Mr. Trump And The Energy Colossus
Twice-thrashed Presidential candidate Ross Perot, the pre-Trump Trump of a quarter century ago ran a hugely ignorant anti-NAFTA, anti-Mexico campaign for President highlighted by his claim that a giant “sucking sound” Americans heard was jobs flooding south to Mexico.
NAFTA, the North American Free Trade Agreement was negotiated by President George H.W. Bush following a campaign promise of his predecessor Ronald Reagan in 1979.
Perot was wrong. The sound of a southerly flood is American energy companies rushing into Mexico to sell American gasoline and oil products to Mexicans who also happen to be longtime oil producers. Mexican oil has been produced in record amounts for a century. Mr. Perot, though a Texan, was not an oil man, he was a state bookkeeping contractor who knew nothing about trade or petroleum.
Rushing into Mexico are American oil/gasoline producers and distributers Valero, ExxonMobil, Costco and even Dutch Royal Shell.
It wasn’t long ago when Mexican oil was sacrosanct, a leftover of the ultra-nationalistic expropriation of the world’s second largest oil industry in 1938. No foreign participation was allowed and any politician that hinted foreign oil activity in Mexico was “body-slammed” politically if not forcibly retired from politics and government.
Current President Enrique Pena Nieto with opposition support from the PAN party pushed oil reforms through the Mexican Congress that allows some foreign participation with the state-owned Petroleos Mexicano (PEMEX). Thus the rush south orchestrated from Houston, Texas, high rises.
Mexico eagerly imports Texas gasoline and natural gas into northern Mexico, ditto gasoline from California into Baja California with its thriving population and industry of multi-million people populated Tijuana, Mexicali and the port city of Ensenada. At a recent University of California, San Diego conference (Institute of the Americas), American and Mexican energy experts agreed that Mexico’s importation of American gasoline might double in the next five years. Natural gas exports to Mexico from Texas might even dwarf gasoline sales.
And it’s not just oil and gasoline. San Diego-based Sempra Energy has imported electricity from neighboring Mexicali and its extensive geothermal wells where Mexican companies generate power from deep steam wells. Then there is electricity from gigantic wind farms in Baja California Mountains and the wind farms themselves that Sempra (through subsidiaries) has just bought for $900 MILLION dollars. Concurrently, Sempra also spent $1.1 billion to buy 50 percent of a Mexican infrastructure company that includes natural gas pipelines, the very pipelines needed to send millions of cubic feet of Texas natural gas into northern Mexico.
A trillion dollars in trade last year between NAFTA countries Canada, the United States and Mexico occurred with a large segment of it being energy.
Most Americans are unaware that Canada is the largest energy trading partner of the U.S. More than 80 pipelines and 30 electricity transmission lines connect the two countries generating more than $140 billion worth of transactions every year since 2013.
Now comes 90-day notice to the U.S. Congress from the Trump Administration to renegotiate NAFTA. Can or should the United States goof around with energy trade between the NAFTA countries? “We should build on what has worked in NAFTA and change and improve what has not,” Trump Trade Negotiator Robert Lighthizer says. What has worked according to Lighthizer: agricultural trade, investment services and energy. Seeing American oil company facilities in Mexico is proof of that.
Simple selling to or buying from PEMEX was covered by NAFTA duty provisions. In fact, the best Mexican oil, “Light Maya Crude” is highly prized by American refiners for its low Sulphur content. Americans pay less for it than for oil from the Middle East or Africa.
“I don’t think that it’s likely we’ll disturb NAFTA in a way that will (detrimentally) affect natural gas prices, but it’s just a good example of how the U.S., working with Canada and Mexico, needs to be one energy market, and I’m hopeful that our administration recognizes that,” said Al Walker, CEO of Anadarko Petroleum to fellow San Diego conferees.
David Crisotomo, a Mexico-based energy analyst told conferees, “Gas exports for the U.S. to Mexico are a key market outlet… So I don’t think you want to touch that.”
To the north, U.S refiners are big consumers of Canadian oil. The newly constructed and controversial Keystone Pipeline, for example, brings Canadian shale oil to the U.S. for refining.
NAFTA has enabled Canada, Mexico and the United States to develop into an energy colossus since it opened for business on January 1, 1994.
Are there ways to tear-up or tear-down the intricate symbiotic energy multi-billion dollar relationships that have developed in North America? Of course. But NAFTA energy is more than wells, pipelines, refineries, tanker trucks and ships.
Intelligence, good product, lots of it and “savvy” supplement pipelines, tanker trucks and ships; all that and NAFTA politics too.
Contreras is the Author of THE ARMENIAN LOBBY & AMERICAN FOREIGN POLICY (Berkeley Press) and THE MEXICAN BORDER: IMMIGRATION, WAR AND A TRILLION DOLLARS IN TRADE (Floricanto Press), he formerly wrote for the New American News Service of the New York Times Syndicate