China May Drill for Oil Off Florida Coast

Florida Keys
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Castro Sneaks One By Inert U.S. Lawmakers

Cuba has inked deals with Spanish, Canadian, and Chinese oil companies for offshore oil exploration within striking distance of the Florida Kys raising the potential for a battle between environmental, energy, and national security issues.

The story is getting little air play, although conservative talk show hosts have recently devoted some time to it.

At the center of the controversy is whether the U.S. is allowing foreign governments, some hostile, to lay claims on what could be an extraordinary find.

Congressional Battle

The story came to light in the Miami Herald over the last few days, although there have been some hints for months, since Cuba and China have been quietly signing exploration leases in areas covering 50 miles northwest of the island.

According to the Herald, Florida's Democrat Senator Bill Nelson is working on "legislation that he says could prevent Cuba from drilling in its waters some 50 miles off Key West."

The legislation would be based on the expansion of an agreement negotiated during the Carter administration. "The Florida Democrat says his bill would block President Bush from renewing a 1977 international agreement that allows Cuba to conduct commercial activity in waters off its coast, near the Keys -- unless the administration secures an agreement to prevent Cuba from putting oil rigs near Florida."

The Herald added: "The legislation is likely to rile already testy U.S.-Cuban relations, and it was unclear - how the United States might enforce a ban on Cuban drilling for oil or natural gas in the Florida Straits if the agreement lapsed. However, according to a draft of the bill obtained by The Miami Herald, the legislation would seek to discourage foreign oil companies from drilling near Cuba by imposing sanctions against them."

This is not a new battle, but it is a new wrinkle.

According to the Hill, as early as February 2006, the White House had proposed an expansion of oil exploration off the Florida coast: "The Interior Department's draft five-year plan, which would set federal oil and gas policy from 2007 to 2012, would open 2 million acres in the Gulf of Mexico, part of an area known as Lease 181, if approved."

The conflict, though is still about how close to the Florida shore the U.S. is willing to go. In February, according to the Hill, the talk was to keep the activity at least 100 miles away from the U.S. shoreline.

The Players

Two things are clear, U.S. companies are shut out of the deal, as Spain's Repsol, China's Sinopec, and Canada's Sherritt International have signed deals with Cuba.

The other is that while U.S. Senators can pontificate about limiting the distance for drilling operations from U.S. shores, Cuba is not bound by U.S. laws. According to the Herald: "Some sectors come as close as 50 miles off Key West, and industry analysts have suggested there are at least 1.6 billion barrels of crude-oil reserves in the area. So far, the efforts have proved disappointing but they continue."


With oil trading near $75 it's no surprise that high risk areas such as the waters northwest of Cuba are attracting attention from governments and international companies.

The issue is complex, with environmental concerns mixing with sovereign and territorial rights, as well as national security.

On the environmental side, China's record is one of the worst in the world, with frequent chemical spills drifting along its rivers, and working their way into the Russian water supply.

Cuba's government's feelings about the U.S., and the current administration are also well known, as are China's, which lends a national security angle to the situation.

Politics is also at the center, since Senator Nelson is in a heated election campaign against Republican U.S. Representative Kathryn Harris, the former and controversial Florida Secretary of State from the 2000 election.

The bottom line is far from clear:

1. Hostile governments are exploring for a potentially huge natural resource find within striking distance of the U.S., while the U.S. argues about how to consider whether to do anything about it.

2. Competition for energy is reaching a fever pitch due to climbing prices, since high risk, and presumably low probability areas of a major find are now being scoured for potential finds.

3. President Bush's low standing in the polls has all but limited his ability to do anything decisive other than to fight for relevance.

4. There is little hint that any of this will change in the near future.

In other words, as politicians posture, the world will continue to rotate, and China, Cuba, and their allies will continue to explore for oil within striking distance of the U.S.

The fact that very few people are talking about this is yet another example of how the lack of sensationalism keeps a crucial story off of the mainstream radar.

More than anything, we suspect that if there is a find, the oil or gas, will eventually find its way to the U.S., since money usually transcends ideology, no matter what anyone says.

The real shame of it, for the U.S., is that the cost will likely be a lot more than it would have been if U.S. companies were involved in the exploration from the beginning.

Ironically for the U.S., the world's foremost proponent of free trade and globalization, the Florida coast situation is a sign of how out of touch with the current state of globalization the U.S. Congress seems to be.

Dr. Joe Duarte's Market IQ appears daily at Joe Duarte. Dr. Duarte is author of the book "Futures And Options For Dummies," which is available at the Rigzone Book Store.


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