Texas-refined gasoline fuels Mexican cars. Sierra Juarez wind farm in Mexico provides electric power to southern California. Natural gas from Canada helps heat the Midwest and cool California. Electricity flows over the northern and southern U.S. borders in both directions.
The interconnections in the North American energy industry are huge and growing — and could grow even closer during the Trump administration unless it decides to alter the flow of a key U.S. export (and import) — at the border.
The U.S., Canada and Mexico have intentionally worked to combine the advantages of their energy resources. (Many people in the United States don’t even know that Mexico is part of North America).
President-elect Donald Trump has said he would renegotiate the North American Free Trade Agreement between the U.S., Canada and Mexico. While the new administration seems to be very friendly to the energy sector, there are still questions about whether there could be changes that affect the intricate web of energy connections between the three countries.
“It’s not so simple to say we’re going to renegotiate the trade deals. We set up the system to create those inter-linkages. You just can’t overnight legislate or executive order that away. If you try to do that, it’s going to have negative economic impacts, not just for the economies on the border but for these specific industries, like energy,” said Scott Anderson, chief economist at Bank of the West.
Trump’s selection of former Texas Gov. Rick Perry as energy secretary, is seen as a positive for the oil and gas industry. Perry has spoken favorably about North America as an energy power house, including Mexico and Canada.
Perhaps one of the most surprising recent developments is the boom in U.S. natural gas that’s flowing across the southern border, and the ambitious plans by the Mexican government to build more pipelines to take U.S. natural gas throughout Mexico and as far as Mexico City.
“Mexico has become a very important market for U.S. gas producers and without it, we’d be looking at lower prices,” said Daniel Yergin, vice chairman of analysis firm IHS Markit. U.S. producers, grappling with low prices and record winter supply, would have to cap even more wells if it weren’t for the growing demand from Mexico, which now accounts for about 5 percent of U.S. natural gas output.
The energy picture changed dramatically for North America in the last decade. The push by the U.S. energy industry into hydraulic fracking and horizontal drilling unleashed an energy boom, making the U.S. the world’s biggest producer of natural gas and placing it firmly among the top three oil producers.
By Patti Domm for CNBC
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