Surreal illustration of a pipeline symbolizing North American energy trade.

Beyond NAFTA: Unmasking the Real Risks to North America's Natural Gas Future

"Forget tariffs and trade deals, the future of natural gas in North America hinges on infrastructure, internal policies, and a surprising 100-year-old law."


In September 2018, the Trump administration unveiled the United States-Mexico-Canada Agreement (USMCA), a revamped version of the 1994 North American Free Trade Agreement (NAFTA). The immediate question on many minds was: What will this mean for the thriving trade of gas and oil across North American borders?

While trade agreements inevitably grab headlines, the reality is that the cross-border flows of oil and gas are not significantly dictated by these policies. The real drivers lie elsewhere: international oil prices, investments in domestic petroleum infrastructure, and the ever-present regulatory landscape.

Instead of tariffs, the story is about internal industry barriers and domestic policies. While recent reviews of the USMCA have focused on tariffs, dispute resolution, and sunset clauses, it's time to dig deeper into what truly shapes the energy trade between the United States, Mexico, and Canada.

The Pipeline Paradox: Efficiency vs. Monopoly

Surreal illustration of a pipeline symbolizing North American energy trade.

Oil and gas stand apart from other commodities due to their reliance on pipelines for efficient long-distance transport. The concept is far from new: Samuel Van Syckel pioneered the first oil pipeline in Pennsylvania in 1864, replacing legions of teamsters on muddy roads. This innovation, however, birthed a persistent challenge.

Every region seeking to harness inland oil and gas resources confronts the tug-of-war between the engineering efficiency of pipelines and their potential for monopolistic control. For over a century, the United States has grappled with balancing these forces, achieving notable success with natural gas pipelines but only partial progress with oil pipelines.

  • Engineering Efficiency: Pipelines provide an unmatched ability to move oil and gas across long distances.
  • Monopoly Concerns: The control of pipelines can lead to market dominance and potential abuse.
  • Regulatory Balancing Act: Governments constantly adjust policies to ensure fair access and prevent monopolies.
  • Historical Context: The challenges of pipeline development have shaped energy policy for over a century.
Few nations have successfully navigated this balance. Some have opted for government-led pipeline projects, as seen with major oil and gas pipelines in Mexico and parts of the TransCanada pipeline. The United States, Mexico, and Canada each had to tackle internal challenges before contemplating large-scale energy exports. The role of private capital in infrastructure development and the regulation of interstate pipeline transport remain pivotal. These internal policies are far more influential than anything stipulated in NAFTA or the USMCA.

Looking Ahead: The Real Drivers of North American Energy

The future of North American oil and gas trade hinges less on trade agreements and more on internal policies, infrastructure investments, and political decisions. Whether it's Mexico's potential ban on fracking or the century-old US legislation affecting crude oil pipelines, these factors will continue to shape the energy landscape, irrespective of the USMCA's provisions. Ultimately, the international trade in oil and gas across North America remains relatively free, with its trajectory dictated by internal dynamics rather than trade pacts.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1002/gas.22094, Alternate LINK

Title: After Nafta: New Risks To North American Gas Trade?

Subject: Literature and Literary Theory

Journal: Natural Gas & Electricity

Publisher: Wiley

Authors: Jeff D. Makholm

Published: 2018-11-14

Everything You Need To Know

1

How much does the USMCA agreement really impact North American natural gas trade, compared to other factors?

The USMCA's impact on North American natural gas trade is less significant than factors like international oil prices, domestic infrastructure investments, and the regulatory landscape. While trade agreements like USMCA receive attention, the actual drivers of cross-border oil and gas flows are internal industry barriers and domestic policies, such as pipeline regulations and energy policies, which have a more substantial influence.

2

Why do pipelines present a paradox in the oil and gas industry?

Pipelines present a paradox because, while they are the most efficient means of transporting oil and gas over long distances, they also create the potential for monopolistic control. This is due to the high cost of building and maintaining pipelines, which can lead to a single entity controlling access and potentially manipulating prices or limiting competition. Balancing the engineering efficiency of pipelines with the need to prevent monopolies requires careful regulatory oversight and policy decisions.

3

How has the United States approached the challenge of balancing pipeline efficiency with the risk of monopolies, particularly in natural gas versus oil pipelines?

The United States has navigated the pipeline efficiency vs. monopoly challenge with natural gas pipelines more successfully than with oil pipelines. This is due to a combination of factors, including regulatory policies that promote competition and prevent monopolies in the natural gas sector, as well as the structure of the natural gas market itself. However, challenges remain in ensuring fair access and preventing market dominance, particularly in the oil pipeline sector, where historical factors and infrastructure ownership patterns have created greater barriers to competition.

4

Beyond trade agreements, what factors will truly determine the future of North American oil and gas?

Internal policies, infrastructure investments, and political decisions like Mexico’s potential ban on fracking or the US legislation impacting crude oil pipelines will heavily influence the future of North American oil and gas trade, irrespective of the USMCA. These internal dynamics, such as investment in pipelines and domestic energy policies, will shape the energy landscape more than trade agreements.

5

How does century-old US legislation continue to influence crude oil pipelines, and why is this relevant to North American energy trade?

The century-old US legislation affecting crude oil pipelines continues to shape the energy landscape by influencing how crude oil can be transported and accessed across state lines. This legislation plays a critical role in dictating the movement of crude oil, affecting the efficiency, cost, and overall accessibility of crude oil transportation, independent of trade agreements like the USMCA. Understanding these types of internal regulations is crucial for predicting the trajectory of North American energy trade.

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