North American oil and gas opportunities abound, House panel told

June 26, 2017
Opportunities ranging from a likely overhaul of Mexico’s refineries to major new sales opportunities for US and Canadian oil field equipment manufacturers loom in the well-integrated North American oil and gas market that has been created in the past few years, witnesses told a US House Foreign Affairs Committee subcommittee on June 7.

Opportunities ranging from a likely overhaul of Mexico’s refineries to major new sales opportunities for US and Canadian oil field equipment manufacturers loom in the well-integrated North American oil and gas market that has been created in the past few years, witnesses told a US House Foreign Affairs Committee subcommittee on June 7.

For decades, as part of the quest for greater energy security, the US worked with its neighbors—Canada and Mexico—to cultivate the kind of economic and security advantages that come with an integrated, close-proximity market in energy trade,” said Sarah Ladislaw, director and senior fellow at the Center for Strategic & International Studies’ Energy and Nation Security Program.

“We signed trade arrangements, fostered cross-border infrastructure, met regularly to discuss energy policy and regulatory issues, and even sought to harmonize standards relating to electric reliability, offshore drilling safety, and a host of other issues,” Ladislaw said in written testimony to the committee’s Western Hemisphere Subcommittee.

The result is that North America now has one of the biggest energy advantages of any continent, with 14% of the world’s crude oil and 6% of its natural gas reserves from which it supplies 23% of the world’s oil and 27% of its gas production, Ladislaw said. North America also is the world’s second-largest generator of wind and solar power and its second-largest hydropower supplier while representing 22% of global energy consumption, she said.

“Even beyond its basic resource base, North America has attributes that give it additional advantages. Canada, Mexico, and the US are generally regarded as stable countries in which to do business and have excellent labor pools from which to draw talent, world-class universities and hubs of innovation, access to financing, and robust private-sector capabilities,” Ladislaw said.

Even with such substantial energy resources, the three countries will remain dependent on partners elsewhere in the world to achieve economic and security advantages that come from building trading relationships, she noted.

Cooperative trade benefits

“Indeed, North America’s energy advantage does not mean complete independence or isolationism—nor does it mean this emerging idea of ‘energy dominance’ is a viable or desirable mindset even for the most energy abundant regions in the world, especially given that the US has benefited from cooperative trade in energy for many decades and still imports nearly 8 million b/d of crude oil, only some of which comes from our North American neighbors,” Ladislaw said.

A second witness, Aaron Padilla, senior advisor for international policy at the American Petroleum Institute, said North America’s highly integrated energy markets benefit the US by creating economies of scale that attract private investment, lower capital costs, and reduce consumers’ energy costs.

“In recent years, US companies have experienced unprecedented productivity gains as more oil and gas is produced from fewer rigs in less time, enhancing US producers’ ability to quickly increase product in response to changing global market demand,” he said.

Global export opportunities also have emerged in recent years for US energy, creating domestic jobs, providing incentives for more domestic production, helping integrate US energy in the global market, and enhancing US national security interests abroad, Padilla said. “Greater US oil and gas production and exports also have put downward pressure on global prices, having impacts on production decisions around the world,” he said.

An integrated North American energy market helps reduce US exposure to supply disruptions from other regions, Padilla said. “The combination of the surge in US shale production and the flexibility of the free market and free trade means that the US, as the world’s leading oil and gas producer, can respond to forces to help the global market adjust to shortages or surpluses,” he said.

The third witness, Duncan Wood, Mexico Institute director at the Woodrow Wilson Center for International Studies, focused more on changes in that country that have contributed to the North American energy market’s recent improvements. “Mexico is an important partner for the US in the energy trade, serving as both friendly oil supplier and a growing market for US exports,” he noted. This is why the US should recognize the importance of ensuring the long-term success of Mexico’s energy reforms, he said.

Sizeable gas export market

Given the Trump administration’s stated goal of boosting US gas production, new consumers will be needed to sustain a price that attracts investments, Wood said. “Mexico plans to dramatically boost its internal gas pipeline network over the next few years, and it is expected to grow more than 90% before the end of the decade,” he said. “In addition to satisfying demand in Mexico, in the long term there is the opportunity to export US natural gas via pipeline to Central America and through [LNG] facilities along the Mexican coast.”

Mexico also represents a growing market for US refined products as reforms made its downstream and retail markets more accessible, driving a growing demand for gasoline and other refined products from the US, Wood said. The US Energy Information Administration said the value of energy exports to Mexico now is more than twice that of imports from Mexico, he said. “What’s more, it is a trade surplus for the US that is likely to grow in years to come,” Wood said.

Wood said there also are ample opportunities for ongoing energy system projects that consider the integrated nature of US and Mexican energy markets, from oil and gas pipelines to cross-border power transmission lines and a coordinated approach to refining capacity.

“Mexico’s refineries are likely to see an overhaul in the next few years as [national oil company Petroleos Mexicanos] seeks partners for its refining division that consistently loses around $9 billion/year,” said Wood. “If Mexico plans to invest in building new refining capacity, it would be wise to consider the current and future state of the US refining sector, which is aging and has limited capacity.”

The Mexico-US energy relationship reached a historic high point by early 2017, he said. “Mexico’s new energy model, based on market dynamics and attracting private and foreign investment, has opened the way for a highly constructive and productive dialogue between national authorities and their US and Canadian counterparts,” Wood said. “Regular meetings of the three NAFTA countries’ energy ministers have helped deepen mutual understanding and further energy cooperation at both the regional and global levels.”

Contact Nick Snow at [email protected].