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Harper and Obama will have thorny issues to discuss at the Three Amigos

Prime Minister Stephen Harper and U.S. President Barack Obama are pictured at a G20 meeting in 2012. Sources say Mr. Harper sent a letter to the President in late August, 2013, that urged joint action to reduce emissions in the oil and gas industry.

Adrian Wyld/The Canadian Press

Fracking, Alberta's vast oil sands and untapped offshore reserves – including immense Arctic potential – are transforming North America into a global energy superpower.

With production soaring in all three countries, Canada, Mexico and the United States may soon be so awash in oil that energy is expected to be a key topic at the summit of the Three Amigos; when President Enrique Peña Nieto hosts President Barack Obama and Prime Minister Stephen Harper in Toluca next month.

Finding something to turn what could be little more than a photo op with the three leaders celebrating 20 years of NAFTA and then dealing with far more mundane irritants is a challenge for the Three Amigos.

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"It's hard," said a senior U.S. official who is involved with preparations for the summit. "Really hard … what's the second act [after NAFTA]?"

The reality is that nothing will transform relations between the three North American nations quite as dramatically as two decades of free trade.

Much of what's on the agenda – while important – won't stir passions. Bilateral irritants will be discussed. Mexico wants Canada to stop demanding visas before its citizens can visit. Canada wants the U.S. to stop dithering on Keystone XL. The United States wants its neighbours to stop fretting about border delays and turn to big picture items like the Trans-Pacific Partnership.

So amidst smiles and handshakes, there will be smallish deals done and promises made, especially on items like helping others in the hemisphere have access to education and advancing citizen security and regulatory reform.

But the really big elephant in the room is energy.

The North American energy picture bears no resemblance to when NAFTA was concluded.

In fact, it has massively changed in the last few years. Fracking is transforming the United States from a major importer into a potential net exporter of oil and gas. After a decade of decline, Mr. Peña Nieto's sweeping oil reforms in Mexico have opened the door to private investment and will transform a formerly moribund state-controlled sector. New offshore, deep-water production and shale gas plays offer massive investment opportunities. Mexican production may soar. Meanwhile, the Harper government is looking to ramp up Canadian production with an eye on exports from both coasts as well as to the United States.

Yet the continental energy picture is bedevilled by treaties and bans practices rooted in eras long gone. The U.S. still has a ban on crude oil exports (Canada excepted). Trans-border pipelines (the Keystone XL conundrum) require an entirely different regulatory process than internal ones. Electrical grids are outdated, vulnerable to cyber-terrorism and insufficiently interconnected to deal with new sources of energy flowing in new directions.

Meanwhile, neighbouring nations, especially in the Caribbean and Central America, desperately need modernized and reliable access to energy.

The developing North American oil-and-gas production boom is only part of the broader energy debate.

Mr. Obama is already under increasing pressure from key constituencies – including an array of environmental groups – who decry the "all of the above" energy policy which has resulted in massive coal exports to China even as experimental solar generation plants are built in the southwestern deserts and taxpayers get a break for buying hybrid cars.

"We can't just drill our way to lower gas prices," Mr. Obama has said, but the President has avoided setting hard targets for reducing reliance on fossil fuels.

In Toluca, he will be meeting with a pair of leaders fuelled by visions of vast new profits from oil exports.

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"There will be some talk about climate change," the senior U.S. official said in a background briefing about the forthcoming summit. But like the bigger, vexed, and interconnected issue of North American energy policy, no one seems to expect any dramatic announcements.

An "all of the above" approach to continental energy would make the Mexican and Canadian leaders more than happy, especially if it meant an end to U.S. stalling on issues like Keystone XL.

But the Three Amigos will have to tread cautiously before agreeing to even a vague continental energy vision.

In the United States, a coalition of 18 environmental groups warned the president that his "'all of the above' strategy is a compromise that future generations can't afford."

Paul Koring reports from The Globe's Washington bureau.

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