When President Barack Obama threatened to strike Syria, oil futures rose, not because Syria is a major oil producer but because it is strongly backed by Iran, ranked seventh in world production. If Iran responded to a U.S. attack on Syria by sealing the Strait of Hormuz, the gateway for about 20 percent of all oil shipments, the action could provoke a military confrontation with the U.S. or other countries.
The recent tension in Syria is just one of many troubling scenarios that could come to pass unless the United States finds a way to achieve energy independence.
While the International Energy Agency predicted last year that the U.S. could be the world’s leading oil producer by 2017, and a net oil exporter by 2030, two decades is too long in this turbulent age. Perhaps there’s another option that could be realized quickly: a North American energy agreement.
Canada, Mexico and the United States together produce about 18 million barrels of crude oil each day. While the U.S. is a net crude oil importer — about 40 percent of its needs — both Canada and Mexico are net exporters, though not by much.
Canada produces about 3.9 million barrels a day, but it only consumes 2.3 million, according to the U.S. Energy Information Administration’s 2010 figures. Mexico produces about 2.9 million barrels daily and consumes about 2.3 million.
The excess produced by Mexico and Canada would not currently meet the U.S. shortfall, but that could change if those countries could produce more, which both want to do.
The United States already imports some Canadian oil, and Canada wants to send more. The first phase of the Keystone pipeline system — it has been operating for three years with no major problems — already transports up to 590,000 barrels of oil per day from Alberta, Canada, to refineries in Illinois for processing.
However, Canada could ship another 830,000 barrels a day of the same Alberta heavy crude to the Texas Gulf Coast refineries if President Obama would finally approve the Keystone XL pipeline, which is Phase 4 of the Keystone pipeline system.
Mexico also wants to produce and export more oil and gas. The country has the third-largest proven oil reserves in Latin America, and a recent report suggests that Mexico could have 29 billion barrels of oil and gas reserves in the Gulf of Mexico and another 13 billion in shale.
But Pemex, the government agency that manages Mexican oil and gas production, is notoriously inefficient. Oil production fell 25 percent over the past decade, during a time when the United States had an explosion in production, and that decline has affected exports to the U.S.
Mexico’s President Enrique Peña Nieto is trying to reform his energy sector by allowing private investment in Pemex. Perhaps an energy free-trade zone could help.
While the 1994 North American Free Trade Agreement signed by the United States, Mexico and Canada briefly addressed energy issues, it didn’t go far enough. It left in place Mexico’s restrictionist policies with respect to private oil and gas investment and exploration as well as the U.S.’s decades-old law prohibiting exporting natural gas without government approval.
What is needed is a three-country free-trade zone for energy that ends these various restrictions — in essence, a borderless energy policy — that allows private sector or government (i.e., Pemex) exploration, drilling, transport (including any needed pipelines), refining and sales anywhere among the three member countries.
Such an agreement wouldn’t prohibit exports to other countries, but it could give signatories the right of first refusal if, say, Iran decides it wants to punish the West by blocking the Strait of Hormuz.
A North American energy free-trade zone would lead to energy self-sufficiency much more quickly, while dramatically increasing economic growth for all three countries — especially Mexico.
It’s not a radical idea. It just ensures that the original intent of NAFTA also encompasses the energy sector.