Oil and Gas Features

Sino-Cuba energy relations raise concern in Washington

By Fred Stakelbeck Aug 16, 2006, 17:33 GMT

As a frail Fidel Castro recuperates from gastrointestinal surgery, his fellow comrades in Havana have moved forward with a bilateral agreement to conduct oil and gas exploration operations with communist China in the Gulf of Mexico.

While the Bush administration watches from afar in stoic silence, massive deep sea drilling platforms manned by employees of China’s state-controlled oil company Sinopec and Cuba’s government-owned CubaPetroleo bore deep into the earth’s crust in an attempt to secure the Gulf’s vast energy reserves.

For China, the budding energy partnership with Cuba comes at a critical time. Energy demand continues to increase at an almost unsustainable rate, with oil demand rising an unprecedented 15 percent in June from a year earlier, the third straight month of double-digit expansion. The Energy Information Administration (EIA) predicts China’s appetite for oil will skyrocket to 14.2 million bpd by 2025.

The presence of Chinese state-owned oil rigs operating less than 50 miles from the Florida Keys has raised alarm among some members of Congress who view Beijing’s actions in the area as a veiled attempt to reduce America’s dominant role in the Western Hemisphere. “China is trying to lock up resources around the world, and they are locking up resources in our own backyard,” noted Idaho Republican Senator Larry Craig. “This is simply wrong. I’ve had enough, and I believe the American people have had enough,” he said.

Following the mandates of a treaty made during the Carter administration that ceded oil rights to a significant portion of the Florida Straits to Cuba, the small island nation has since divided its offshore oil fields into 59 blocks of which 16 have been leased to various countries such as China, India, Canada and Norway. In 2005, U.S. President George W. Bush renewed the controversial treaty for an additional two years, angering U.S. energy companies and the Republican Congress.

Only a few short years after the Carter-sponsored treaty went into effect, Congress passed the Outer Continental Shelf (OCS) Moratorium. The legislation was designed to protect America’s coasts, beaches and marine ecosystems from potential environmental threats by preventing the leasing of coastal waters for the purpose of fossil fuel development. 

China’s recent drilling activity in the Gulf, however, has rekindled the debate in Congress concerning the long-term benefits of the OCS Moratorium and other protectionist-driven legislation. In June, the U.S. House of Representatives passed Resolution 4761 designed to relax restrictions on offshore oil and natural gas recovery more than 100 miles from U.S. shores. The legislation would also give individual states more flexibility by allowing exploration between 50 to 100 miles from their respective shorelines.

The proposed legislative change has gained the support of the U.S. energy industry, since an estimated 85 percent of the U.S. offshore oil reserves remain within the current moratorium zone. The area’s location near regional pipelines and the Gulf Coast energy infrastructure also make it attractive to U.S. energy companies. By some estimates, 1.2 billion barrels of oil and nearly 6 trillion cubic feet (Tcf) of natural gas could still be untouched; enough energy to meet expected U.S. demand for over a decade.

Earlier this month, the U.S. Senate passed its own energy bill voting to open 8.3 million acres of restricted federal waters in the Gulf of Mexico to energy exploration. The Senate bill calls for the Department of Interior to begin accepting bids for the development of Lease Area 181, a resource-rich area under a Congressional drilling moratorium since 2001. The Senate bill, which would funnel millions of dollars in revenues to Gulf states like hurricane ravaged Louisiana and Mississippi, must now be reconciled with the proposed House bill.

To alleviate U.S. energy concerns and to eliminate competitive barriers, some members of Congress have argued that the current U.S. embargo against Cuba restricting U.S. energy companies from drilling in Cuban waters should be lifted. Proponents of lifting the ban claim this would allow U.S. firms to supply America with a stable source of energy in close proximity to the U.S. mainland. New Mexico Republican Senator Pete Domenici, chairman of the Senate Energy Committee, has been a vocal supporter of expanded drilling in the Gulf to offset aggressive actions taken by Cuba and China. “Are we supposed to just sit by and let China drill in our own backyard?” he asked in June. The Senator has co-sponsored a bill that would allow U.S. energy companies to do business with Cuba.

