06/21/2008 05:12 am ET | Updated May 25, 2011

NAFTA: America's Energy Solution

Canada's oil sands projects are an open pit mining operation the size of the state of Rhode Island and in a decade, Canada will be able to increase oil exports to the U.S. from one million barrels a day to four million, equal to what Iran produces.

The vast operations are currently the world's biggest construction site with 50,000 people moving earth, building refineries, pipelines and expanding power generation transmission lines and roads. The oil-laced territory is in a remote, hostile region located four hours by plane north of northerly Edmonton and workers are housed in mining camps.

This Canadian resource largesse plus a mini-North Sea oil field off Newfoundland's coast, is the cornerstone to what could become NAFTA's competitive advantage over the rest of the world.
The world's two other super-regions -- Europe and Asia -- are running out of oil (the North Sea and China) and using more than ever.

By contrast, North America could and should forge a continental or NAFTA energy policy which will guarantee its economic pre-eminence in the future. However, this strategy will only work if the United States imposes strict conservation measures and Mexico changes its oil policies immediately.


The global economy is now tri-polar: Growth is driven by three major economic engines: North America, Europe and Asia. Here are the facts: In 2007, the CIA World Fact Book said that the entire world economy was $53.64 trillion in size. The European Union is $16.3 trillion, or 30%; North America is $16.07 trillion or another 30%; and Japan and Asia's biggest economies represent 20% of the world's economy, or a total of $11.18 trillion. The other 20% is divided amongst the rest of the countries and regions.

High commodity prices threaten to slow Asia and Europe's economies, but not North America's if the NAFTA partners cooperate with one another.

NAFTA's three amigos

Europe is going to become totally dependent on hostile regimes in the Middle East and Russia for oil. Asia is the same and must scramble for supplies. North America's challenge is two-fold: to curb America's wasteful oil consumption and to partner with Mexico's inefficient national oil company Pemex to fix its serious problems.

In 2007, Mexico produced 3.71 million barrels a day (this is falling in 2008 calamitously) and exported 2.03 million daily for a net export of 1.7 million per day. But Mexico's in trouble due to the lack of know-how and financial investment by its monopoly oil company. Pemex has been used as a government cash cow, providing 40% of its entire budget, and is cash-starved. It is also isolated because under Mexico's constitution, Pemex cannot invite partners or let foreigners into the oil sector.

Estimates are that Mexico's oil exports will dry up in a decade if no action is taken, which will cripple the economy and drive more illegals northward into the U.S. economy. This is totally avoidable if Pemex were able to tap into world-class talent and capital to develop Mexico's huge reserves. It takes lots of money to make money in the oil world.

America and Canada

The U.S. produces 8.37 million barrels per day (third largest in the world) but uses 20.59 million, about 25% of the world total. Production is declining, as Alaska runs out, and consumption is dangerously high.

Canada is currently producing 3.23 million daily and using 2.2 million for a net export of one million daily. This will increase to four million more by 2020 and could even go higher faster if prices are expected to remain high. In fact, Canada could produce more oil than does Saudi Arabia's 10.72 million barrels day.

That is because Canada has the same amount reserves (174 billion barrels) in its oil sands as do the Saudis. But the key difference is that these barrels can only be produced if prices are well above $30 a barrel, its break-even average, and stay that way for years. However, a guaranteed market for its oil at high prices, even if world prices fall, would bring on more oil production in a handful of years.

So here is my proposed NAFTA energy policy which would underpin the continent's prosperity above all others:
 Washington must immediately mandate hybrid cars and a fuel efficiency requirement of 10 miles per gallon less than now to reduce consumption rates. Canada and Mexico will follow the lead because their auto and auto parts are destined for the U.S. market. This would, if in place now, have reduced all three North American countries' daily consumption of 25 million barrels by 15% or four million barrels.
 Mexico must agree to welcome foreign investors or partners into its oil sector or be loaned money to do so by Washington. The alternative, is that Mexico faces an economic catastrophe that will result in more illegal immigration to the U.S.
 Americans should fast-track pipeline and regulatory approvals for energy supplies coming in from Canada and Mexico.
 The U.S. must build, and backstop both the Alaska natural gas pipeline and also the pipeline projects to tap Canada's huge natural gas Arctic reserves.
 The U.S. should backstop, or guarantee, profitability for future, new oil sands and Canadian offshore or Arctic oil and gas production. No other country has more resources, or technical ability to produce them, than does Canada but deposits are remote and expensive to produce and private enterprise needs government guarantees.
 Justification for such backstopping would be national, and energy, security. The U.S. this year will spend $568 billion, equivalent to 81% of 2007's entire trade deficit, just on oil imports.
 Americans must reverse their ban on drilling their offshore and federal lands. (A new Gallup Poll shows 57% of Americans agree with this.) Drilling in these areas won't yield huge deposits but will help.
 Labor mobility. Oil workers must be able to work anywhere.
 The three countries should finance a Manhattan Project to come up with environmentally benign alternatives, conservation methods and technologies to better utilize oil and gas.
 Power generation cooperation should be a priority and vast potential Manitoba and Newfoundland hydro-electric and Nova Scotia tidal power projects should be backstopped and facilitated by the U.S. Often the problem is excessive redtape for inter-state transmission lines.

By contrast, Europe is going to become totally dependent upon Russia and the Middle East for energy as the North Sea oil fields decline quickly. Likewise, Japan, China, India and the other Asians are huge oil importers and China's production is now only half as much as the 7.27 million barrels a day it is importing to industrialize. India's problem is even greater, along with Indonesia, South Korea, Taiwan and Vietnam.

A NAFTA energy policy will become the ultimate, economic trump card and something that the presidential candidates should be considering and forced to debate during the election season.
McCain has stupidly proposed removing gasoline taxes which would only make the country more dependent on oil and on the rogue regimes supplying it. But on the good side, he supports energy research and wants to lift U.S. drill bans.

Obama is proposing a windfall profits tax on U.S. oil companies and spending that on research into alternatives. He likes ethanol, which helps reduce foreign oil dependency, but his party uses NAFTA as a bogeyman for domestically-generated problems.

The point is that an encompassing North American energy policy can underpin this continent's way of life.