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00:00This is a story about parallel play.
00:03If North American trade in autos goes back and forth among the three countries
00:07and trade in agriculture as larger U.S. exports,
00:10when it comes to energy, one size definitely does not fit all.
00:14The U.S. generally imports oil from Canada and exports natural gas to Mexico.
00:19The USMCA may aspire to be multilateral,
00:22but in practice it looks more like two bilateral arrangements.
00:26David Gura brings us the story.
00:30Howard Energy Partners has a natural gas pipeline
00:33that runs from South Texas to Monterrey in Mexico.
00:37It supplies part of the 6.4 billion cubic feet of natural gas
00:41Mexico imports from the U.S. each day.
00:44We're the only one that actually crosses the border
00:47on both sides of the border with the same ownership.
00:50There are other pipelines that end at the border of Mexico and Texas,
00:54but then gets picked up by another company in Mexico and continues on.
00:59We're the only one that actually crosses the border.
01:02But there's probably on the order of 10 pipelines that cross into Mexico from the U.S.
01:08CEO Mike Howard sees Mexico's reliance on the U.S. firsthand.
01:12All business starts with energy, and the energy business is the business that powers every other business.
01:18So whether they produce their own energy or not, they need the energy.
01:22And so if a U.S. company is not invited to own infrastructure in Mexico,
01:27somebody needs to build it.
01:28So if they want to build it, that's fine.
01:30I think America has the most affordable, most reliable forms of energy to give to them.
01:35Energy trade standards between the U.S., Mexico, and Canada were first established by NAFTA,
01:41which included zero-tariff treatment for oil, natural gas, and refined petroleum products.
01:46The flow of energy exports had been integrated across all three countries,
01:50but in the intervening years, that's changed.
01:53Well, the thing about North America is that most of the times it works as two very big bilateral relationships,
02:00the U.S. and Mexico on one side, the U.S. and Canada on the other.
02:04Diego Marroquin-Bitar is at CSIS.
02:07We have to keep in mind that we have a North American energy machine that it turns,
02:13it has turned for over 100 years, not just the past 30 years since NAFTA.
02:17I think the main difference now is that as years go by, the U.S. market becomes increasingly dependent,
02:23increasingly interconnected to the Mexican market and to the Canadian market.
02:28You can see it clearly, for example, on oil.
02:3160% of U.S. oil imports come from Canada.
02:35The refineries in the U.S. are adapted in order to refine that sour crude oil from Canada.
02:42In the case of Mexico, 70% of the natural gas that Mexico imports yearly comes from the U.S.
02:4860% of the electricity generated in Mexico comes from natural gas.
02:53So the U.S. is using Canada and Mexico's export markets,
02:58and then those two other countries are using that cheaper energy in order to make competitive products.
03:04So again, the longer this goes for, the more integrated we are,
03:07and the more disruptive trade and investment obstacles become.
03:10Mexico has long recognized its reliance on the U.S. for energy,
03:14and one way it's tried to reduce that dependence is by strengthening its own energy sector.
03:20But progress has been limited.
03:22Mexico's perspective has changed over the years.
03:25We had basically a state monopoly on energy production for over 70 years.
03:31That changed in 2014 when the then-President Peña Nieto administration liberalized the energy market.
03:38That quickly went away when President López Obrador got elected in 2018,
03:41and he reversed the liberalizing market reforms.
03:45So what he basically did was changing the state-owned firms from Mexico,
03:49CFE for electricity, Pemex for oil production.
03:52And instead of being productive entities, they became public entities.
03:57And what that did was it created a threshold for electricity production in Mexico
04:05that needs to come from Pemex and CFE.
04:07Those state-owned firms are the biggest causes of friction between the U.S. and Mexico
04:12when it comes to the cross-border energy trade.
04:14So the main complaints are, number one, Pemex and CFE, Mexico state-owned firms,
04:21getting priority, getting more lenient treatment compared to U.S. firms investing in Mexico.
04:28One of the court commitments of USMCA is you have to treat everyone the same
04:32regardless of where the capital is coming from.
04:34And these constitutional amendments that President Scheinbaum implemented,
04:38that President López Obrador also was pushing for,
04:41they are giving Pemex and CFE a predominant position in Mexico's energy market.
04:49And that's one of the biggest obstacles that we have for the U.S. MCA review.
04:53It may seem like the U.S. has an upper hand in the ongoing trade talks,
04:57but that's less clear when the U.S. has something to sell that it needs Mexico to buy.
05:02When you look at how your company is growing, how big a role is Mexico going to play?
05:07You know, geographically, it's a big deal.
05:09Economically, it's less than 10 percent of the business we have.
05:12But we just completed a new presidential permit to lay another pipeline into Mexico.
05:17One of the pipelines we didn't mention is over near Eagle Pass, Del Rio.
05:23It actually delivers natural gas to the world's largest brewery.
05:26So if you drink Modelo beer, our natural gas actually boils the water that makes the beer.
05:32I think it's very important for the border of Mexico and also for the continuing growth of their economy
05:39is to continue to support any kind of electricity demand or energy that they may need to help their economy.
05:45So it's very important to our business.
05:46It's not an economic driver necessarily in a majority way, but it's very important to us.
05:51About 1,500 miles north of the U.S.-Mexico border, it's a very different story.
05:57But it wasn't always that way.
