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Canada, U.S., Mexico are now fierce energy rivals

The head of Mexico's state-owned oil company envisions a NAFTA-style energy partnership with Canada and the United States.

Pemex chief executive officer Emilio Lozoya Austin isn't the first person to muse about greater continental energy integration through such policies as resource pooling and harmonized regulations. But it's a new energy world in 2014, two decades after the landmark North American free-trade agreement was struck.

The three countries are now fierce rivals in a North American energy landscape that has been dramatically reshaped by imminent U.S. energy self-sufficiency. Parochialism risks trumping integration, and common ground is increasingly hard to find.

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There were troubling signs as Prime Minister Stephen Harper met his fellow NAFTA leaders in Mexico last week that the "three amigos" are drifting farther apart, and the schism is particularly apparent in energy.

In their post-summit statement, the leaders committed to a meeting of energy ministers later this year to vaguely discuss "opportunities to promote common strategies" in areas such as trade, infrastructure and unconventional energy.

But tensions run deep, going far beyond the Obama administration's drawn-out non-decision on the proposed Keystone XL oil pipeline, which would deliver Canadian oil sands crude to the massive refining complex on the U.S. Gulf Coast. And it's affecting almost every aspect of the cross-border energy relationship.

In the old peak-oil world, U.S. and Mexican production was in inexorable decline. Canada was the supplier of the future – a safe and vital exporter of oil, gas and electricity to the United States.

But the boom in shale oil and gas has turned the industry on its head. Shale gas is displacing both Canadian natural gas and U.S. coal used in the production of electricity. That's putting a lid on gas prices, and forcing growing surpluses offshore.

It's also making the United States the new energy superpower. The country recently jumped past Saudi Arabia and Russia as the world's top oil-and-gas producer, according to the U.S. Energy Information Administration.

The United States is in a rush to build liquefied natural gas facilities to export its newfound bounty to energy-hungry Asia and elsewhere. Those plants are in direct conflict with proposed Canadian LNG projects, for both customers and investment dollars.

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Similarly, U.S. coal that previously went to fuel power plants is being exported to Asia – again, going directly into export markets long served by Canada.

Even Pemex's goal of boosting oil production could have negative ramifications for Canada's oil sands. Mexico is determined to reverse years of declining output from its aging wells with new drilling technology and foreign investment. Total output could jump to four million barrels a day from about 2.5 million barrels now. And most of it will end up in the glutted U.S. market.

As a matter of policy, Canada has decided it no longer wants to be the United States' exclusive supplier. Building new oil pipelines – east and west – is part of a concerted effort to diversify markets and enhance the value of Canadian crude.

The green energy movement in the United States is also getting in the way of free trade in energy. Several states have recently enacted laws to spur electricity from local renewable sources, such as wind and solar, while disqualifying clean and plentiful Canadian hydroelectric power.

No sign of co-operation and integration there.

While Pemex's Mr. Lozoya envisions North America becoming a low-cost energy superpower to rival the Middle East, market conditions are creating rivals.

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Competition is also thwarting progress on the regulation of carbon emissions. Ottawa has resisted going ahead with long-promised rules, fearing that the Canadian industry would be put at a competitive disadvantage, unless the regulations are harmonized with the United States.

There is still brave talk of a common front. In a recent speech, former Conservative environment minister Jim Prentice called for a "continental solution" on climate change. "We need to work with the Americans to achieve an accord relating to climate change and the oil sands," he said.

Mr. Harper similarly says he would prefer a North American regulatory regime for carbon emissions because the two countries' economies are so intertwined.

Given their duelling energy ambitions, common ground could prove elusive.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More


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