepared statement. “There needs to be a compelling reason why American firms are barred from exploring energy resources so close to home, and I’m not sure that a 45-year-old failed embargo qualifies as a compelling reason.”

Flake argues that the embargo, which dates from 1962, should be discontinued — at least for oil companies — at a time when worldwide demand for oil places the United States in ever-greater competition for oil and gas resources.

Craig, who in the past has argued for more trade opportunities in Cuba for American companies, completely agrees with Flake.

“The American public would be shocked and stunned that, as this country faces a serious energy crisis at home, countries like China, India, Canada, Spain, and Norway are exploring and drilling 50 miles off the U.S. coast,” Craig said. “China, as our National Security Strategy points out, is trying to lock up resources around the world, and they are locking up resources in our own backyard where we can’t even compete and play ball.”

According to the Arizona Republic, U.S. multinationals have been eager to do some of the same exploration since the discovery of oil deposits off Cuba’s northern shores two years ago.

Areas of that “exclusive economic zone of Cuba” extend to within 52 miles of the Florida Keys, and less than 86 miles of the Florida Peninsula.

“It defies common sense not to explore our options over in Cuban waters,” Flake spokesman Matthew Specht told The Hill in an article published Jun. 7. “When we get serious about [drilling in the Arctic National Wildlife Refuge], why can’t we get serious about this?”

A U.S. Geographical Survey report in 2004 estimated there are 1 billion to 9.3 billion barrels of undiscovered oil and 1.9 trillion to 22 trillion cubic feet of undiscovered natural gas along the northern coast of Cuba.

“Our technical people see this as a good prospect,” said Uttam Sengupta, senior vice-president of ONGC Videsh, the overseas subsidiary of Oil and Natural Gas Corp., India’s largest integrated oil and gas company.

“The U.S. industry thinks it is too bad they cannot compete so close to their own turf,” Gloppen said.

Cuba currently produces 60,000 barrels per day of poor-quality oil and is dependent on its ally Venezuela for imports of about 98,000 bpd of oil and derivatives. Last month, President Hugo Chávez announced the creation of a joint venture between Cuba and Venezuela to overhaul the Soviet-built oil refinery in Cien-fuegos, in a project that could eventually cost up to $1 billion (see related story, box below).

“Whether or not these oil wells ever get built, the real value of Cuba’s efforts, as well as the Craig/Flake bills, is that they highlight the absurdity of our own outdated offshore drilling policy, which contributes to today’s high prices,” says Ben Lieberman, a senior policy analyst at the conservative Heritage Foundation. Lieberman, writing in The Hartford Courant, says “members of Congress want to open the restricted offshore areas around the country. If Castro’s pro-drilling policy serves as a wake-up call that helps that happen, then he will have done America a rare favor.”

Perry A. Fischer, editor of the Houston-based trade publication World Oil, told CubaNews in an e-mail that “if good, normal amounts of oil continue to be found —10 million barrels here, 50 million barrels there, then it will help Cuba, but have little if any impact on relations between Cuba and the United States.

“However, if by some miracle, billions of barrels were to be found, enough to make Cuba a significant oil exporter, then I think it would have a warming effect on relations,” said Fischer, “as the U.S. would be sure to want some of that oil.”

Jonathan Benjamin Alvarado, a University of Nebraska political science professor who’s done extensive research on Cuba’s energy sector, told media sources earlier this year that “the cry from the American Petroleum Institute and other actors in Washington will be very loud” if Cuba’s current oil exploration efforts generate positive results.

Alvarado also says U.S. oil firms like Halli-burton may start taking their protests to the White House if a major Cuban oil find reaps benefits for foreign exploration companies currently operating off Cuban waters.

During a recent interview with CubaNews, though, Alvarado tempered his comments, warning that “I don’t think we’ll see any movement because of George W. Bush.”

Alvarado also said that the U.S. oil industry may look at Cuba as a possible site for additional storage facilities, given the problems of last year’s hurricane season — in particular Louisiana in the wake of Hurricane Katrina.

“In the long run, Cuba becomes part of the equation [of U.S. energy security],” says Alvarado. “It’s in the best interest for Americans to engage the Cubans.”

Despite its potential importance, none of the major U.S. oil companies would comment to CubaNews on this topic. API, a frequent lobbyist for the oil industry, keeps a low profile when it comes to Cuba.

“API does not get involved in individual member company businesses, and we cannot speculate on international relations,” API spokeswoman Susan L. Hahn told CubaNews in an e-mail. “The U.S. currently has trade sanctions against both Iran and Cuba, and API member companies abide by the laws of the land. We would note, however, that it is ironic that Cuba will be drilling well under 100 miles off Florida’s coast, while the state won’t allow exploration and production by U.S. companies, with their outstanding operating record, within 100 miles of the coast.”

Meanwhile, Florida's two senators, Democrat Bill Nelson and Republican Mel Martínez, are pushing legislation that would set up a 150-mile buffer around the state. They criticize a proposal by Rep. John Peterson (R-PA) to allow drilling only 20 miles from the nation’s shoreline.

“Any oil spill 45 miles from Key West is going to absolutely devastate all those delicate coral reefs, the fragile Florida Keys, and would endanger pristine beaches all the way up to Fort Pierce,” warns Nelson.

Martínez calls Peterson’s bill insane.

“That’s all the more reason we need protection,” the Cuban-born senator said of Castro’s energy exploration. “What it does is redouble my efforts to try to prevent it, not only from drilling here, but from Castro. The insanity of someone suggesting that in the state of Florida you should be drilling within 20 miles is crazy. That is just completely off the wall.”

Yet Peterson is unlikely to be deterred.

“Imagine what Castro is thinking as we spend our time quarreling over whether we should produce American energy 100, 150 or 250 miles from the Florida coast while he makes arrangements to set up shop hundreds of miles closer,” Peterson wrote in a recent letter to the Miami Herald. “He must love that we’ve allowed emotion to win out over reason, facts to be dwarfed by fear and our nation’s energy policy to be driven by unreasonable environmental concerns.”

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