Sunday, June 12, 2011

Groups seek ways for Cuba to gain access to US spill technology

Groups seek ways for Cuba to gain access to US spill technology
Jun 13, 2011
Nick Snow
Washington Editor

With a semisubmersible rig en route in a few more weeks to drill one of
the first deepwater exploratory wells in Cuban waters sometime this
fall, questions are being raised there and in the US whether trade
embargo restrictions will deny Cuba and companies working there access
to US spill control technology if an accident similar to the Macondo
blowout occurs off Cuba.

The International Association of Drilling Contractors in Houston is
playing a major role. Two years ago, it applied to the US Department of
the Treasury's Office of Foreign Asset Control for a license to go to
Cuba and learn about offshore well management issues there but was
turned down, IADC President Lee Hunt said.

When it reapplied after the Macondo well accident as crude oil leaked
into the Gulf of Mexico, permission was granted, and IADC officials met
in Havana with chief officers of the Ministry of Basic Industries, which
includes oil and gas exploration; the Minister of Nuclear and Industry
Regulation, which is writing offshore drilling regulations; and the
Ministry of State Affairs, Cuba's counterpart to the US Department of
State, he continued.

"They know what they're doing, and they're very credible about what
they're putting in place," Hunt told OGJ. "They conducted in-depth
research on both offshore drilling regulations and safety practices, and
have gone largely to Northwest Europe, specifically Norway and the
United Kingdom, as well as to IADC for the structure of their regulations."

Cuban officials also recognize the trade embargo imposed on their
government by the US seriously limits them in some significant ways, he
added. "They are prepared to handle transportation and industrial spills
of less than 5,000 bbl," Hunt said. "Anything over that, and they do not
have access to nearby resources for response, containment, and cleanup.
They can't acquire first-class equipment or use any of the resources
working in the Gulf of Mexico in the event of a major spill."

Trying to prepare

Others confirmed that the Cuban government is trying to develop
regulations to prevent offshore oil and gas accidents and control spills
quickly and effectively. "They're basically photocopying everything that
has come out of the [US Bureau of Offshore Energy Management,
Regulation, and Enforcement] and President [Barack] Obama's independent
oil spill commission," Jorge R. Pinon, visiting research fellow at
Florida International University's Cuban Research Institute in Miami,
said. "They're also consulting with Norway. But regulations basically
are just paper. Many Latin American countries have wonderful
regulations, but they're worthless without the resources to monitor the
industry. Regrettably, Cuba does not yet have the resources and know-how
to find out that everything is being done the right way."

It's trying to get those resources, according to Dan Whittle, a senior
attorney and director of the Environmental Defense Fund's (EDF) Cuba
program in Raleigh, NC. "In my opinion, the Cubans have not rushed into
the offshore oil and gas arena," he told OGJ. "They've been thinking
about it for a long time. It certainly would provide much-needed
economic security. But they've taken it seriously and deliberately."

He and Pinon separately noted that Cuba's selection of Repsol SA to lead
the consortium that would drill the initial offshore well reflects that
government's careful planning. "They seem to have chosen their partners
well: Repsol has a decent reputation among companies that are courting
Cuba," Whittle said. "They have consistently reached out to US companies
and, indirectly, to the US government to take a more pragmatic approach.
They have an interest in having agreements with US companies that could
respond to a spill. There's a great urgency to move forward because they
want to have more energy security, and their economy is not in good
shape. But Cuba does not have a drill-baby-drill mentality, even though
it might have a better reason for having it."

Pinon said his sources in Cuba say the rig will leave Singapore, where
it was constructed, in late June or early July and arrive off Cuba in
early September, where it has been committed to drill 5 or possibly 7
wells. At a cost of $100 million each, that would result in $500-700
million being spent to explore for crude off Cuba's northern coast in
the next year, he noted. "Nobody is going to build a semi tailor-made to
meet Cuba needs with fewer than 10% US parts without a better than 50%
chance of finding oil," Pinon told OGJ.

"Repsol is a good company," he added. "It drilled the Chevron-Repsol
project south of Houston to 20,000 ft. It has a lot to lose if it messes
up in Cuba. I can guarantee that Repsol is crossing all the t's and
dotting all the i's."

