Assuring Energy Security with a Modern NAFTA

May 9, 2018

As negotiations reach the go/no go point for a revised North American Free Trade Agreement (NAFTA), President Trump should recognize the agreement's impact on one of his top priorities: U.S. energy dominance. While the United States has been strengthening its domestic energy sector, Mexico and Canada have become our two most important energy partners. Securing and expanding those partnerships benefits the U.S. economically, and enhances America's national security posture as well. An updated NAFTA that facilitates energy investment and preserves investor protections would give America the double victory of boosting energy security, while maintaining advantage over geopolitical rivals like China and Russia.

Energy trade and production have flourished under NAFTA. Private sector trade, innovation, and investment have created a North American energy market that is highly interdependent and multidirectional. Experts argue that North America's energy cooperation under NAFTA could take us toward liquid fuels self-sufficiency as early as 2020 and the "energy dominance" sought in President Trump's 2017 National Security Strategy. The United States, Mexico, and Canada represent 20 percent of global oil and gas supply, as well as 20-25 percent of the expected additions to international supply over the next 25 years. Deepened energy cooperation gives North America an industrial advantage via low priced and plentiful energy as well. Failure to conclude a modern NAFTA could cause major damage in the energy sector and to North American energy independence.

The U.S. Natural Gas Act requires a free trade agreement, such as NAFTA, to be in place for automatic U.S. natural gas exports to another country. Exports to our neighbors have grown accordingly - Canada and Mexico are America's top two export markets in crude oil and natural gas respectively. Their energy markets, integrated by NAFTA, promote production and investment in the United States. U.S. net energy imports have fallen to roughly a third of their levels during the mid-2000s, and the United States moved from an energy trade deficit with Mexico to a surplus. Without increased energy exports, two Federal Reserve economists estimate that the U.S. trade deficit would be as much as 35 percent higher. Expanded U.S. energy exports and reinforced cooperation with strong NAFTA terms could improve the trade balance even further and encourage more energy investment and production across the region. While the administration in particular should welcome this trend, threats to withdraw from NAFTA could jeopardize U.S. natural gas exports...

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