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.

Backdrop

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.

Comments

[1will]

Why not develop our Shale Oil inside the US instead of relying on corrupt and inefficient governments such as the one in Mexico?

[leduck]

i mean....

throw out hte americans
(now the speeling police are going to come out of the woodwork, ignore what i wrote and correct my spelling)

[leduck]

"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."

As canada"s production increases " marginally (low flow)�, the North Sea, Mexico, The U.S. (even with Anwar) will all still be in terminal decline. Canadian crud is not light sweet crude.

"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."

If Mexico finds anymore offshore oil fields, the last thing they should do is pump it out as fast as cantarell.

"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."

It"s a minning operation�, canada"s flow rate will never equal the flow of Saudi Arabias light sweet sweet crude. It's beyond heavy oil. This stuff uses a lot of natural gas to produce it. North American gas already peaked. We have to dig more wells from one year to the next just to keep production flat.

[leduck]

"Washington must immediately mandate hybrid cars and a fuel efficiency requirement of 10 miles per gallon less than now to reduce consumption rates."

I agree we need to concerve. But if we drive less, the Chinese will drive more.

"Mexico must agree to welcome foreign investors or partners into its oil sector or be loaned money to do so by Washington."

I agree Mexico should allow us to help find them more oil. Mexico had a revolution in 1910 and part of the reason was to through out the Americans. Their constitution would have to be changed. It"s a political hot mess for them right now.

"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"

we"re not in better shape then Europe. They have real mass transportation.

[Diane Francis - Huffpost Blogger]

As my article says, conservation in all three countries is an absolute MUST.

But the Americans must mandate it, then figure out to incentivize people to retire their gas guzzlers.

How about a subsidy if you trade in a guzzler for a hybrid that meets new standards? The savings in oil imports, and the trade deficit, alone would justify a subsidy.

[leduck]

how do you get or force china to concerve?

we have more problems then just the world decline in light sweet crude offeset by an increase in heavy crude (for now).
the value of our dollar is falling which magnifies our problem

the chinese don't have that problem

[Diane Francis - Huffpost Blogger]

Canada has done its oil businesss the best -- the sub-surface mineral rights of 90%of its land mass are retained by the "crown" or governments (federal offshore and in the arctic).
The private companies are invited in to find and produce but governments earn huge royalties.

THIS HELPS PAY FOR CANADA'S SOCIAL SERVICES.

Mexico does the same but the problem is that they only let private corps in to help in mining, not oil, which they regard as sacrosanct.

The U.S. system, on federal and offshore lands, should be like Canada's. Let private enterprise come in but on the peoples' terms.

Canada is already producing offshore Newfoundland, some 500,000 barrels per day, and more fields are being exploited.

It is not an either/or problem -- Exxon or nothing. It's the people in partnership with Exxon on government-owned lands.

[SShaw490]

That's the most intelligent post I've seen in years on this subject. It's high time that serious people began to look at this issue without taking a myopically political perspective.

The main thing we need to do as ordinary Americans is to signal our govenment that we're willing to change our lifestyles to a conservation mode. America MUST cut our consumption by 25% in the next couple of years. Here's a few suggestions:

We have to stop burning so much gasoline commuting to an office in which we sit behind computers all day. A combination of 410 schedules, satellite offices, home offices, and video linking of employees must be adopted;

The government must begin to fund aggressive mass transit alternatives;

We have to find creative ways to get our kids to school instead of millions of mothers sitting in millions of idling Suburbans for millions of hours every day;

We need tax incentives for people to purchase 40+ MPG vehicles (including motorcycles, my personal solution);

With the environmental advantages of burning 25% less fuel in hand, we must open other areas to low footprint, responsible oil exploration.

If we were able to cut our consumption 25%, Canada was able to increase exports to 4 mbpd; Mexico was able to double their exports to 3 mbpd; and we were able to increase or maintain our production by opening up ANWR and offshore - North America would become a self-supplier of oil. And America could actually become a refined products exporter.

[derik]

I agree, conservation is a good thing. In fact, conservation (of crude oil) should be linked with consumption (of everything that is crude oil dependent ... yup, all that crap we buy and consume and throw away). As far as offshore and artic drilling, the ecological impact is too much, at least in my opinion. The oil sands or shale project is going to take our nice neighbor (Canada) into an open pit of massive ecological consequences in addition to sucking up massive quantities of water and whatnot. In my opinion, Alberta was once a nice place until oil sands started being mined. Not withstanding, the increased refining process for the oil sands to magically become gas and whatnot. Albeit, we (the US) could have an energy policy (I believe, the last 8 years has been a "no policy"). With an US energy policy we can then merge ours with yours (Canada) and Mexico etc to formulate a NA energy policy. Ultimately, we are going to steadily change our crude oil based economies to something with a ecologically friendly energy source. In essence, this change will happen with or without our human involvement and /or the planet vomiting. Either way, the planet will persist with or without us for billions and billions of years when all the carbon atoms come home to roost. It is a difficult thing for us mere mortals when we try to rearrange carbon atoms in total isolation from the universe's natural checks and balances.

