With sound governance and a little cooperation, Canada, the US, Mexico, Colombia, Brazil, and Argentina once might have envisioned formation of a Western Hemisphere counterweight to the Organization of Petroleum Exporting Countries. So much for dreams.
Brazil, lately a world-class producer of 2.6 million b/d of oil, reels amid political crisis. Colombia and Argentina, each producing less than 1 million b/d, would be junior members of any hemispheric supply alliance, which inevitably would rely for leadership on big producers north of the Equator. There, alas, energy vision vacillates with political moods.
A foundering program
In Canada, with its rich endowments of hydrocarbons in unconventional reservoirs, the Liberal federal government took office in 2015 wanting to lead the mitigation of climate change instead of energy. Prime Minister Justin Trudeau made grand promises at the Paris Climate Summit and concocted a tax on emissions of carbon dioxide for provinces unwilling to punish energy consumers equivalently on their own. Except for Saskatchewan and Manitoba, provinces obliged with mitigation schemes—including Alberta, which believed willingness to tax energy users and cap CO2 emissions from the oil sands would earn license for work essential to resource development.
The Canadian program is foundering. Although Manitoba eventually enacted a mitigation plan, the more populous and industrialized Quebec responded to economic pain by electing a premier promising to dismantle the climate policies of his Liberal predecessor. Alberta’s premier is fighting for her political life against neighboring British Columbia’s opposition to a pipeline expansion. Trudeau intervened in that fray by nationalizing the project, existing pipeline and all, to the dismay of environmentalists whose adoration he craves. And facing economic questions and an election next year, he recently eased carbon taxation for companies most threatened by his climate ambition.
Aggravating Canadian distress is competition from the US, where regulatory relief and tax reform create much more-hospitable business conditions. Like Canada, of course, the US has unconventional hydrocarbon resources gobbling investment capital. The consequently zooming production makes the country an oil and gas exporter of rapidly growing importance.
If only President Donald Trump could leave well enough alone. Instead, he’s gambling his country’s prosperity and energy prominence on truculent trade policies and sanctions against oil-exporting adversaries. Instead of consolidating his economic triumphs, which are considerable, he’s escalating trade wars, alienating allies, and provoking retaliatory tariffs. Prices of steel and other raw materials therefore have begun to rise, undermining economics of the oil and gas supply boom. And China, the growth market for internationally traded gas, threatens to shun US LNG. Meanwhile, the risk of recession grows. And amid all this, the president demands applause for talking Europeans into concessions on soybeans.
Mexico came late to the North American boom in unconventional oil and gas. Although it ended 75 years of state monopolization of energy with constitutional reforms in 2013, Mexican voters apparently think oil and gas licensing that began only 3 years ago should be enriching them by now. On July 1 they elected a president wary of if not hostile toward foreign energy investment. The party of Andres Manuel Lopez Obrador, lacking two-thirds majorities in the bicameral legislature, can’t readily overturn the 2013 reforms. But a licensing slowdown seems probable. Lopez Obrador indicates he’ll review existing contracts with private operators and revive state-owned Pemex with new investment. Private operators must worry how slow Mexico’s opening might become before it stops.
Supply renaissance
A North American energy-supply renaissance based on unconventional resources won’t die because political zig-zags raised investment risk. But it will underperform potential. There never will be a Western Hemisphere version of OPEC, of course. But collaboration oriented to responsible resource development and improved standards for whole populations deserves more attention than it likely now will receive.
Oh, well. Political caprice yet again widens the gap between what will be and what might have been. For all North Americans, that’s something to regret.
