You’ve probably heard by now that America is in the midst of an oil and gas boom that’s led to unprecedented energy independence and the creation of millions of jobs. Now it appears, Mexico wants to replicate that success – and in the process open up new opportunities for U.S. companies.
After a bruising battle, Mexico's Congress voted Thursday to open the country’s state-run oil industry to foreign and domestic investors—ending 75 years of government control.
The 353-134 vote will allow the government to give private companies contracts and licenses to explore and drill for oil and gas, deals now prohibited under Mexico’s constitution. The move is expected to generate as much as $20 billion in additional foreign investment a year. Investor’s Business Daily puts the historic reform in perspective:
Mexico's reversal didn't come a moment too soon. Since 2006, its energy production has fallen sharply from underinvestment due to a bad combination of zero foreign investment, which it shut out in 1938, and the state's habit of draining Pemex for cash to finance a third of its own budget.
The low production is evident in its oil exports to the U.S., which have fallen from nearly 2 million barrels of crude a day in 2006 to less than 1 million in 2013. As U.S. oil rigs light up the Gulf of Mexico each night, the crude-rich Mexican side stays as dark as North Korea.
Mexico's 75 years of poor policy created a lost opportunity. Oil had become a smaller and less significant part of its economy even as the technical advances of fracking were making the U.S. and Canada the new Saudi Arabia. But it might be able to catch up, as global demand, according to ExxonMobil's 2014 energy outlook, is forecast to grow 35% by 2040.
U.S. Chamber President and CEO Tom Donohue says that U.S. companies are well positioned to benefit from this market-opening move:
We are going to be able to develop services and competencies in dealing with energy that are transferrable from one country to another. They have some differences in commodities and have their own regulatory systems, but all of it will be in the context of a lot oil, a lot of gas, a lot of coal and a fundamental ability to attract manufacturing, to improve supply chain and to drive the creation of jobs and economic growth.
Energy is just one area that offers great promise for strengthening U.S.-Mexico ties. This week in Washington, D.C., business leaders from the United States and Mexico explored economic opportunities for both countries and identified future priorities for collaboration in areas including infrastructure, regulatory cooperation, customs modernization, and education and workforce development.
“By working together, we can help build a future of shared prosperity, security, and efficiency between the United States and Mexico – a goal worthy of our very best efforts,” Donohue added. “Doing so will allow us to further integrate the North American market and make it more competitive in the global economy.”
Mexico is the second largest global market for the United States. Last year, the two countries exchanged nearly $500 billion in goods trade, equal to $1.35 billion of commerce crossing our shared border daily. That trade supports six million jobs in the U.S., as this new infographic by the U.S.-Mexico Leadership Initiative illustrates. (Click here for more infographics on this important trade relationship.)
As U.S. domestic crude oil begins to flow to Gulf Coast refiners through the southern portion of the Keystone XL pipeline, two polls show strong support for approving construction of northern section.
First, a Harris Interactive poll for the American Petroleum Institute finds that 72% think that it’s in America’s national interest to approve the Keystone XL pipeline.
With so much public support, why has the pipeline been delayed for five years? Bloomberg asked respondents that question and came back with an answer: Politics. Sixty-one percent say that the delay is more about the White House avoiding “political problems with environmental groups protesting the decision” than about addressing environmental concerns.
Even though the State Department has concluded that Keystone XL will have little impact on the environment, the White House chooses to listen to anti-energy forces rather than the public.
The wait has gone on long enough. The opportunity is here to create thousands of jobs and get more energy from Canada. The President can give the country a much-needed Christmas gift by approving the Keystone XL pipeline.
Shale energy production will “continue to lift domestic supply and reshape the U.S. energy economy” and will result in near-historic levels of domestic crude oil production, higher levels of natural gas production, and dramatically reduce our reliance on imported energy, a new federal government report finds.
