October 2, 2014

Editor's Column

Deep water: Oil drilling off Cuba is cause for concern

Mark R. Howard | 3/22/2012

Mark Howard
Mark Howard,
Executive Editor

It's unclear whether the drilling platform now floating in the Florida Straits 30 miles off Cuba's north shore will actually find oil. The U.S. Geological Survey estimates there may be some 4.6 billion barrels of recoverable crude in Cuba's North Basin, but who knows? It's also unclear, if oil is found, how long it will take to begin pumping it out of the ground — some experts estimate three to five years.

Whether it finds oil, however, the Scarabeo-9 rig already serves as a giant monument — to how toothless our embargo against Cuba has become and to how expensive and dangerous it is to continue that 50-year-old policy.

Let's start with the expense. The consortium of companies hired by Cuba to drill includes a lead firm, Repsol, from Spain, a Norwegian firm, Statoil, and a unit of India's Oil and Natural Gas Corp. The embargo means American oil firms couldn't compete for that business. And it means American equipment suppliers, with a few loopholes, can't do business with the consortium and with the Italian firm, Saipem, that had the rig built (in China) and operates it. The "only major U.S.-made component in the rig" is its blowout preventer, according to a Congressional Research Service report.

That's a lot of potential jobs and manufacturing and service dollars left on the table. If we're going to be outraged at the potential jobs and profits affected by the president's decision to delay construction on the Keystone Pipeline, then we ought to be a little annoyed at the opportunities lost to the embargo as well.

But forget about the money. The embargo also meant that when Cuba began to proceed with its drilling plans the U.S. was limited in how it could try to ensure safety and plan cleanup measures in the event of a spill.

We should be concerned: The drilling will occur barely 50 miles from Key West. Currents are likely to carry pollutants from the drilling process or from a spill right onto the beaches of south Florida, as well as through Florida's reef ecosystems — the largest in the U.S. A report from Nova Southeastern and Florida International universities warns that "substantial efforts" are needed to prepare the U.S. and Florida for a possible spill "whether or not there is close cooperation with Cuba."

Additional considerations: The Cubans have little experience with deepwater drilling (Repsol got a contract to drill one exploratory well in 2004) and no experience dealing with big oil spills. I had lunch recently with the retired head of a major U.S. oil company who confided that while Repsol has a reputation in the industry as a responsible and capable operator, it's considered "second tier" in terms of the sophistication of its operating procedures compared to firms like ExxonMobil and Shell.

The U.S. government has, quietly, behaved like a responsible adult. Since 2001, according to the Congressional Research Service report, a cooperative based in Fort Lauderdale, Clean Caribbean & Americas, has had licenses to send technical advisers and trainers to help foreign oil companies in Cuba plan how they'd respond to a large oil spill. More recently, as the rig made its way to Cuba, the U.S. government allowed representatives from the Texas-based International Association of Drilling Contractors to travel to Cuba to discuss safety and environmental issues with the Cubans. And the administration got permission for representatives from the U.S. Interior Department and Coast Guard to inspect the rig before it was towed into place.

In embargo-world, however, cooperation has limits: Whatever advice the inspectors gave to Repsol isn't binding. And, according to Bloomberg Businessweek, the inspectors weren't able to inspect the blowout preventer or the well casing and drilling fluid that Repsol will use. Meanwhile, companies that might help to respond to a spill will have to get special licenses from the U.S. government. Several firms have gotten licenses, according to Bloomberg, but not the firm that makes the blowout preventer. If there's a problem, help may be slow in coming.

Amid the limited cooperation, embargo politics has provided a whiny, pointless backbeat. U.S. Reps. Ileana Ros-Lehtinen and Vern Buchanan have sponsored bills that would punish, in various ways, any company anywhere that helped Cuba explore its oil resources.

I understand the historical resentments and anger of a generation of Cubans forced out of their homeland by a tyrant. The Castros are evil and continue to imprison people like me with inconvenient opinions. But our country does plenty of business with countries that have repressive governments, including Vietnam, where more than 50,000 Americans died less than a generation ago.

And after 50 years, the scorecard on the embargo looks something like this: It hasn't put the Castros out of business and won't stop them from drilling. It made it difficult for the U.S. government to safeguard Florida waters, and it has made the whole process less safe. It made it impossible for U.S. firms to compete for business they might have won, while simultaneously antagonizing friendly countries involved in the drilling. In fact, the only way American firms are likely to make any money is if it fails.

This is success?

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Tags: Editor's column, Energy & Utilities

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