06:00Jatane De Silva was CEO of the Canada Energy Regulator from 2020 to 2023.
06:05How would you characterize the energy relationship between Canada and the U.S. today?
06:11I think it's mutually beneficial.
06:13I mean, the Americans are very fortunate to be sitting beside a country that has such a vast land mass
06:18and so few people that is blessed with pretty much every energy resource there is,
06:23not just oil and gas, but uranium as well.
06:26And so I think it's very fortunate for the United States that we have this agreement
06:31that has encouraged the integration.
06:33And for Canada, of course, the reverse is true.
06:34Having such vast quantities of commodities and being a middle power in a trading nation
06:39to be sitting beside the world's largest economy is obviously a great advantage.
06:43And so we're hopeful that any renewed trade agreement will continue to allow that energy
06:48to flow freely across the border.
06:50Do you think that Americans appreciate that, that it is such a beneficial relationship?
06:55In my experience, most Americans are completely shocked when they find out
06:57that Canada is their largest supplier of energy.
07:00They think it's Saudi Arabia or a country in the Middle East.
07:03And so they're often quite surprised to find out that 60% of their oil exports
07:06come from north of the border.
07:08You know, in my experience, Americans just don't think about Canada the way Canadians do.
07:12Even though the energy relationship between the U.S. and Canada is a productive one,
07:18energy is the main reason the U.S.'s trade deficit with Canada reached about $46 billion in 2025.
07:25NAFTA had an energy chapter or the proportionality clause
07:29because the NAFTA was signed and negotiated not that long after the last global energy crisis.
07:34So one of the American priorities in that negotiation was to ensure access to Canada's vast energy resources.
07:41And so a provision was put in the NAFTA that required Canada to sell as much energy
07:46to the United States on a good day as on a bad day.
07:48As a result of that, Canada built its energy infrastructure north-south and not east-west or west-east.
07:55So if you look at a map of pipelines in North America,
07:58the overwhelming majority from Canada go south into the United States,
08:01even if they go south around the Great Lakes and back up into Canada.
08:04And so when the USMCA came around, given the fact that that infrastructure already existed
08:10that basically ensured the proportionality, that and the fact that the U.S. had undergone
08:15a shale revolution meant that the USMCA does not have an energy chapter, no proportionality clause.
08:20And so I think the question for many people going forward, given the state of the global energy situation,
08:26is will the U.S. be looking to return to some type of energy clause in a renewed USMCA?
08:31Do you think that Canada is utilizing that leverage appropriately in these negotiations,
08:35or could it be doing more to kind of wield influence as these talks get underway?
08:39I think there was a great debate in Canada initially when we went all elbows up
08:44in terms of the president's threats towards Canada and the imposition of tariffs.
08:49You know, what do we have that the United States needs that we could easily withhold
08:53and that would cause grief in the American economy and hopefully get things back on track?
08:58I think now, though, Canadians realize that the better approach is demonstrating to the U.S. administration
09:03that we have the best product out there that is helping to make America great again.
09:08And you've seen this shift in tone from our prime minister as well.
09:11He was recently in the United States and he indicated that, you know,
09:13a strong Canada is what will help to make America great again.
09:16And so just this understanding that there is a high degree of commonality,
09:22that there's lots of things that are mutually beneficial in this agreement,
09:25and I think for Canada, it's looking at that longer-term play.
09:28How does Canada balance its eagerness to diversify, find more audiences for exports,
09:35with the fact that the U.S. is so critical, so important to it?
09:39Canada is engaged in a game of 3D chess.
09:42I mean, the reality is that the U.S. is a hugely important market for us,
09:46so more than 70% of our exports still go to the United States,
09:48more than 90% of our energy exports.
09:51We cannot replace that market overnight.
09:53And also, we know it is never smart to just have one customer.
09:56So we need to diversify our economy, and certainly that has taken greater priority
10:01in light of the tone and approach of the current administrations.
10:05It is a very fine balance.
10:06I'm curious what the energy relationship is like between Canada and Mexico.
10:11Is there one to speak of?
10:13There is certainly a relationship, you know, as Mexico is looking to build out its energy sector.
10:19It looked to Canadians' regulations to do that.
10:22They looked to Canada's national energy regulator as well as to some provincial energy regulators
10:26to figure out how they wanted to set up their systems.
10:29We did also see, you know, in the late 90s, early 2000s, actually,
10:34we saw the major pipeline companies here in Canada, Enbridge and TC Energy, actually made big purchases.
10:40They bought pipeline networks all the way through North America.
10:44And then with the changing government in Mexico and the approach to nationalizing their energy sector,
10:49some of them pulled out.
10:50But, you know, there is a lot of trade and services and expertise that happens
10:54between Canada and Mexico and the energy sector even today.
10:58With energy as a multilateral issue, where all the parties involved seem to benefit,
11:03many of the industry's players agree on one thing, that the best outcome might be the status quo.
11:10We probably want to make sure that energy stays out of the conversation,
11:13because right now the free flow of energy that's going on right now is helping the economy grow.
11:18If their economy grows, it helps the U.S. and vice versa.
11:21So I am interested to make sure that energy doesn't become part of the conversation.
11:26But other than that, I'm more interested to understand if there's any other economic impacts
11:31that will slow the energy use or slow the energy growth of Mexico down.
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