Bloombergpolitics

Perry Eyes Energy Pact With Mexico, Canada Amid Nafta Change

  • Energy to play important role in Nafta ‘massage,’ Perry says
  • Secretary is latest to strike warmer tone on regional trade

The U.S. has a unique opportunity to develop a "North American energy strategy" with Canada and Mexico, Energy Secretary Rick Perry said, striking a conciliatory tone with the other members of the North American Free Trade Agreement.

While President Donald Trump has blasted Nafta and moved to renegotiate it, Perry referred to the upcoming talks to rework the 1994 trade pact as a “massage” of it, saying it presents an opportunity to bolster energy ties, not enact new trade barriers. 

“That relationship I don’t think has ever been more important than it is today, particularly from an energy perspective,” Perry told reporters at the White House on Monday, while stressing his close ties with his counterparts in Ottawa and Mexico City. “Energy is going to play a very important role.”

His comments came at the outset of so-called "Energy Week" from the White House, as Trump highlights his efforts to reduce regulations on energy producers and jump-start energy exports. Perry’s comments are nonetheless the latest signal Trump’s cabinet is warming to trade ties with Canada and Mexico -- whether it’s lauding Nafta and its impact on farmers or saying any revisions of the pact will be good for the U.S. neighbors, as well.

“Energy is an ideal area for the Trump administration to move forward with the relationship,” Duncan Wood, director of the Mexico Institute at the Woodrow Wilson Center, said in a telephone interview. 

Trump has long advocated for American energy dominance, Wood said: “But everybody knows that for the United States to do that on its own is a pipe dream in the short term at least -- but for North America working together, it becomes feasible.”

Canada Trade

Perry likened Nafta renegotiation to the “need to renegotiate a contract from time to time,” saying the president wants to “massage” and “rework” the deal, with energy playing an important role. The U.S. is both a major exporter and importer of oil and natural gas with both nations.

“I think we have a unique opportunity in this country to develop a North American energy strategy that will pay great dividends for Canadians, for Mexicans, for Americans, as we go forward,” he said, adding he has good working relationships with Canada Natural Resources Minister Jim Carr and Mexican Energy Secretary Pedro Joaquin Coldwell.

Carr echoed the comments, saying that Perry has championed North American energy cooperation since his first days on the job.

“We both understand the importance of that integrated market,” Carr said in an interview. “We understand we have to keep goods flowing, that we can establish North America as a world leader in the production of conventional and clean energy.”

Oil Trade

Canadian Prime Minister Justin Trudeau also welcomed Nafta renegotiation, casting it as an opportunity to update a pact negotiated in a pre-internet era.

"We’re looking towards Nafta renegotiations as an opportunity to update a deal that is 25 years old," Trudeau said, adding that his government is focused on working constructively with Trump’s team. "The back and forth between my office and the president’s office continues in a constructive and productive way, and indeed is part of the relationship Canadians expect me to have with the president."

Energy is a pillar of North American trade. Imported crude from Canada and Mexico now account for a larger percentage of total U.S. imports, growing to 49 percent in 2016, from 34 percent in 2010, according to the American Petroleum Institute.

North American energy trade acts to balance regional supply and demand needs. In 2016, the U.S. exported 2.1 trillion cubic feet of natural gas by pipeline to Canada and Mexico, while also importing 2.9 trillion cubic feet from the countries, according to the U.S. Energy Information Administration. The U.S. exported 1.6 billion barrels of crude oil and petroleum products to Canada and Mexico that year, while importing 1.4 billion barrels from the two countries, the EIA reported.

North American energy markets are already highly integrated, at least in oil, gas and petroleum products. Electricity is the outlier; while there are grid connections across the U.S.-Canada border, similar transmission does not occur between the U.S. and Mexico.

Trade Disputes

Already, a plurality of shipments of liquefied natural gas -- 20 percent, Bloomberg data show -- from Cheniere Energy Inc.’s Sabine Pass export facility ultimately have been sold to Mexico since that site began shipping LNG in early 2016.

“If you would have asked me to think about where these volumes would go a year, year and a half ago, I wouldn’t have guessed our neighbors to the south of the border would be the single largest market to date,” Cheniere Executive Vice President Anatol Feygin said at an EIA conference in Washington Monday.

To be sure, the trade disputes between the countries go beyond Nafta and energy. The U.S. and Mexico hope to sign a final deal on sugar imports this month, settling a long-standing irritant.

The U.S. imposed a second-round of duties on Canadian softwood lumber on Monday -- a move widely expected even before Trump’s election. The U.S. is also reviewing steel rules, though Trudeau is confident his country will be spared by any new measures. The U.S. and Canada are also at odds over aerospace.

Energy, Keystone

There’s more room for the conversation now, too, since the Trump administration authorized construction of TransCanada Corp.’s proposed Keystone XL pipeline to deliver oil sands crude from Alberta across the border, ultimately going to Gulf Coast refineries. For years as the Obama administration skeptically weighed the project and environmentalists battled the pipeline, it overshadowed trilateral talks. 

That’s no longer the case.

“Mexico and the United States could talk about pipelines for natural gas, but ultimately on a trilateral basis, it was all stymied by that issue of Keystone,” Wood said. Without the Keystone decision hanging over discussions, “it liberates the agenda a little more.”

— With assistance by Jennifer Jacobs, and Catherine Traywick

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