The energy industry is relieved that a new Trump administration trade deal with Mexico appears to keep alive booming exports of oil and natural gas to America’s southern neighbor.
While details are sparse about the new deal – which is absent Canada for now – energy stakeholders have seen enough to breath easy, after some feared President Trump could tear up the North American Free Trade Agreement that has helped make Mexico the largest export market for U.S. oil, transportation fuel, and natural gas.
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“For the energy sector, there was never really a huge amount of positive stuff that could come out of this,” said Sarah Ladislaw, senior vice president and director of the Energy and National Security program at the Center for Strategic and International Studies. “This was about making sure a whole lot of bad things didn’t happen. Protecting that free trade status with Mexico given how much we are trading is a win and a benefit for the Trump administration.”
NAFTA, implemented in 1993, contains few energy-specific provisions. NAFTA allowed for the U.S., Mexico, and Canada to pay nothing on most goods that cross borders between them, including energy products.
Energy experts told the Washington Examiner the new trade deal appeared to maintain the “zero tariff” status for energy products, although the countries have not released final language as they continue negotiating with Canada to make a trilateral deal.
“The key thing is that if Mexico adopts the language of free trade in energy products, that will provide some certainty in gasoline and natural gas trade, where the U.S supplies over 50 percent of Mexico’s respective consumption,” said Carlos Pascual, the former U.S. ambassador to Mexico from 2009 to 2011. “U.S. suppliers are anxious, as are Mexican importers.”
The preliminary Mexico-U.S. trade deal the two countries announced this week focused mostly on auto manufacturing rules, not energy.
But the possibility of the deal unraveling, coupled with a proposed rule change that could have hampered U.S. energy investments in Mexico and Canada, had some industry officials nervous.
The American Petroleum Institute, the largest oil and natural gas trade group, expressed satisfaction this week after Trump administration officials said they had preserved investor protections for existing energy projects in Mexico, according to reporting by S&P Global Platts.
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API had been “gravely concerned” that U.S. Trade Representative Robert Lighthizer would succeed in his push to eliminate NAFTA’s Investor-State Dispute Settlement process, which allows a business to take legal action through third-party arbitration if a foreign government harms the company’s investment in that country.
Critics of the process say the settlement provision encourages U.S. companies to invest internationally and move jobs overseas.
The protections matter to all types of industries, but especially energy, because investments usually require substantial time to bear fruit, such as the process of exploring, and then producing crude oil in the Gulf of Mexico.
“If what is reported is true, this agreement is a net positive for the U.S. oil and gas industry, said David Goldwyn, an international energy consultant who served as the State Department’s special envoy and coordinator for international energy affairs from 2009 to 2011. “It is positive for gas exports. It is positive for the protection of U.S. investments already committed to Mexico. There is nothing there that they [the oil and gas industry] don’t like so far.”
Industry officials became more fearful of potential backsliding on positive energy trade with Mexico after the country elected leftist Andres Manuel Lopez Obrador as president. His campaign rhetoric suggested he could look to reign in constitutional reforms from 2013 that opened Mexico’s formerly nationalized energy industry to foreign investment.
The current government of President Enrique Pena Nieto, which enacted the energy reforms, had sought to reach a trade deal with the U.S. before Lopez Obrador enters office in December.
Some reports have said the Trump administration and Pena Nieto wanted to enshrine those changes into the the new trade agreement.
But experts say that wasn’t realistic, since they were reforms written into Mexico’s constitution, and that issue does not appear to have been part of the new trade deal.
The White House and Office of the U.S. Trade Representative did not provide a response to questions seeking clarity from the Washington Examiner.
Lopez Obrador, for his part, told local reporters that the new trade deal had ensured Mexico’s energy “sovereignty.”
Experts say Lopez Obrador does not seem to want to roll back the reforms entirely. Mexico has already awarded more than 100 oil exploration and production contracts to private companies, and Lopez Obrador has said he will respect existing private sector deals unless he finds evidence of corruption.
He has also said he would invest billions in state oil company Pemex, and suspend new auctions to foreigners.
“Obrador seems to be saying he won’t reverse the constitutional changes and won’t try to change the law,” Goldwyn said. “He just won’t put anything on offer. And that is completely within his control. It’s a kind of clever way of getting where he wants to go.”
One of Lopez Obrador’s other promises – to ban fracking – may even benefit the U.S., though Mexico already has slim prospects to produce its own gas.
“If he stops fracking, it means he will buy more natural gas from the U.S., so that doesn’t disadvantage the U.S.,” Goldwyn said.
