U.S. would feel our pain from NAFTA changes
As Canada, Mexico and the United States sit down this week to begin renegotiating NAFTA, here’s one thing for our southern neighbours to ponder.
Any action that gores Canada’s ox on energy will also hurt the U.S.
It’s not only the Texas oilpatch that could get squeezed by protectionist measures that impede trade, but in states such as California and Illinois.
A new study by the Calgarybased Canadian Energy Research Institute (CERI) shows just how close the ties are between the two countries when it comes to oil and natural gas supply.
Domestic energy investment and production not only creates jobs and activity north of the border, it is expected to generate an eye-popping US$45.6 billion in economic impact in U.S. states between this year and 2027.
It will also create or sustain 405,000 U.S. jobs during that period, according to the thinktank.
“It’s not just the typical energy producing provinces or states that get a benefit out of Canadian oil and gas production, but it’s many other economies as well,” says CERI chief executive Allan Fogwill.
“If there is a negative impact on Canadian oil and gas, it will impact the U.S. economy.”
Last year, Canada supplied 41 per cent of total U.S. oil imports, while almost 3.3 million barrels of crude each day headed south.
As well, eight billion cubic feet per day of Canadian gas made its way into the U.S. last year, while 2.1 bcf/d from the U.S. was shipped across the 49th parallel.
The 88-page study by CERI examined the overall economic impact created by operating and capital spending in the oilsands, as well as from conventional petroleum production in Canada.
Energy companies north of the border purchase an array of American goods and services — such as trucks used in the oilsands or machinery needed for drilling — and create economic activity selling petroleum products into various American markets.
According to the American Petroleum Institute (API), 69 U.S. refineries use crude oil imported from Canada.
CERI estimates the impact for the U.S. from conventional Canadian oil and gas activity during the 11-year period will hit $29.6 billion, while another $16 billion will flow from the oilsands.
The biggest winners in the cross-border sweepstakes are energy-producing areas such as Texas, Oklahoma, Colorado and Pennsylvania, but also states such as California, Ohio, Illinois, Wisconsin, Wyoming and Florida.
The Lone Star State is the biggest beneficiary with the impact estimated at $14.3 billion. California sits in second place at $4.8 billion.
This data could prove useful when NAFTA renegotiations begin Wednesday in Washington, D.C.
Since the ascension of Donald Trump to the White House, there’s been a nagging worry the president’s protectionist bent — famously calling NAFTA “the worst trade deal” ever signed — could jeopardize the integrated system that sees oil and gas moving in both directions.
Fears of a U.S. border adjustment tax that would penalize Canadian petroleum have subsided, but the unpredictable president could shift gears at any moment.
Energy trade benefits all sides, a point hammered home recently in a joint statement by oil and gas industry groups in each country.
“NAFTA works,” declares the statement from the Canadian Association of Petroleum Producers (CAPP), API and the Mexican Association of Hydrocarbon Companies.
The statement notes that as early as 2020, the continent will become energy self-sufficient because of growing Canadian oilsands production, surging U.S. shale oil and natural gas output and an influx of investment into Mexico’s energy sector.
“NAFTA has been a success story for energy for the oil and natural gas industry and for the energy interests of all three countries,” says Aaron Padilla, the API’s senior adviser for international policy.
“There are a couple of issue areas, (but) we would qualify those as really at the margins.”
CAPP vice-president Nick Schultz says the sector hasn’t seen anything to indicate “energy is in the gun sights” in the upcoming talks, but believes it’s important to spell out the benefits of free trade.
“We want to make it very clear that the agreement we have fundamentally works, that a lot of investment has been made on the basis of it,” he says.
Support from the sector for open borders and liberalized trade is helpful.
But it’s more critical to ensure Americans outside the industry understand the benefits and potential risks that any obstruction — either deliberate or unintended — could have, such as in higher pump prices or fewer jobs.
Benn Proctor, a program associate with the Wilson Centre’s Canada Institute in Washington, says data on how much crossborder energy trade means to state economies should help Canada’s cause.
“By being able to go out armed with these facts and figures, Canadian politicians and businesspeople can actually go out to places in Georgia and talk to the mayor of Atlanta and say, ‘This is how much steel makes its way to Alberta because of our energy industry,’” he says.
“These organizations out of the beltway will listen to you.”
One thing is for certain: NAFTA is about to be reopened and Canada must play its cards carefully in the months ahead.
Now, the country has solid information on its side to make its case across America.