energy interdependence the nafta example by nathan hinch [email protected]
TRANSCRIPT
Energy INdependence
• “Let us set as our national goal that by the end of this decade we will have developed to meet our own energy needs without depending on any foreign sources.”
• Pres. Richard Nixon
Energy INdependence• “Our third goal is to
promote energy independence for our country, while dramatically improving the environment.”
• Pres. Bush, 2003 State of the Union Address
Energy INdependence
• “The status quo-in which the security of the U.S. and the vitality of our domestic economy is left to the whims of foreign regimes and companies that may not have the best interest of our nation at heart – is simply not an option.”
Sen. Harry Reid and Speaker Nancy Pelosi in April 6, 2006 joint letter to Pres. Bush
Energy INdependence
• “The status quo-in which the security of the U.S. and the vitality of our domestic economy is left to the whims of foreign regimes and companies that may not have the best interest of our nation at heart – is simply not an option.”
Sen. Harry Reader and Speaker Nancy Pelosi in April 6, 2006 joint letter to Pres. Bush
What does it Mean?
• Focus on– Transportation Fuels
• Reducing dependence on foreign oil• Supporting alternative fuels• Supporting conservation
– Other Energy Consumption• Concern over home heating costs• Rising U.S. imports of natural gas
– Security concerns
Energy INdependence
BUT:
• U.S. produces all but ¼ of its “energy” needs
• About 85% of heating fuel (natural gas) is domestic (rest from Canada)
Energy INdependence
BUT:
• Oil is a world market
• Principle of scarcity – world prices set by world supply and demand
Comparative advantage – Why cobble your own shoes instead of go to a shoe store?
Energy INTERdependence
• Diversification – U.S. buys only ¼ of oil imports from Persian Gulf
• Reserves – Help to offset supply shocks on the WORLD market (e.g, U.S. reserves help keep European price down)
• Regional Interdependence - NAFTA
NAFTA
NAFTA
• Effective January 1, 1994
• Chapter 6 Core Principles:– Parties respect each others’ Constitutions– Parties indicate desire to strengthen trade in
energy and petrochemicals– Parties recognize importance of strong energy
and petro. sectors in world market
NAFTA
• Imports/exports – have to tax same as domestic sales
• General Deregulation, except:– National security or emergencies– Encourages national reserves
NAFTA - CANADA
• Canadian oil exports to U.S. > Saudi Arabian oil exports to U.S.
• Canadian oil reserves – estimates (unproven) exceed Saudi proven reserves
• But Saudi oil is cheaper to retrieve
Source of U.S. 2004 Oil Imports
• Canada 1.7• Mexico 1.6• Saudi Arabia 1.5• Venezuela 1.2• Nigeria 1.1• Iraq .7• Angola .3• Kuwait .3
• After declining in 2002, imports to the U.S. increased by 10% from 2002 to 2004, reaching a total of ten million barrels a day for the first time.
Oil and Middle East Politics
Why Middle East Politics are Important!
Oil Consumption Per Capita
NAFTA - CANADA
• Canadian NAFTA complaints– May cause domestic price increases to match export
prices– Depletion of natural resources due to U.S. –
• Insatiable oil demand• Refusal to drill in ANWR• Lack of alternative energy resources
• “U.S. is spoiling Canada’s environment to protect its own.”
CANADA’S ALBERTA SANDS
• “Canada’s greatest buried treasure.”
• 175 bill. Barrels of proven reserves.
• Estimates of totals could be 2 trillion or more barrels.
• But costly to produce – strip mined, not drilled.
ALBERTA SANDS – Mine and Processing Facility
NAFTA - MEXICO
• MX reservations to NAFTA – can restrict 50% of its total oil exports.
• PEMEX exclusive right to produce and export oil.
• 8th Largest oil producer in world
• More proven reserves than U.S.
• Recent deregulation in electric industry
Conclusions
• Americans want Interdependence of energy Trade, not isolation.
• Americans want Independence from single energy sources – Diversification.
• Energy conservation is necessary to show world we are serious.
• Embrace environmental good “trade-offs.”
Conclusions – From NAFTA
• Energy trade has been good for all 3 countries…
• But not all good.
• Canadians want US conservation, respect for CAN environmental concerns.
• Mexicans want to keep control of petro-resources, but want US help developing.
Conclusions – From NAFTA
• Revise NAFTA to recognize good, address parties’ concerns.
• Provide for period “check-ups.”
• Recommend expansion of NAFTA energy trade rules to other countries.