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USMCA deal to keep tariffs off North American oil, gas trade

Oil and natural gas industry representatives welcomed a deal between the Trump administration and House Democrats to advance a revised version of the United States-Mexico-Canada Agreement that would protect the flow of oil and gas among the countries and avoid a more extensive permitting process for gas export projects.

House Speaker Nancy Pelosi, D-Calif., announced Dec. 10 that the revised form of the agreement, called the USMCA, would be put up for a vote in the House, although she did not specify when. Senate Majority Leader Mitch McConnell, R-Ky., later told reporters that the Senate would not take up the USMCA this year and would likely wait until immediately after the anticipated impeachment trial of President Donald Trump in early 2020.

But the lawmakers' deal was nonetheless viewed by the U.S. oil and gas sector as a positive resolution to a contentious negotiation in effect since the three countries signed the USMCA in Nov. 2018. The revised trade pact would keep tariffs away from the flow of oil gas and refined products, and it carried other positive signs for exports.

"Canada and Mexico are our top energy partners, and maintaining the tariff-free flow of natural gas, oil and refined products will help ensure that American families have continued access to affordable and reliable energy, strengthen U.S. energy leadership and grow the economy," American Petroleum Institute President and CEO Mike Sommers said in a statement. "This isn't just about the potential impact to the U.S. energy industry, but also to small businesses, manufacturers and U.S. jobs. We urge Congress to take up and pass this bipartisan agreement."

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In the run-up to the USMCA, which replaces the North American Free Trade Agreement, escalating tensions among the U.S. and its two major trading partners had spurred concern in the oil and gas industry. The industry grappled with tariffs on goods such as steel imported from Canada and Mexico. The countries are significant suppliers of goods used for pipelines and production equipment in the U.S.

Keeping Mexico as a free oil and gas trade partner under the trade pact means natural gas exported to the country by pipeline can continue without extensive new permitting. Gas-fired power plants in Mexico are seen as an important outlet for a glut of cheap gas produced by oil-focused Texas producers.

Retention of the free trade agreement status for Mexico would mean that export applications to the U.S. Department of Energy for projects delivering gas to Mexico would be granted "without modification or delay," per the Natural Gas Act.

The Office of the U.S. Trade Representative touted the USMCA as providing a predictable framework for expanded trade among the three countries and supporting expanded exports of U.S. energy products. The agreement provides new flexibility in origin requirements for oil and gas moving between the countries. The trade representative also said the USMCA locks in Mexico's 2013 energy reforms that have benefited U.S. investors and service suppliers.

Net exports of natural gas piped to Mexico grew by 5% in the first half of 2019, averaging 4.9 Bcf/d, or 0.4 Bcf/d higher than during the same period of 2018, according to the U.S. Energy Information Administration. Mexico has also been a major importer of U.S. LNG. Since the first LNG export from the Lower 48 in February 2016 through September, Mexico imported 474 Bcf of the commodity, making it the second-greatest overall destination for U.S. LNG behind South Korea, according to the most recent DOE figures.