Episode summary
Can the US Afford an Energy Trade Fight?
Wall Street Week
· · 12 min · Guests: Mike Howard, Gitane De Silva
Summary
North American energy trade works less like a single three-country system than as two major bilateral channels: Canadian oil flowing into the U.S. and American natural gas flowing into Mexico. The report argues that this structure has persisted since NAFTA and remains economically efficient, even if it is politically awkward as USMCA talks approach. One executive says roughly 6.4 billion cubic feet of natural gas move into Mexico from the U.S. each day, and another says about 60% of U.S. oil imports come from Canada.
The biggest friction point is Mexico’s treatment of its state-owned firms, Pemex and CFE, which critics say receive preferential treatment over foreign investors. That, the report says, is one of the main obstacles in the USMCA review. At the same time, Mexico remains heavily dependent on U.S. energy, with natural gas supporting much of its power generation.
Canada, meanwhile, sees the relationship as mutually beneficial and hard to replace. One former regulator says the better strategy is to emphasize that Canadian energy helps the U.S. economy rather than threaten supply. The common conclusion among the participants is that the status quo largely works, and the best outcome may be to keep energy out of the trade fight.
Key takeaways
- About 70% of Mexico’s energy comes from the United States, making cross-border gas flows a core part of its economy, according to one executive.
- Roughly 60% of U.S. oil imports come from Canada, and U.S. refiners are configured to process that crude, according to an analyst.
- The main U.S.-Mexico energy complaint is that Pemex and CFE receive preferential treatment, which critics say conflicts with USMCA treatment rules.
- Canada relies on the U.S. for more than 70% of its exports and more than 90% of its energy exports, so it cannot easily diversify away overnight.
- Several participants argued the best USMCA outcome is to leave energy largely alone because the free flow of energy is helping growth on both sides of the border.
Notable quotes
“The U.S. generally imports oil from Canada and exports natural gas to Mexico. The USMCA may aspire to be multilateral, but in practice it looks more like two bilateral arrangements”
“60% of U.S. oil imports come from Canada. The refineries in the U.S. are adapted in order to refine that sour crude oil from Canada”
“70% of the natural gas that Mexico imports yearly comes from the U.S. 60% of the electricity generated in Mexico comes from natural gas”
“we need to diversify our economy, and certainly that has taken greater priority in light of the tone and approach of the current administration”
“-We probably want to make sure that energy stays out of the conversation, because right now the free flow of energy that's going on right now is helping the economy grow”
How the episode opens
Westin: This is a story about parallel play. If North American trade in autos goes back and forth among the three countries and trade in agriculture is largely U.S. exports, when it comes to energy, one size definitely does not fit all.
The U.S. generally imports oil from Canada and exports natural gas to Mexico. The USMCA may aspire to be multilateral, but in practice it looks more like two bilateral arrangements.
David Gura brings us the story. -Howard Energy Partners has a natural gas pipeline that runs from South Texas to Monterrey in Mexico. It supplies part of the 6.4 billion cubic feet of natural gas Mexico imports from the U.S.
each day. -We're the only one that actually crosses the border on both sides of the border with the same ownership. There are other pipelines that end at the border of Mexico and Texas, but then gets picked up by another company in Mexico and continues on.
We're the only one that actually crosses the border. But there's probably on the order of 10 pipelines that cross into Mexico from the U.S. -CEO Mike Howard sees Mexico's reliance on the U.S.
firsthand. -All business starts with energy, and the energy business is the business that powers every other business. So whether they produce their own energy or not, they need the energy.
And so if a U.S. company is not invited to own infrastructure in Mexico, somebody needs to build it. So if they want to build it, that's fine.
I think America has the most affordable, most reliable forms of energy to give to them. -Energy trade standards between the U.S., Mexico, and Canada were first established by NAFTA, which included zero tariff treatment for oil, natural gas and refined petroleum products. The flow of energy exports had been integrated across all three countries.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us-canada energy trade
- mexico us energy exports
- usmca negotiations
- oil import flows
- natural gas demand
Companies and tickers mentioned
- Howard Energy Partners
Watch the episode
Watch “Can the US Afford an Energy Trade Fight?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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