Trump's Tariffs Disrupt USMCA and The U.S. Oil & Gas Boom
The U.S.-Mexican energy partnership
helps explains why approving the USMCA deal is such an urgent priority.
Unfortunately, the Trump
administration has announced plans to impose a 5% tax on all goods imported
from Mexico and these tariffs would potentially rise to 25% by October.
A Mexican retaliation is a direct
threat to the U.S. oil and gas business
For example, Mexico has been the
largest buyer of piped gas (taking in twice what Canada takes) and is the
second buyer for our burgeoning LNG business.
Mexico also accounts for 60% of our
gasoline exports and 20% of our diesel sales.
In 2018, Mexico imported around 1.7
Tcf of piped gas from the U.S., which was actually 55% higher than our LNG
exports to all countries.
As such, Mexico takes about 5-7% of
total U.S. gas production.
These exports are a boon to U.S.
producers, pipeline companies, and exporters allowing even more cheap U.S. oil
and gas to flow into Mexico.
Overall, the U.S. supplies over 70%
of the gas used in Mexico, with even more potential.
With declining domestic production,
Mexico has the most upside for incremental oil and gas demand of all our OECD
partners.
Even U.S. LNG will continue to
remain important in Mexico because its pipeline system is short and numerous
regions require water-shipped supply to utilize gas.
In fact, without the Mexican
outlet, U.S. domestic gas prices would unsustainably be 30-35% lower, pushing
the suppliers of our go-to fuel even more to the brink.
Gas has already plummeted to prices
not seen since Spring 2016.
Without a strong export
opportunity, many of our companies could go bankrupt.
Exports help beget more domestic
production, a fact that continues to go underappreciated by too many of our own
users and policymakers.
Many environmental groups are
actually pro-gas exports in particular because natural gas helps lower
emissions and backup wind and solar.
Oil and gas links with Mexico and
Canada are essential to the national security of the North American bloc, i.e.,
our three E's: economic, energy, and environmental security.
The U.S., Canada, and Mexico energy
markets are integrated and interdependent.
There is a free flow of energy
products across the three nations that support lower prices, reliable supply,
millions of jobs, and a stronger economy.
This North American alliance is
increasingly critical in a world where riskier partners are aligning to
manipulate pricing on oil and gas - two sources that account for nearly 65% of
the world's energy supply.
To illustrate, OPEC and other
producers including Russia are now in final talks for an agreement to cooperate
on oil supplies on a long-term basis.
With a deal expected as soon as
early-July, this represents a clear market manipulation threat to all oil
consumers: this OPEC+ group produces 55-60% of the world's oil and holds 85-90%
of all proven reserves.
Bluntly put then, OPEC and Russia
are benefitting from unrealistic Western environmental groups that seek to
block our own domestic production and infrastructure build-out for oil and gas.
They are doing the bidding of our adversaries.
We simply cannot afford to listen
to those who ignore the reality that oil, for instance, is the world's most
vital source of energy, has no large-scale substitute, and has ever-growing
demand.
In other words, any policy that
blocks U.S. oil and gas production and exports is ultimately helping the other
suppliers that know global demand faces a single direction: up.
If we don't get our act together,
we will dangerously be handing the market to OPEC and Russia
For example, India is working
energy deals with Iran, and China is collaborating with Russia.
Even good friends like Australia
are major competition for us.
The Aussies have a $200 billion LNG
construction boom that will surge the country past Qatar as the world’s top
exporter of the fuel.
With China now having a 25% retaliation
tariff on U.S. LNG: "Having a gas: Australia dominates China's LNG
supply."
The Trump administration continues
to tout U.S. oil and gas exports, but trade wars are greatly complicating our
goals.
We simply must support free trade
agreements and oppose market restrictions: they run contrary to the benefits
retained through USMCA.
This includes tariffs that create uncertainty for U.S. energy projects and threaten our jobs, as well as America’s energy leadership around the world.