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North American Energy Integration and the NALS

The three North American leaders—Canadian Prime Minister Stephen Harper, Mexican President Enrique Peña Nieto and U.S. President Barack Obama—will meet today in Toluca, Mexico.

Obama’s agenda is set to focus on trade, education, border security, and drug trafficking. Yet the elephant in the room is the Keystone XL pipeline, whose approval by the United States has been delayed for over five years. Last month, the State Department issued a report that declared that significant additional GHG emissions would not be released as a result of the construction of the final leg of Keystone XL.

The NALS summit has the potential to deepen hemispheric energy integration, if the three presidents can jointly take advantage of the windfall in regional energy. Increased integration leads to lower costs, higher efficiencies and greater technology transfers.

History and geography have linked the North American countries through significant energy reserves. In recent years, these reserves have been developed with timely policy choices that have increased each country’s potential. In particular, the shale gas and oil revolution in the United States, the oil sands in Canada, and energy reforms in Mexico are all new developments that have put each country on a path towards becoming an energy superpower.

While each country on its own would be a dominant producer, working together could have benefits greater than the sum of their parts.

Canada, for example, is dependent on energy exports to fuel its economy, and virtually all of its exports are sold to the United States. Despite the existence of 410,000 kilometers of pipelines across Canada and the United States, Canada has been forced to look toward Asia for energy exports. This East-West trade is more challenging due to Canada’s regulatory structure, since individual provinces have a say in pipelines that are built across their geography.

The Council of the Americas discussed these issues at a meeting of the Council’s Energy Action Group (EAG) in December in Calgary. The EAG roundtable convened a high-level group of energy experts to discuss opportunities and challenges facing Canada’s oil and gas sector. Participants discussed topics such as market access, financing, investment climate, and the cross-border energy agenda.

The EAG is planning a broader program on March 11 in Mexico City on opportunities and challenges in the natural gas and renewables sector. Private and public sector representatives will discuss the development of gas and renewables, with an eye on the energy reforms that were passed by the Mexican government late last year.

Both the United States and Canada can also benefit from deeper integration with Mexico. Canadian companies are already present in the U.S. in areas such as pipeline construction, and will likely invest as the oil, gas and electricity sectors open up. Lower costs of inputs due to more competition will also spur Canadian and American companies to invest in areas such as manufacturing. Increased investment will also be a boon to Mexico’s GDP, and American and Canadian companies will benefit due to successful projects in the sector.

Up until the shale revolution, the United States assumed it would be energy-dependent, not self-sufficient. However, energy integration in North America means that the United States has dependable sources of abundant energy to go along with its increased production. The leaders at NALS would benefit from discussing deeper integration, going beyond just one pipeline.

*Christian Gómez, Jr. is a contributing blogger to AQ Online. He is director of energy at the Council of the Americas. Follow him on Twitter at @cgomezenergy.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Three Amigos Summit, NALS, Canada-U.S. relations, Keystone Pipeline

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