How might U.S. proposals for NAFTA hurt U.S. energy exports in 2019?

Recent NAFTA talks have drawn concern and tensions on both sides of our borders. Talks about the future of NAFTA were previously scheduled to have been resolved by March 31st, but with the deadline approaching and no resolution to speak of, these talks might be extended well into 2019. Whether the United States pulls out of the treaty altogether, or if the organization can come to an agreement on a reform, trade and the economy of all parties involved will be affected. Arguably the industry that stands to be affected the most by these talks is the energy industry.

How would a withdrawal of NAFTA affect the energy industry?

The energy industry in Texas is booming and many would agree that this is largely due to the terms set forth by NAFTA. About 60% of Mexico's natural gas supply is purchased from the U.S., the majority of which is produced in Texas. Mexico is one of the largest customers of U.S. natural gas, as importing natural gas from the U.S. has been made cheaper than producing it themselves. Mexico has become increasingly reliant on clean energy sources such as natural gas, as they have chosen to begin the transition away from fossil fuels in their efforts to focus on cleaner sources of energy.

According to JTC Energy Research Associates, gas now supplies 45 percent of all energy and 60 percent of electricity in Mexico. If the dissolution of NAFTA became a reality Mexico would be required to obtain a permit to import natural gas from the United States. This could prove to be very time consuming and cumbersome as the permitting process for non-NAFTA entities has been said to take years with a considerable amount of paperwork. This would result in a huge setback for Mexico’s efforts towards energy reform. Another drawback to consider: being unable to sell natural gas to Mexico during this waiting period will result in years of lost capital for the United States.

By attending the upcoming Mexican Energy Series, you will hear from the key decision makers themselves on the latest regarding the NAFTA renegotiations, cross-border collaboration and the status of the Nogales grid project. The conference offers featured days for the Upstream, Midstream, and Power & Electricity sectors, from April 17-19, 2018. The agenda brings to light the most important conversations in the energy industry – from bidding rounds and joint ventures to NAFTA and the presidential election. Here are some of the discussions you can expect to be a part of regarding NAFTA: 

Midstream Day April 18, 2018 – Register Now

What is the future of the symbiotic US-Mexico natural gas relationship?

• Will Mexico continue to rely on US natural gas imports or will we see an increase in domestic production?
• What role does NAFTA play in the ability to get US natural gas across the border?
• Will shale gas mark an end to the dependency on US natural gas imports? How far away is that reality?
• What potential impact can the Mexican elections have on US-Mexico energy trade?

Power & Electricity Day April 19, 2018 – Register Now

• What impact will US-Mexico relations have on the electricity grid?
• Are the NAFTA renegotiations helping or hurting Mexico’s ability to receive natural gas and electricity at competitive rates?
• Will companies warm up to direct investments as the market continues to evolve?
• Perspectives, impact and challenges of private participation in electric transmission lines in Mexico

Is NAFTA bad for business?

This question comes with a lot of mixed feelings. On the political side, Texas representatives are calling for an update of the treaty rather than a dissolution, citing the importance of the treaty to Texas's economy and the economy of the United States as a whole. In 2017, Mexico accounted for nearly 37% of Texas's export business, pulling in over $97 billion to the state for goods and services. From this standpoint, altering the treaty in any way that would differ from its normal operating process seems like a huge risk to take.

Those in favor of a revision or withdrawal from the treaty claim that the status of the North American energy industry will continue to remain strong regardless of the treaty. Advocates for reform claim that the potential taxes and tariffs will "even-out," as certain goods will be taxed as they cross the border and remain tax free when they reenter the U.S or cross an alternative border. For example, oil imported from Canada could be taxed as it enters the United States. However, once it has been turned into gasoline, it will not be taxed as it enters Mexico and vice versa.

Given this information, there could be an adverse effect on U.S. energy exports. Mexico is currently one of the biggest consumers of U.S. natural gas. Unfortunately, there are many questions that will remain unanswered until NAFTA negotiations between the U.S., Mexico, and Canada have come to an end. Ideally the intentions of these negotiations are to put the United States into a better position than it is now, as the scenario of the situation stands that our bilateral trade balance with Mexico has plummeted from a $1.3 billion-dollar surplus to a $64.1 billion deficit in 2017, according to The Office of the United States Trade Representative.

Want to discuss the issues surrounding NAFTA in person with Mexico's energy leaders? Join executives and decision makers in E&P, investment, market competition, strategic planning, policy setting and more at the Mexican Energy Series.