“Higher production volumes result mainly from increased onshore oil production, predominantly from tight (very-low-permeability) [shale] formations,” states the Energy Information Administration’s Annual Energy Outlook 2014 (AEO 2014).
Because of hydraulic fracturing and horizontal drilling, crude oil production through 2016 will increase by 800,000 barrels per day annually to reach production levels not seen since 1970. By 2021, 51% of domestic crude oil production will be from shale.
As for natural gas, production will increase by 56% by 2040, boosting manufacturing and exports. “Industries that supply equipment for increased natural gas production, as well as industries benefitting from lower natural gas prices, account for much of the higher growth in manufacturing,” the report states. For example, a Bloomberg story reports that the American Chemistry Council expects that abundant natural gas will push the U.S. chemical industry to be 21% larger than Europe’s by 2020.
Higher domestic energy production will also mean decreased energy imports and increased energy security. “[N]et use of imported energy sources, which was 30% in 2005, falls from 16% of total consumption in 2012 to 4% in 2040,” the report states.
In addition, the United States will have such an abundance of natural gas that it will be a net liquefied natural gas (LNG) exporter by 2016 and a net exporter of natural gas in 2018, the report estimates.
Daniel Yergin, vice president of energy consultant IHS, said, “This is not only about energy, but also is providing a big boost to the U.S. economy at a time when it really needs a boost.”
The report doesn’t predict where increased energy production will take place, but based on recent history, expect much of it to happen on private and state lands. We could see even greater production if more federal land is opened to development.
One major caveat with the AEO 2014 is that it assumes current laws and regulations continue into the future. All bets are off if the administration imposes duplicative regulations on hydraulic fracturing or makes it even harder to develop oil and natural gas offshore.
Nevertheless, through innovation and risk-taking, the shale energy boom has been a bright spot for the economy. With policies that embrace our energy abundance, we can continue reaping its benefits.
Here’s further analysis of the report:Energy In Depth: EIA: Surge in Shale Development Redefines America’s Energy Outlook Energy Tomorrow: EIA's Outlook: Flush With U.S. Energy Institute for Energy Research: EIA Forecast: Fossil Fuels Remain Dominant Through 2040
UPDATE: I note that by 2018, the United States will be a net exporter of natural gas and crude oil production will increase through 2016.
Amy Harder at the Wall Street Journal reports that political pressure is building for President Obama to approve construction of the Keystone XL pipeline:
Nearly a dozen Senate Democrats, including five up for re-election this year, are pressing President Barack Obama to approve the Keystone XL pipeline, and they say they want a decision by the end of next month.
In a letter sent to President Obama, the Senators point out the extensive analysis of the project:
[T]his is a process that has now gone on well past five years, has involved two applications, five federal reviews, multiple open comment periods, and numerous opportunities for consultation and comment at either public forums or at staff-level meetings. The Final Supplemental Environmental Impact Statement (SEIS), released by the State Department on January 31, 2014, was well over 2,000 pages….
This process has been exhaustive in its time, breadth, and scope. It has already taken much longer than anyone can reasonably justify. This is an international project that will provide our great friend and ally Canada, a direct route to our refineries.
The letter concludes:
We ask that you bring this entire process to an end no later than May 31, 2014, and that your final decision be the right one, finding that the Keystone XL pipeline is in the national interest.
Recent polls show strong support for the pipeline. A January USA Today poll found that 56% support it. A Pew Research poll in April also found strong support—61% overall--and found that a plurality of Democrats (49%) back the pipeline. Previous polls also showed strong public support and considerable Democratic support for the project.
The letter is the latest example of the broad-based support for the pipeline. Labor unions, the business community, Republicans, and Democrats, all are behind the project.
Pipeline opposition amounts to those who have failed to win the argument on its merits and so have resorted to making ridiculous claims.
It’s clearly in the national interest to approve the Keystone XL pipeline. [Here are six reasons why.] President Obama should embrace the jobs and economic growth this project will bring.
It’s time to get this done.