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Summary: North American Energy Integration in Canada and Mexico

Mexico Energy Report Launch

From L to R: Christian Gomez, David Manning, Graham Campbell, Erik Milito. (Image: Jorge Merino)

August 05, 2014

Panelists:

  • Hector Castro Vizcarra, Minister of Energy Affairs, Embassy of Mexico
  • David Manning, Alberta Representative, Embassy of Canada
  • Ramon Espinasa, Lead Oil & Gas Specialist, Inter-American Development Bank (moderator)
  • Graham Campbell, President, Energy Council of Canada
  • Erik Milito, Director of Upstream and Industry Operations, American Petroleum Institute
  • Isidro Morales, Professor, Graduate School of Public Policy and Administration, Tecnológico de Monterrey
  • Christian Gómez, Director of Energy of Council of the Americas (moderator)

Summary

At a panel discussion on July 30, Council of the Americas released two Energy Action Group working papers: North American Energy Integration: The Canadian Perspective and Mexico: An Opening For Energy Reform. In light of exploration in the oil sands in Canada, shale oil and gas development in the United States, and reforms in Mexico, integration is a key factor for increasing trilateral competitiveness and prosperity, panelists said.

Experts from the government and non-profit sectors in Canada, Mexico, and the United States shared their views on opportunities to consolidate North America’s status as an energy superpower, as well as challenges in pursuit of energy security across the hemisphere.

A Rising Energy Superpower

North America’s energy production potential is on the rise, said panelists. Canada, which has exported crude oil for many years, continues to increase production; Canadian oil now accounts for 30 percent of U.S. imports. It also has great potential for increased renewables production, noted David Manning, Alberta’s representative at the Embassy of Canada. Alberta is the largest producer of hydrocarbons in the country by a wide margin.

In Mexico, Congress is considering secondary energy reform laws, which will open the country’s energy sector—the exclusive purview of state oil behemoth Pemex for 75 years—to foreign investment. Opening Pemex will make it more efficient and create space for healthy competition, increasing long-stagnant production levels, panelists explained. Hopes are high that a potential boom may help lower high oil prices, said Hector Castro Vizcarra, minister of energy affairs at Mexico’s embassy in Washington. He went on to make suggestions for next steps for reforms, underscoring the importance of transparency and accountability. Vizcarra noted that Mexico would benefit from the establishment of an independent natural gas regulator.

Canada and Mexico in Focus

The IDB’s Ramon Espinasa asked when investors could expect to see private investment in the upstream processes of production to appear, as well as returns on those investments. Vizcarra explained that Round Zero, or the first round of bidding on exploratory contracts, is set for September 16, while bidding on contracts with Pemex to begin on June 15, 2015. In the best case scenario, the country could see lower gasoline prices in 2018, he said, but prices are initially expected to rise due to decreased imports and the cost of infrastructure development.

Commenting on Canada’s energy future, Manning noted global demand is moving further toward lighter and cleaner products. The shale gas boom in the United States represents part of this trend, as this product is cheaper and burns more cleanly than crude oil. Alberta, on the other hand, produces mostly costlier and more difficult-to-access “heavy” oil.

Prospects for Integration

Energy Council of Canada President Graham Campbell noted that North America currently generates 30 percent of the world’s goods and services. Its supply abundance, open markets, and innovation make it a region with potential to become an integrated superpower of production and exports, he said. However, this requires concentrated dialogue on several levels.

American Petroleum Institute Upstream and Industry Operations Director Erik Milito agreed that dialogue is key, emphasizing that domestic rhetoric needs to change from “American energy independence” to “North American energy security” in order to see any real progress. With global energy demands on the rise, the region can take advantage of its abundance to assure global security with oil, he said. But North American authorities must approve liquefied natural gas exports at home, encourage exports to neighbors, create common infrastructure, and set export standards.

Campbell explained that Canadians feel “frustrated” by the continued debate over the Keystone XL Pipeline, which he said many of his colleagues see not only as sensible, but necessary. He admitted that the drawback is a shortage of human capital to work in the energy sector due to an aging workforce. The hope is that, in time, the shortage will push wages up for petrol engineers, enticing new workers. In the meantime, Canada is recruiting skilled technicians from Mexico. He added that integration remains vital, given that 40 percent of the world’s current capacity to refine heavy oil is located on the Gulf Coast.

Isidro Morales, an academic affiliated with Tecnológico de Monterrey, argued that in addition to foreign capital, Mexico hopes for efficiency-boosting technology and skills transfers. Pemex will finally have budgetary autonomy, and coupled with partnerships and competition, authorities hope the company will become more efficient with more modern operations.