Wednesday, May 10, 2006

Cuba Plans Offshore Wells Banned in US Waters

May 9, 2006
Cuba Plans Offshore Wells Banned in U.S. Waters

WASHINGTON, May 8 — In 1977, the United States and Cuba signed a treaty
that evenly divided the Florida Straits to preserve each country's
economic rights. They included access to vast underwater oil and gas
fields on both sides of the line.

Now, with energy costs soaring, plans are under way to drill this year —
but all on the Cuban side.

With only modest energy needs and no ability of its own to drill, Cuba
has negotiated lease agreements with China and other energy-hungry
countries to extract resources for themselves and for Cuba.

Cuba's drilling plans have been in place for several years, but now that
China, India and others are involved and fuel prices are unusually high,
a growing number of lawmakers and business leaders in the United States
are starting to complain. They argue that the United States' decades-old
ban against drilling in coastal waters is driving up domestic energy
costs and, in this case, is giving two of America's chief economic
competitors access to energy at the United States' expense.

"This is the irony of ironies," Charles T. Drevna, executive vice
president of the National Petrochemical and Refiners Association, said
of Cuba's collaboration with China and India. "We have chosen to lock up
our resources and stand by to be spectators while these two come in and
benefit from things right in our own backyard."

The United States Geological Survey estimates that the energy field on
Cuba's side alone may have 4.6 billion barrels of oil and 9.8 trillion
cubic feet of natural gas. That much energy is equivalent to just a few
months of the United States' total energy consumption.

The survey does not specify how much of an energy reserve is on the
United States' side of the Florida Straits, just north of Cuba. But
almost all of the country's Outer Continental Shelf, waters within 200
miles of shorelines, has been off limits to drilling since the early
1980's because of Congressional bans and executive orders.

President Bush, who renewed the 1977 treaty last December for two years,
has cited China's growing demand for oil and international efforts to
obtain it as prime reasons for high gasoline prices. The latest version
of the administration's national security strategy, issued in March,
warned that China's leaders were "acting as if they can somehow 'lock
up' energy supplies around the world."

To Mr. Drevna and others who are lobbying Congress to end the
prohibition, energy exploration in coastal waters represents a strong
step toward energy independence and lower prices.

The Interior Department estimates that the Outer Continental Shelf has
more than 115 billion barrels of oil and 633 trillion cubic feet of
natural gas available for extraction. At current levels of consumption,
that would satisfy the nation's oil needs for about 16 years and its
natural gas needs for about 25 years.

Opponents of drilling in United States waters are equally passionate in
their arguments, saying that drilling for oil off the coast poses
environmental risks and that drilling for finite supplies undermines
long-term conservation solutions. They also say modest supplies of
additional oil would not necessarily lower gasoline prices in the United
States because oil is traded on a world market.

But drilling proponents say the time has come to end the bans,
especially with plans by China and India to capture oil and gas so close
to the United States shoreline.

"My fear is for the future of America," said Representative John E.
Peterson, Republican of Pennsylvania, who has collected more than 160
co-sponsors for a bipartisan bill that would open coastal waters for
development of natural gas. "We have a natural gas crisis, and it's the
biggest threat we have to the American economy."

Senator Larry E. Craig, Republican of Idaho, took narrow aim at the
activities planned for the Florida Straits and recently complained on
the Senate floor, "Red China should not be left to drill for oil within
spitting distance of our shores without competition from U.S. industries."

Cuba has divided its side of the Florida Straits into 59 lease areas. As
of the end of February, foreign countries had secured the rights or were
negotiating the rights to 16 of them, according to Cuban government
documents provided by the Cuban Interests Section in Washington.

Kirby Jones, founder and president of the U.S. Cuba Trade Association, a
group that promotes United States business interests in Cuba, said Cuba
had signed agreements with companies from China, India, Spain and Canada.

At a recent trade conference in Mexico City arranged by Mr. Jones, Cuban
officials invited American oil companies to bid for the other leases on
the Cuban side of the Florida Straits even though drilling in Cuban
waters would violate the United States' longstanding trade embargo
against Cuba.

The purpose, Mr. Jones said, "was to let the American oil executives
know what is happening in Cuba."

United States oil companies would have a right to bid for Cuban leases
under legislation Mr. Craig is drafting. Dan Whiting, his spokesman,
said the measure would seek an exemption like the one created several
years ago for United States companies to sell food and medicine to Cuba.
But an exemption for drilling seems uncertain, given the large number of
lawmakers staunchly opposed to any economic relationship with Cuba as
long as Fidel Castro is president.

Mr. Craig's measure would be one of several Senate bills aimed at
drilling in coastal waters. Two pending measures would approve
operations in a small tract of the Gulf of Mexico, one of the few
coastal areas where drilling is allowed. And a measure introduced two
weeks ago by Senator Bill Nelson, Democrat of Florida, who opposes
drilling within 150 miles of Florida's coastline, would block renewal of
the 1977 treaty and then deny foreign companies access to United States
markets if they continued to drill in waters close to Cuba.

Mr. Peterson said his bill focused only on natural gas because of its
importance to the American manufacturing industry, particularly chemical
companies, which spend huge amounts on natural gas to make their products.

The average price of a gallon of gasoline has increased by 126 percent
since early 2000, to a current average of $2.96 per gallon, according to
the Energy Information Administration. Natural gas prices have jumped by
152 percent in the same period, to $6.56 per thousand cubic feet. It is
a rate the National Association of Manufacturers says has contributed to
the loss of more than 3.1 million jobs since 2000 through plant closings
and relocations offshore.

Mr. Peterson's bill is one of several proposing to open coastal waters
that House lawmakers are expected to consider before long. Brian
Kennedy, a spokesman for Representative Richard W. Pombo, Republican of
California and chairman of the House Resources Committee, said Mr. Pombo
planned to introduce a bill that would give states control of the first
125 miles of waters beyond their shorelines.

Last week, American business executives visited lawmakers on Capitol
Hill to lobby for any change in policy that would open up coastal
waters, particularly those near Cuba.

"It's such an easy fix," said John Paro, president and chief executive
of the CPH Holding Corporation, a chemical company in Chicago. "We have
the supply, and it's close. I just wish the public would recognize how
easy this problem is to deal with."

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