[TXfemmom]

First of all, we need to conserve, and be forceful about it. The Mexicans do need assistance from outside sources to improve their horrid Pemex.

However, as for U. S. production and exploration, I feel that all further exploration, production and oil extraction from under U. S. soil should be declared a National Trust, and used for the welfare and running of the government and the people. The oil should not belong to oil companies, it is a natural resource which should belong to and be used for the welfare of all citizens. Norway does that, and others do as well. The U. S. gets the least in return for the oil reserves we have of any country in the world.

The world and the dynamics of it are changing, and we must change as well. This is not communism or socialism, this is PRO-AMERICAN SURVIVALISM.

A professional, trained, and non-political department should be established with professionals hired to assist in identifying, developing and producing the oil within the United States and the income should go directly for the welfare of the country. Were we to do this, we would be able to fund Universal Care, Social Security, and cut taxes dramatically. Think of it AS A WAY TO CUT TAXES DRAMATICALLY.

I agree that if Mexico, the U. S. and Canada could unite and improve on this, they could be stronger than all other producers together.

[derik]

You got to be kidding. Are you suggesting that we nationalize the crude oil? Heck, our government can't even run some simple things efficiently. Beyond that, if we nationalize crude oil I hate to see the states jump in and nationalize their crude oil. At that time, we will surely test our federalized form of government. After all, the pursuit crude oil basically brings out the worst in humans. Couple that with our religiousity and it is surely recipe for a mess.

[KillTheMessenger]

Here is a nice plot for you:

http://www.carfree.com/cft/i023_usa_yearly.gif

And here is the EIA data for US crude oil production:

http://tonto.eia.doe.gov/dnav/pet/hist/mcrfpus2a.htm

So if we look at the data, over the past ten years (1997-2007) US crude oil production has decreased from 6,452,000 barrels/day to 5,103,000 barrels per day. That's a difference of 1,349,000 barrels daily. So that's more than all of our imports from Mexico's in 2007: 1,258,000 barrels per day.

Mexico's difficulties are hardly technical. They have simply lost Cantarell and it is not coming back. Mexico claims about 13 billion barrels of proven reserves. That's less than six month's worth of production for the whole world and no more than a couple of years for US demand. Of course, they need more and more of their own oil, so there is less and less left for export.

Do we really want to rely on Canada making up for this shortfall? Or do we want to start conserving, just to be on the safe side? You tell me...

[nikto]

"Americans must reverse their ban on drilling their offshore and federal lands."

Sneaky-poo.

Sounds like the Arctic National Wildlife Refuge to me.

Dont ya' just love how smoothly she slipped that in?

Sheesh!

http://arctic.fws.gov/images/ecormap.jpg

[jasonsabio]

And "57% of Americans support this..."

But of course different Americans are effected differently by things like off-shore drilling. Nebraskans might be all for it but it only directly effects people in California. So who's opinion matters more?

[kdublya]

There are already guarantees in place with U.S./Canada oil exports. It's late, the exact treaty is not on the tip of my tongue. However, if someone wants to chime in be my guest.

[lapoutlander]

The original FTA 1988 (or Canada-US FTA) stipulated something like Canada has to maintain its oil exports to the US at the level of the average exports of the 3 preceding years. Still looking for the exact wording because if this is precise Canada is on a unsustainable treadmill it can't get off except by abandoning the agreement at some point in the future when it can no longer grow its oil exports for whatever reason.
And Prime Minister wannabe Dion's Carbon tax could run afoul of NAFTA if the US claims that higher taxes on the Oil sands (due to their huge CO2 footprint) would have to be matched by equally high taxes on the OPEC oil that the US pipes to Eastern Canada. Canada FYI is really like two Countries when it comes to oil. The eastern half is a big importer of oil (NewfoundLand might change that eventually) And the western half is a really big exporter of Oil. The perversity of this is Alberta in the west does not get to have good prices for gasoline.

[peterg76]

As oil exporters, a North American energy policy is absolutely the last thing Canada or Mexico would want. Besides, oil imports and exports have nothing to do with NAFTA (it was an investment and labour treaty) and now that people have figured out what a scam it was, probably better not to mention NAFTA.

[LexLuthier]

Forge, right?

[LexLuthier]

10 mpg more etc., is somebody hacking this?

[jeanrenoir]

This is a great article. NAFTA was only a "scam" in the rustiest areas of the already doomed rust belt. It was no scam for the overall American economy at all. The old jobs are never coming back to the rust belt. But the poor people stuck there for some reason (why don't they just move to the Carolinas where the jobs are?) would have to see a silver lining if the "three amigos" could work together to create energy independence, and much lower prices at the pump, for our hemisphere.