Supporters of lifting the ban on Gulf drilling argue that by repealing the current OCS Moratorium, Americans would not only pay less for fuel, but also reduce their dependence on foreign sources of energy. By not making an exception for U.S. oil companies, they contend, Washington is allowing foreign countries to gain control of strategic resources. Kirby Jones, president of the U.S.-Cuba Trade Association, noted recently, “Our choice is: Are we going to let other countries take that oil? Or are we going to look at our strategic interests and recognize that very close to our shores is a substantial quantity of oil that is going to be exploited?”

In addition to the issue of energy security, China’s increasing presence in the Gulf of Mexico presents Washington with an immediate national security dilemma, made more urgent by recent problems with BP’s Prudhoe Bay oil pipeline; insurgent activities in oil-rich Nigeria and Iraq; increasing civil unrest in Mexico and actions by Venezuela’s populist leader Hugo Chavez to consolidate his country’s energy sector. Moreover, oil production from Alaska’s North Slope, the workhorse of U.S. domestic production since the 1980’s, continues to decline. In a market where “spare capacity” is a growing concern, the U.S. finds itself in an increasingly untenable position.

Chinese nationals operating so close to the U.S. coast is indeed disquieting. In the past year alone, Beijing has been accused by the U.S., Britain, Germany and Canada of conducting spying and espionage operations using front companies to steal sensitive military and nuclear technology. In addition, Beijing has strengthened its defense and intelligence relationship with Havana, financing the renovation of a Soviet-era military facility on the island used specifically to disrupt transmissions of U.S.-funded TV and Radio Marti, a Spanish-language radio station established by President Ronald Reagan with the mission of fighting communism.

China has also trained Cuban troops in the art of intelligence gathering and provided weapons to Havana used to suppress popular protests and dissent. With a powerful partner like China at its side, Washington’s hopes for a Cuban democracy seem more remote. “It would be a far more likely scenario for Cubans to transition to democracy, if they had closer ties to us than to China,” added Arizona Republican Jeff Blake in June.

Concern is also growing in the U.S. intelligence community that Beijing could use its burgeoning friendship with Havana to begin construction of a naval port in the Gulf of Mexico similar to its naval facility at the Port of Gwadar in Pakistan. Beijing has already built approximately ten underground and underwater facilities to house its growing fleet of Russian-made Kilo, Shang-class and new JL-2 attack submarines. China’s naval facility at Yulin, Hainan Island, is strategically located near the important oil transport lane from the Strait of Malacca. Could China’s energy involvement in the Gulf one day result in a Chinese naval presence off the coast of the U.S.?

China’s recent moves in the Gulf of Mexico are not the country’s first energy excursions in the Western Hemisphere. Over the past year alone, Beijing has approached Canada to secure oil from country’s vast oil-sands deposits; worked with Mexican government officials to conduct joint offshore drilling operations and has initiated discussions with Venezuelan authorities concerning the construction of oil and natural gas pipelines. This is an important development for Washington, since all three countries are major oil exporters to the U.S. 

Making matters worse for the U.S., China may already be pumping significant amounts of oil from sovereign U.S. territory. Although not physically stationed on U.S. territory, Chinese and Cuban engineers are employing “slant drilling,” a technique used by oil companies to tap oil reserves located on another country’s sovereign territory.

America’s continued reliance on hostile foreign countries for energy, the lack of meaningful legislative action to address a myriad of looming energy concerns and an almost certain decline in domestic oil and natural gas production will inevitably place enormous pressure on the U.S. economy. Oil and natural gas extracted from the Gulf of Mexico by Cuba and China will not be sold to the U.S.; rather, it will be sold to countries that openly oppose perceived U.S. global hegemony.

One final question: Since China is drilling for oil in the Gulf of Mexico; can we expect U.S. energy companies to one day drill for oil in the South China Sea?

Don’t hold your breath.

Fred Stakelbeck is a Senior Asia Fellow with Washington-based Center for Security Policy. He is an expert on the economic and national security implications for the U.S. of China's emerging regional and global strategic influence. Comments can be forwarded to fstakelbeck@centerforsecuritypolicy.org.

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