ENERGY INTERDEPENDENCE THE NAFTA EXAMPLE By Nathan Hinch

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

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 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. 8 th 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.