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U.S., Mexico, Canada Energy Chiefs Pledge Cooperation in NatGas, Oil Projects

Energy Secretary Rick Perry on Tuesday said he expects Mexico and Canada will join the United States in drafting a revamped North American Free Trade Agreement (NAFTA) to incorporate cooperation for the continent’s burgeoning natural gas and oil trade.

The North American Energy Ministerial held in Houston brought together the top energy policy leaders from the three countries to discuss cross-border issues. Perry was joined by Mexico Secretary of Energy Pedro Joaquin Coldwell and Canada Minister of Natural Resources Jim Carr.

Trilateral cooperation is imperative for energy, Perry said during a press conference at the University of Houston. NAFTA renegotiations are designed to update the 1994 treaty to reflect changes in Mexico’s energy sector and deepen ties to Canada and U.S. energy markets. Perry tried to dispel fears that the Trump administration’s protectionist slant could roil the continent’s oil and gas markets.

“Canada and Mexico are the largest energy trading partners of the United States," Perry said at the news conference. "And the energy security of our three countries is achievable because of mutual cooperation."

Renegotiating NAFTA “is a good process,” the former Texas governor said. “Competition is a good thing...It's a healthy process...I'm comfortable that our friends in Mexico and our friends in Canada are pretty good negotiators, and at the end of all this process, we will not only have a good agreement, it will be a fair agreement."

Fifteen years ago, Perry said, “they told us we had found all the oil and gas there was to find” but “that's not the case. Does it make sense to sit down and renegotiate a new North American trade agreement? Yes, I think it does. But that we wouldn’t find a deal? That’s really far-fetched.”

Potential collaboration was discussed regarding energy infrastructure, technology and cybersecurity. The three energy leaders also shared their views about climate change and reiterated commitments to mitigate carbon emissions while promoting economic prosperity.

Economic cooperation should surmount partisan politics, with cooperation continuing to develop low-carbon energy resources, Carr said. The Trump administration plans to withdraw from the global climate accord reached in late 2015, of which Canada and Mexico are signatories. 

"We are moving toward a lower-carbon energy economy," Carr said. "This is not about partisan politics."

Mexico’s energy reforms offer a good opportunity to work with North American partners on energy trade, Coldwell said, citing potential partnerships for infrastructure, information, talent development and energy reliability.

“The future is very positive” said Coldwell. Mexico plans to invest $60 million, which could be doubled, to develop energy research and development. Mexico is partnering with the Houston Technology Center and Texas universities to advance some of its programs.

Also discussed at the ministerial was the security, affordability, resiliency and reliability of the continent’s shared energy systems. The leaders said they plan to collaborate on critical infrastructure protection, cybersecurity, system modernization, renewable energy integration and nuclear energy and security.

In addition, the trio discussed how to develop and diversify North America’s vast energy resources responsibly and how to use technology to advance renewable energy, nuclear power and “cleaner” fossil fuels. Energy issues related to women also were on the table, as the three men talked about providing access to “sustainable, secure, reliable and affordable energy, and the further inclusion of women within a growing energy workforce as being crucial to further driving economic growth and gender equality.”

While the energy ministerial resulted in no new policy agreements, the U.S. Department of Energy, Natural Resources Canada and the Mexico Energy Secretariat, or Sener, agreed to further North American energy cooperation where they share objectives to identify and implement areas of cooperation.

"The U.S., Canada, and Mexico share many of the same energy interests and aims, and each of our great nations has made important contributions to North America’s energy boom," said Perry. "We will continue a strong and robust cooperation among our three countries because underlying our partnerships is an understanding that the interconnectedness of our economies and our energy systems means we can achieve more by working together than we can by working alone."

North America “is truly positioned to be a global energy powerhouse...I look to the future with growing confidence."

The energy chiefs on Wednesday were to attend the North American Energy Forum in Houston. The event, sponsored by the Greater Houston Partnership and the Asociacion de Empresarios Mexicanos, aka the Mexican Entrepreneurs Association, was being moderated by Tudor, Pickering, Holt & Co. Chairman Bobby Tudor.

Bloomberg Intelligence analysts Caitlin Webber and James Blatchford on Wednesday said a U.S. exit from NAFTA was “improbable,” but if it were to implode, U.S. gas exports to Mexico would slow and Canadian trade would be disrupted. “Neither Mexico nor the U.S. wants to risk their booming natural gas trade, which supports an outcome from the NAFTA renegotiation that avoids negative industry impacts,” the analysts said in a note. Domestic gas pipeline exports to Mexico “have more than quadrupled since 2010,” while Mexico’s demand has risen and output has declined.

Exiting NAFTA also could “unintentionally” slow the growth of U.S. gas exports, they said.

“Under U.S. law, such exports are given expedited approval by the Energy Department to countries with U.S. free-trade deals. If a country doesn't have such a pact with the U.S., that approval process can be lengthy and full of red tape.”

Meanwhile, the Canada-U.S. gas trade is “roughly 10 Bcf/d, 80% of which originates in Canada,” said the analysts. Nearly all of the pipeline trade was worth an estimated $7.3 billion in 2016. “It has been valued at an average of $11.3 billion annually over the past five years,” they wrote.

“In the event of an improbable U.S. exit from NAFTA, the natural gas industry would likely be affected by a range of secondary effects. A contraction in the Mexican economy as a result of an exit could reduce demand for electricity. Cancellation of investor-dispute panels might add risk to pipeline projects.

“Even without NAFTA,” the analysts said,  “natural gas and liquefied natural gas could be traded duty-free between the U.S., Canada and Mexico, because those nations levy zero-percent tariffs on a most-favored-nation basis.”

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