U.S.–Mexico Trade Deal Should Boost American Energy Exports

Published September 25, 2018

After months of negotiations, the United States and Mexico reached a preliminary trade agreement that should significantly boost American energy exports to its southern neighbor.

Speaking from the White House Oval Office on August 27 with Mexican President Enrique Peña Nieto joining by phone, President Donald Trump announced the two countries expect to complete a formal trade agreement by the end of September. The long, sometimes contentious negotiations came after Trump promised voters he would renegotiate the terms of the North American Free Trade Agreement (NAFTA).

NAFTA, adopted during the Bill Clinton administration, is a trilateral trade agreement among the United States, Mexico, and Canada. U.S. and Mexican officials have reached a preliminary agreement to replace NAFTA, and officials from Canada and the United States are still discussing whether Canada will participate in a joint post-NAFTA agreement.

Big Energy Buyer

Although the final details of the agreement have not been revealed, it appears the framework will reinforce existing policies toward the energy sector.

Natural gas provides 35 percent of all energy used in Mexico, generating 60 percent of the country’s electric power. The United States currently supplies more than 50 percent of the energy consumed in Mexico. Natural gas makes up the vast majority of the energy exported to Mexico, with the United States supplying almost two-thirds of the natural gas consumed in the country.

The revised trade agreement should be a boon for both nations, says Nick Loris, the Herbert and Joyce Morgan Fellow in Energy and Environmental Policy at The Heritage Foundation.

“Mexico has been the largest importer of American natural gas, and NAFTA has been instrumental in allowing the natural gas trade relationship to blossom,” said Loris. “With the abundance of natural gas in Texas, and the new trade agreement, Mexican families and businesses will be an important customer for a long time, which will only serve to raise prosperity and economic growth in both countries.”

Could Increase LNG Exports

The U.S.–Mexican trade deal should also nurture increased American liquid natural gas (LNG) exports, says Thomas Pyle, president of the Institute for Energy Research.

“Mexico is a natural market for the abundance of shale gas in the Permian basin,” said Pyle. “While LNG shipments to Asia and Europe have gotten a lot of recent headlines, our primary trading partner for LNG is our southern neighbor.

“In fact, the United States now supplies well over half of Mexico’s natural gas, and by maintaining tariff-free trade in this arena, the two countries foster growth for themselves and one another,” Pyle said. “For the partnership to be maximized, we need to expand pipeline infrastructure both north and south of the border.”

New President Could Affect

Pyle says natural gas exports could grow even more with the election of Andres Manuel Lopez Obrador as the incoming president.

“While the recent election of left-wing populist Andres Manuel Lopez Obrador to the presidency could cause investor anxiety, if he follows through with the fracking ban he has suggested, Mexico might force itself to rely on imports of U.S. gas even more in the future than it does now,” Pyle said.

Chris Talgo ([email protected]is an editor at The Heartland Institute.