Energy executives and industry leaders used their appearance at one of the world's biggest energy conferences to renew a push to avoid new costs on commodities traveling across North America.
Across various presentations and discussions at IHS Markit's CERAWeek in Houston, executives, political leaders and industry observers agreed that the energy markets of North America are tightly interconnected and potential changes to the North American Free Trade Agreement would likely have to acknowledge that reality. A steady flow of oil and gas across both U.S. borders should keep North American energy trade robust even if NAFTA is overhauled, but they cautioned against new costs.
"On our pipelines, [we] have exports into Canada and from Canada. From Mexico, we have crude oil coming and natural gas going out. This benefits everyone. This is a good thing, and we'd like to keep it going," Kinder Morgan Inc. CEO Steven Kean said at the conference.
Kean said the North American pipeline grid was built to serve producers and consumers of oil and gas in all three countries. While he was not overly concerned about a disruption in the flow of oil and gas, he noted his company has been building up its system to serve Mexican natural gas needs in recent years.
"What used to be the supply area is now the market area. There's a lot of pipelines being built to serve Mexico on the export front," he said. "Our [Tennessee Gas Pipeline Co.] system ... we have customers in Mexico bringing their gas from the Marcellus and Utica."
Plains All American Pipeline LP CEO Greg Armstrong similarly came out strongly in support of a continued free trade agreement, putting a significant price tag on what could happen to the partnership otherwise.
"We need some form of NAFTA. I think it's warranted that it needs to be updated," he said. "From a standpoint of tariffs, we spent the weekend trying to figure out [how it could affect the company]. We have $1.5 billion worth of projects that could be affected."
TransCanada Corp. CEO Russ Girling said it would be a "tragedy" if the three democracies of North America could not develop their resources and share. "We're the only continent on earth that has the ability to be self-sufficient," he said.
Kinder Morgan, Plains All American and TransCanada are among the biggest pipeline companies in the world.
Canadian Natural Resources Minister Jim Carr highlighted that what is good for one North American country in energy usually benefits the other two. "North America is an integrated energy market. You don't have to make the argument that what's in the interest of Canada ... is what's in the interest of the United States and Mexico. I don't think there's a better example of how a free trade agreement is in the interest of all three countries."
With energy companies on the offensive at the conference, U.S. Energy Secretary Rick Perry used his appearance to try to soothe concerns. Perry said that although the NAFTA negotiations initiated by the Trump administration have been "uncomfortable," the countries would work through the issues. As recently as March 14, however, Commerce Secretary Wilbur Ross told members of Congress that the U.S. was ready to pull out of the trade agreement unless a renegotiated pact provides more benefits to the U.S.
Perry's counterpart in Mexico, Secretary of Energy Pedro Joaquin Coldwell, said the regulatory changes to Mexico's energy industry have the attention of U.S. and Canadian companies, and they will likely continue to invest south of the U.S. border. According to Coldwell, 17 companies from the U.S. and Canada have recently won contracts for oil and gas exploration in or off the coast of Mexico, and the two nations will build more than 7,500 kilometers of pipelines in his country.
Adrian Calcaneo, Latin America lead for IHS Markit's NGL and midstream oil group, said Mexico has the most at stake with NAFTA negotiations. "Eighty percent of trade for Mexico is with the United States. A lot of investment in central Mexico … will grind to a halt or be severely affected."
Natural gas exports from the U.S. — largely from Texas — have spiked in recent years. The U.S. Energy Information Administration estimated that nearly 136 Bcf of gas was sent to Mexico via pipeline in December 2017. Calcaneo said the gas was being used largely for two purposes: industrial use and power generation. Should NAFTA collapse, tariffs could significantly hurt American gas exports to its southern neighbor.
