OIL COMPANIES ON NAFTA DEFENSIVE
Terrified of Trump’s threats, industry step up bid to preserve 23-year-old deal
WASHINGTON The Trump administration is easing environmental regulations and opening up territory for drilling as part of the president’s bid to unleash the “vast energy wealth” of the U.S. Yet Donald Trump’s push to rewrite the North American Free Trade Agreement could have the opposite effect.
As NAFTA negotiations resumed Friday, oil industry leaders were desperate to preserve the 23-yearold trade deal that drove a North American oil and gas renaissance and paved the way for US$34 billion worth of energy exports to Canada and Mexico last year.
“Any changes that disrupt energy trade across our North American borders, reduce investment protection or revert to high tariffs and trade barriers that preceded NAFTA could put at risk the tens of millions of jobs,” said the top oil and gas trade groups from the U.S., Canada and Mexico in a joint position paper released last month.
Energy companies that sat on the sidelines during other recent trade negotiations are getting more involved on NAFTA — securing formal roles on committees advising the process, unleashing lobbyists to influence it and outlining their priorities for the administration. Armed with a modest wish list, the industry is mostly in a defensive posture, terrified Trump will torpedo the current deal or weaken existing provisions that allow investors to sue countries over discrimination, seizures and other injustices.
“We want to make clear in a thoughtful way that there’s really no reason to disrupt the energy component of NAFTA,” American Petroleum Institute President Jack Gerard said in an interview. “Over time, this has really evolved to a very efficient marketplace in North America with Canada, Mexico and the United States. It’s a mature system that’s well in place, and they’re just no reason to disrupt it.”
Trump has raised the possibility of an American exit from the deal at least three times since negotiations began last month.
“You may not necessarily be in the crosshairs, but if you don’t maintain a focus on it, you could be collateral damage,” said Stephen Comstock, the American Petroleum Institute’s director of tax and accounting policy.
When NAFTA was signed almost a quarter-century ago, the U.S. was importing roughly half of its daily oil and petroleum needs. Canada’s oilsands — now churning out 2.4 million barrels of crude a day — were just getting started. And Mexico still had a monopoly on its own energy development, blocking foreign businesses from drilling or processing oil in the country.
“Oil and gas has grown from an incidental discussion point to an enormous target of opportunity,” said Kevin Book, managing director of ClearView Energy Partners LLC. “Because energy is such a big deal in North America — a lot’s changed, not just in the U.S. but with Canada’s oilsands as well as Mexico’s reforms — energy could become an important hostage to the negotiations.”
NAFTA facilitates duty-free trade of gasoline and other energy products. It also serves as the legal pathway for rising gas sales to Mexico — four billion cubic feet a day last year, or about 60 per cent of U.S. natural gas exports. Because Mexico is a free-trade partner, natural gas exports to the country qualify for liberalized treatment under a U.S. law.
So far, North American oil and gas groups are collaborating, linked arm-in-arm as they advocate the same broad portfolio of changes. One possible exception: efforts by U.S. oil and gas interests to ensure any new trade agreement locks in recent reforms opening up Mexico’s energy market for foreign investment.
U.S. companies are increasingly intertwining their operations with activity on both sides of the border.
Chevron Corp., which has a representative cleared to serve on an energy-focused committee of NAFTA advisers, stressed in comments filed with the federal government that its supply chain extends across North America. Chevron relies on manufacturers in all three countries to provide equipment, parts, repair services and chemicals.
“Disrupting these supply chains would directly harm U.S. businesses,” the company warned.
In Mexico, U.S. businesses captured five of the eight deepwater oil and gas blocks awarded during December 2016 bidding. Andeavor, formally Tesoro Corp., just opened its first ARCO-branded filling station in northwestern Mexico — with plans for more as the company leverages refineries in El Paso, Texas, and Los Angeles to provide fuel while using newly contracted pipeline capacity to transport it.
For companies with commercial interests in Mexico, the status of NAFTA negotiations is vital to managing bilateral relations, said a lobbyist for an oil company with Mexican operations who asked for anonymity amid private negotiations. The stakes are even higher for the energy sector given the constitutional reforms in Mexico, the lobbyist said.
Industry officials from all three countries are eyeing the deal as a way to seek more regulatory certainty and the harmonization of industry standards, something factored in to other trade accords. Canada, for example, may use the negotiations to push for more predictability surrounding the approval of pipelines and power lines crossing into the U.S., following years of squabbling over TransCanada Corp.’s proposed Keystone XL project.
Energy companies also are lobbying aggressively to preserve — and even strengthen — the investor-state dispute settlement provisions in NAFTA that empower businesses to challenge other countries for discrimination. Those provisions provide muchneeded assurance to companies investing in Mexico today, allowing them to more effectively manage risk as they move more business into the region, Gerard said.
The provisions face opposition from conservationists, who have long said they embolden corporations to attack environmental and public health protections in unaccountable tribunals, with corporate lawyers — not judges — hearing the cases.
But the biggest risk may be the Trump administration itself; three energy industry lobbyists said they haven’t confirmed the U.S. position on the issue and are alarmed it’s on the trading block. The lobbyists asked for anonymity as they discussed private deliberations.