Cuba’s Offshore Petroelum Exploration and U.S. Policy

“It’s just like firing a shotgun in a crystal store,” said Jorge Piñón, a visiting fellow with the Florida International University Latin American and Caribbean Center’s Cuban Research Institute. “You’re going to break something eventually.”

That presents multiple challenges for the Obama administration, which is tasked with protecting the U.S. coastline and waters if a catastrophe begins off Cuba.

“I think there is a lot of a tendency to hold the breath and hope it doesn’t happen,” said Lee Hunt, president of the International Association of Drilling Contractors. “I can assure you that inaction and lack of leadership against a potential disaster would be this administration’s Katrina.”

Administration officials have already upgraded drilling standards for operations off the U.S. coast and have established a partnership with Mexico to set higher bilateral standards in the Gulf of Mexico since last year’s historic spill. And Bureau of Ocean Energy Management, Regulation and Enforcement Director Michael Bromwich said last week that “the issue of drilling offshore Cuba has been on our screen for many months.”

“I can say that this issue has been focused on and discussed in very high levels of the government,” Bromwich said.

The Spanish company Repsol is expected by January to begin drilling a deepwater exploratory oil well off Cuba in waters about 60 miles south of Key West and slightly deeper than BP’s doomed Macondo exploration well. Other exploratory wells from the same Chinese-built semi-submersible rig owned by the Italian company Saipem would follow in subsequent months — involving companies such as Russia’s Gazprom.

“Politicians don’t like to take the risk with Cuba unless they see a clear positive payback of some sort,” said Bill Reilly, a former EPA administrator under President George H.W. Bush. “Now that we see the rig approaching Cuban waters, the political calculus will change.”

Reilly — who co-chaired a bipartisan commission that investigated last year’s Gulf spill — and Hunt were among a group granted permission by the administration to trek to Havana in early September to talk to senior Cuban officials in the absence of direct talks between the two governments.

“The message was drilling in deepwater is a highly challenging, risky, technologically complex job, and the lessons of Macondo show that even very experienced companies and very practiced regulators can get it wrong,” Reilly said.

Hunt, who was following up on a trip he made to Cuba last year, said the biggest difference between the two trips is the Cuban government “had taken a great deal more investigation” into safety and other protocols adopted by the U.S. and Mexico.

“In a way, I would say in 2010 they had a very solid regulatory plan. In 2011, they had a fairly sophisticated regulatory plan,” Hunt said. “I don’t have too many concerns about their ability to drill safely.”

Reilly and former Royal Dutch Shell Vice President Richard Sears, the chief technical adviser to the president’s spill commission, were in Cuba to explain the commission’s recommendations and findings.

“Turned out they knew the oil spill commission’s recommendations cold,” said Reilly, who later briefed Bromwich and White House officials about the trip. “That was kind of surprising and reassuring. They are aware they have very serious challenges, as any country that’s never done this before should have.”

But for many, the main concern is that U.S. equipment and personnel would not be ready to act quickly enough to respond to a spill.

“What’s in place from the U.S. side to respond and basically prepare for a worst case or really a spill of any kind?” asked Dan Whittle, director of the Environmental Defense Fund’s Cuba program, who was also on this month’s five-day trip to Havana.

Because of the decades-old U.S. embargo against Cuba, Hunt said, many resources would have to be shipped from as far away as the North Sea, the United Kingdom, North Africa or Asia.

Reilly, Hunt and Whittle are among those asking the Obama administration to grant general licenses or narrow emergency exemptions to the embargo to ensure that U.S. companies of all stripes can assist in preventing and responding to a subsea well leak.

The Commerce Department and the Treasury Department’s Office of Foreign Assets Control have granted licenses to some U.S. companies that operate in Cuban waters, including those that could help with oil spill preparation and response. Both agencies promised to act quickly on any additional approvals that are required.

But some say granting a wider exemption is needed so that various companies — including parts manufacturers and vessel and plane operators — can respond quickly.

“It’s very complex, so the easiest way is to issue a general license and to make sure that the general license is only to be used during an emergency,” Piñón said. “There are hundreds of companies. We don’t know who is going to have that valve that is going to be needed.”

For example, well containment systems developed by the Marine Well Containment Co., a coalition of major Gulf oil producers that formed after last year’s spill, and the Helix Energy Solutions Group were instrumental in the Interior Department’s decision to start granting deepwater drilling permits again this year. Repsol has contracts with MWCC and Helix for their operations in U.S. waters, but not in Cuba.

Bromwich said he is not pressuring the Treasury to issue or not issue a general license to companies.

“It would be in the national interest to make sure that everything that can be done certainly in U.S. waters is done,” he said. “Whether it goes beyond that, I think, is among the issues that are being discussed in high levels of the government.”

Regular talks also continue with Repsol, Bromwich said.

But while Cuba appears willing to adopt offshore drilling standards modeled after those in the U.S. and Mexico, Piñón said there needs to be direct talks between the two governments.

While the embargo tightened during the George W. Bush administration, the Obama administration has loosened some sanctions, including easing specific travel restrictions in January.

One challenge will be the politics in Florida, which will again be a swing state in the 2012 election. The state includes critics of any oil or gas drilling near the state’s coastline, along with hard-line Cuban refugees who wince at any melting of relations with the Castro regime. Florida congressional members from both parties have offered bills punishing companies that operate in Cuba.

Republicans on Capitol Hill, and potentially on the presidential trail, could also accuse the Obama administration of focusing more on shoring up Cuba’s domestic energy production rather than at home.

But Florida political observers say any concern about fiddling with the embargo runs a distant second to the state’s economic doldrums and the devastating impact that a spill could have on the Sunshine State.

“It’s much more of an issue for the Republican candidates than it is for the administration,” said Florida Republican strategist Ana Navarro. “I frankly don’t think the administration cares about the hard-lined Cuban-American vote, and I don’t think the hard-lined Cuban-American vote cares for the administration. And I don’t think that’s changing anytime soon.”