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Oil Battle Shapes Up Off Florida

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China Eyes South America Amid Scramble for Wells

By Joseph Goldstein

As state-owned energy companies from Vietnam, Malaysia, China, and Norway turn to the Western Hemisphere for oil opportunities, Senator McCain is moving to allow America to compete.

Mr. McCain, the presumptive Republican presidential nominee, will today call for lifting the federal moratorium on oil exploration in America’s coastal waters.

“There are areas off our coast that should be open to exploration,” Mr. McCain told reporters yesterday in Arlington, Va.

The proposed policy comes at a time when oil companies from Europe and Asia are conducting new drilling in South America, leasing mineral rights off Cuba, and, in Norway’s case, emerging as a major presence in U.S. territorial waters.

In Colombia, state-owned oil companies from India and China jointly purchased oil fields from a Texan company for $850 million two years ago.

Cuba has been leasing its on- and offshore mineral rights in recent years. The takers have included state-owned companies from China, Vietnam, India, Malaysia, and Norway.

In America’s territorial waters in the Gulf of Mexico, it is a British company that holds the most acres of mineral rights. According to numbers supplied by the Department of the Interior, a subsidiary of BP holds more than 3.2 million acres in leases in the gulf.

The second-largest renter is California’s Chevron, which lays claim to 2.3 million acres. Another foreign company, Royal Dutch Shell, holds the third most.

As technological advancements have made deepwater drilling in the gulf viable, StatoilHydro, the Norwegian state-owned firm, is upping its position in the region. The company’s 2007 annual report advertises that it is the “fourth biggest deepwater player” in U.S. portions of the Gulf of Mexico.

The Western Hemisphere’s growing appeal for these foreign oil companies has many causes beyond deepwater drilling technology. They include increasing oil prices worldwide, declining reserves at home, Venezuela’s willingness to reorient oil exports away from America, a major discovery off the shore of Brazil, as well as the perception that the risks of nationalization are lower in the region than perhaps before, several analysts said.

“With more and more countries vying for Western Hemisphere oil, our dependence on Middle East oil is going to grow substantially,” the director of an energy security think tank, the Institute for the Analysis of Global Security, Gal Luft, said.

When it comes to offshore drilling, American oil companies face hurdles set by Congress and the White House. American companies are prohibited from engaging with Cuba, which is eager to sell oil and gas concessions, by law. And the eastern portion of America’s section of the Gulf — the part that is closest to Cuba and presumably would prove to have the same riches as Cuba’s side — is off-limits to exploration by law.

The Monroe Doctrine notwithstanding, Congress and the Bush administration have done little to keep European and Asian energy companies out of the Western Hemisphere.

“The United States has preached the market, and if Latin America is able to get better deals out of Europe, then Washington, in all good conscience, can’t claim some kind of exclusive friendship, or hemispheric bond that gives it a privileged position,” the director of a Washington-based think tank, the Council on Hemispheric Affairs, Larry Birns, said.

As it currently stands, in leasing rights to the Gulf of Mexico, the federal Department of the Interior sells to foreign oil companies, including state-owned ones, on equal footing with American companies. That free trade policy appears unlikely to change.

Rather, the legislative efforts have been aimed at auctioning off mineral rights to more of America’s waters, although it won’t only be American companies bidding.

“I don’t think there was so much a concern about them doing it as about us not being able to,” a Republican congressman from Arizona, Jeff Flake, who advocates lifting the embargo with Cuba for oil exploration and lifting the moratorium on coastal exploration. “A national consensus seems to be forming that we have to change our policy relative to offshore exploration.”

Mr. McCain’s initiative, which is outlined in a memo prepared by an senior policy adviser, Douglas Holtz-Eakin, would lift an exploration and drilling ban that extends about 200 miles from the Atlantic and Pacific coasts.

The moratorium on drilling was imposed by Congress in 1982 and has been extended annually since then. President George H.W. Bush issued his own executive order to the same effect in 1990.

The moratorium have strong support from some states, particularly Florida, whose politicians have expressed concern about what offshore exploration and drilling might mean for its beaches. State’s boundaries generally extend three to nine miles offshore, with the federal government’s jurisdiction extending to 200 miles.

“The senator believes states are important stakeholders and should have a say,” Mr. Holtz-Eakin told The New York Sun. “If they don’t want to drill off their shores, they need not.”

The issue emerged as a flare point last week when Vice President Cheney said China was drilling for oil off Cuba. Democrats hotly disputed that claim, but even they acknowledge China has leased exploration rights in the area. Mr. McCain has opposed drilling in the Arctic National Wildlife Refuge in Alaska.