Policy adjustments

Hunt emphasized that while IADC does not advocate ending the US trade
embargo against Cuba, the Obama administration may want to consider as a
matter of national interest ways to adjust its policies so Florida and
other East Coast states' shorelines and coastal waters are protected if
a major spill occurs off Cuba. "Just as a pharmaceutical company is
allowed to send avian flu vaccine to Cuba, US companies should be
allowed to send oil spill cleanup and containment resources in an
emergency," he said.

In addition to developing regulations, Hunt said Cuba now requires well
operators there to demonstrate how they're complying with US
requirements—insofar as they can under the trade embargo. "For example,
new BOEMRE regulations require independent third-party certification of
the blowout preventer," he said. "That's not to say Repsol can't fly
someone in from Norway to do that, but it won't have access to US
engineers and firms who are providing such services, nor can they get
parts and service from US suppliers.

"The embargo's restrictions are inhibiting the operators from putting
the best of services into Cuba for blowout prevention, equipment
maintenance, and blowout response," Hunt maintained. "We need to look
very carefully at a very narrowly defined set of licenses or exemptions
for blowout-related services and equipment and spill response services
and equipment—the front and back end of the problem."

He said he planned to bring the matter up late last month when he met
with Bromwich in Washington to discuss a wide range of issues. BOEMRE's
director previously indicated that the agency is monitoring Cuba's
offshore oil and gas activities. US Interior Secretary Ken Salazar,
while not mentioning Cuba specifically, has said that he hopes other
countries adopt stronger offshore oil and gas requirements such as the
US developed in the Macondo well accident and spill's wake.

"The limitations are made in the USA. They're self-imposed," said
Whittle, who has been working in Cuba on marine and coastal eco-system
conservation issues since 2000. "With oil and gas, and its potential
environmental implications, restrictions like this are potentially
self-defeating. Blocking trade certainly hurts Cuba and has minimal
impacts in this country. In the case of oil and gas, the potential
impacts could be greater in the US than in Cuba, although the
consequences would be severe there. It really calls into question how
sensible the restrictions are in this context."

Pragmatic, not political

He said the Obama administration, under existing law, does have some
latitude to protect US interests and could broadly license US companies
to respond to a crude oil spill offshore Cuba. The US Department of
State indicated, following the Macondo well spill, that it would take a
pragmatic instead of political approach toward Cuba in a similar
situation, the EDF official said. "As we get closer to when that rig
arrives in Cuban waters, it's essential that the US be pragmatic," he
maintained. "I hope Director Bromwich and other officials can basically
make the case that we can't afford to politicize this issue. It's in our
backyard, and there's simply too much at stake."

Hunt said under existing conditions, Repsol, as the leader of the
consortium drilling the well would not have access to the capping stacks
owned by the Marine Well Containment Corp. or the Helix Well Containment
Group if a spill occurred. "The only other capping stack capable of a
Macondo-level response is in the UK," he said. "It's a response issue of
3-5 days from the US vs. 30-60 days from the UK. Even then, I'm not sure
that the UK capping stack doesn't violate the 10% US content well."

Options include emergency presidential licenses or advance planning by
the US Coast Guard, which is working closely with IADC, to have
resources available to respond to Repsol, the primary contractor, and
not the Cuban government, according to Hunt. "Hypothetically, if a well
blew out and lost control, Repsol as its operator could apply to OFAC
for a license to contact US owners for equipment," he told OGJ.
"However, the company with the equipment and personnel then would have
to apply to OFAC for an export license, which could take 30-60 days to

"There's another route," he continued. "Licenses could be available in
advance under a special presidential order. That would involve
pre-planning with companies capable of providing everything from a
capping stack, subsea robotics, skimmers, and personnel. All would have
to enter the Cuban economic zone, first under contract to Repsol, and
then to a succession of operators. This would not involve ending the
embargo, only addressing the limitations the embargo places on
protecting US interests by providing access to necessary spill
containment equipment for operators in the Cuban economic zone."

In the meantime, IADC is seeking a license to let Cuba Petroleo, the
country's national oil company, attend the trade association's meetings
as an associate member, Hunt said. "Our view is that dialogue and
consultations should be the solution because safety should have no
secrets," he explained. "Every oil company on the planet should have
access to safety information."

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