Prophets

U.S. Natural Gas Market Sees Big Benefits From Nafta

Nafta has been a boon to the U.S. energy sector and to employment.

Nafta has been a boon to U.S. energy.

Photographer: Tim Graham

As Congress begins to examine the North American Free Trade Agreement at the behest of President Donald Trump, lawmakers need to ensure that nothing they decide disrupts one of the more relevant industries in the pact: energy -- in particular, natural gas.

U.S. Seeks Major Trade Overhaul as Nafta Talks Begin

U.S. producers need Mexico, their largest customer. The glut of production in the U.S. far exceeds domestic demand; thus, exports prevent a collapse in natural gas prices. More than a quarter of Mexico’s electricity is powered by U.S. natural gas, leaving it vulnerable in a trade battle. Trade disputes mean U.S. producers would suffer a serious loss of income, while Mexico would face an energy shortage that could wreak havoc on its economy, drive up crime and potentially create a new refugee crisis.

In many ways, Trump’s support of the U.S. energy sector conflicts with his desire to see the 23-year-old agreement revamped or even ended. While Trump believes the agreement has stripped Americans of jobs and opportunities, Nafta has actually been a boon to the energy sector and to employment.

Natural gas exports to Mexico, which have been increasing across the U.S. border since 2010, reached near-record highs this year through May, averaging 4.04 billion cubic feet per day, up from an average of 3.78 billion in 2016. The U.S. had an energy trade surplus with Mexico of more than $11 billion last year. The value of U.S. energy exports to Mexico in 2016 was more than twice the value of the energy imports. Mexico accounts for more than 60 percent of all U.S. natural gas exports, according to the Energy Information Administration.

Source: EIA

The U.S. is emerging as a net natural gas exporter with exports exceeding imports in three of the first five months of this year, putting the U.S. on course to reverse 60 straight years during which the nation was a net importer. 

At least 17 pipelines carry more than 4 billion cubic feet of natural gas daily to Mexico, with four additional cross-border pipelines to be completed over the next two years and many more planned after that. While the U.S. still is a net gas importer from Canada, exports to eastern Canada have steadily increased since the completion of the Vector Pipeline in 2000.

The story has been similar for liquefied natural gas, or LNG. Last year, Cheniere Energy Inc. shipped the first cargoes from its Sabine Pass terminal in Louisiana, marking the start of LNG exports from the lower 48 states. Sabine Pass averaged a record 1.96 billion cubic feet per day of exports in May, according to the EIA. Numerous domestic LNG export projects are in development by companies such as Dominion Energy Inc.

There’s been a gradual and sustained increase of exploration activity in Mexico, particularly in deepwater regions. The number of active offshore exploration rigs in Mexico reached a 10-year high in June 2017, and the sector may be only just beginning to see the effects of the energy reforms. Mexico began deregulating the industry in 2013 amid declining domestic gas production.

Anti-Nafta organizations such as the AFL-CIO argue that the pact has been skewed toward corporations and against the advancement of workers' wages and benefits, while increasing trade at the cost of eliminating jobs and depressing wages.

Yet from 2009 to September 2016, employment in the nation’s oil and gas extraction industry including support services grew by 6 percent to 392,869 total jobs, according to the Department of Energy. Natural gas generation workers accounted for 47 percent of all fossil fuel electric generation employment. Natural gas fuels, supporting 309,993 jobs, are the second-largest category of employment behind petroleum. Together, natural gas generation and fuels support 398,235 jobs nationally. Almost four in 10 workers in natural gas electricity generation are female, and 15 percent are Hispanic or Latino. The fuels sector has a higher proportion of workers who are 55 and older (24 percent), while generation has more unionized workers (14 percent).

The U.S. needs to focus on maintaining strong yet fair trade by modernizing and improving Nafta in ways that expand trade and investment. The industry has the support of Energy Secretary Rick Perry and Secretary of State Rex Tillerson, who happens to be the former CEO of Exxon Mobil Corp. U.S. gas exports to Mexico are expected to double by 2019, most of which will come from Texas, the home state of both men.

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    To contact the author of this story:
    Shelley Goldberg at shelleyrg3@gmail.com

    To contact the editor responsible for this story:
    Robert Burgess at bburgess@bloomberg.net

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