Mexico’s energy markets offer tens of billions of dollars in opportunities for U.S. energy companies, thanks to a once-in-a-century privatization effort.
But the best chance to take advantage will last only as long as the North American Free Trade Agreement.
Mexico’s oil and natural gas production is down 40 percent from peak levels, forcing the country to import refined petroleum products and natural gas from the U.S., according to a new report from S&P Global Platts, an energy data analysis and consulting firm. Imports of U.S. petroleum products are up 125 percent compared with 2016, and U.S. natural gas imports make up 60 percent of Mexico’s consumption this year, compared with just 22 percent in 2010.
“But the next year may end up being the most critical in determining how successful Mexico has been in dismantling its government monopolies and creating open market conditions,” Platts researchers wrote. The government is at a critical stage in developing markets for trading energy.
Mexico’s government held a monopoly over the nation’s energy sector until Dec. 20, 2014, when President Enrique Peña Nieto signed a law making it possible for private and international companies to explore for oil and natural gas, sell it on a competitive market, to generate electricity and sell it to consumers for the first time since 1936.
Many observers doubted the government could pull off such a feat, particularly on Peña Nieto’s aggressive timeline. But the government has held 11 auctions to sell oil and natural gas exploration blocks, and more energy than ever is flowing into Mexico from outside the country.
U.S. companies have the expertise to help Mexico increase crude oil production, lay the pipes needed to deliver energy, build new electricity generation and make up for any supply shortfall the rapidly growing nation may experience. But all of that relies on the North American Free Trade Agreement, which allows for the free movement of goods and services across our southern border.
“NAFTA has been a big win for the U.S. energy sector, and it has helped create a robust, integrated North American energy market that supports U.S. jobs and strengthens our energy security,” Dennis Arriola, executive vice president of natural gas utility Sempra Energy, told the House Ways and Means Committee.
President Donald Trump, though, has repeatedly called NAFTA the worst trade deal the U.S. has ever negotiated. He won votes in key Rust Belt states by feeding the false narrative that NAFTA let companies move more jobs to Mexico than mutual trade created in the U.S.
Most economists, though, believe that while many rote manufacturing jobs did move to Mexico, increased exports of U.S. goods created more new jobs than were lost.
Trade with Mexico has created tens of thousands of jobs in Texas. While the nation as a whole has a $55 billion trade deficit with Mexico, Texas has an $11 billion trade surplus.
The U.S. trade representative, Robert Lighthizer, opened talks last week to renegotiate the trade deal with Mexico and Canada, and his opening salvo was stark.
We fill like NAFTA has fundamentally failed many, many Americans and needs major improvement,” Lighthizer said.
Mexican and Canadian officials agree that the 25-year-old treaty needs updating, and that’s certainly true. But what’s needed is a light touch, because Mexico’s growing economy and the growing advanced manufacturing sector in the U.S. will likely solve the deficit if fair trade is enshrined in an updated agreement.
Since 2006, Texas exports of goods to Canada and Mexico have risen 71 percent, and exports of services have risen 45 percent. Those numbers will continue to grow if Texas companies can help Mexico rebuild its energy sector under NAFTA.
“Successful negotiations should expand on, and not diminish, the many benefits NAFTA already provides,” said Tom Linebarger, chairman and CEO of engine maker Cummins.
The talks will need to move swiftly to conclude before the Mexican presidential campaign begins in February. That’s going to rely on skilled negotiations.
Blowing up NAFTA to satisfy workers in the Rust Belt, who are never getting their old jobs back, would do tremendous harm to Texas’ economy. Focus on the future’s opportunities, not on the past.