More closely coordinated Canadian, Mexican, and US government policies may have a bigger impact than energy technology breakthroughs on North America’s future economic growth, speakers generally agreed May 10 during a discussion at the Woodrow Wilson International Center for Scholars. Global market integration potentially could be more beneficial than exploiting regional advantages caused by lower energy prices, they suggested.
Their observations came during an event launching a new International Monetary Fund report, “Power Play: Energy and Manufacturing in North America.” Energy developments and trends in Canada, Mexico, and the US could create opportunities for North American partners to advance their common economic, energy security, and environmental objectives while deepening integration of their energy systems and economies, it concludes.
“This matters because we in North America share the world’s most integrated energy systems, particularly in Canada and the US,” said former Alberta Premier and Canadian Environment Minister Jim Prentice, who currently is a global fellow at the Wilson Center’s Canada Institute. “The prospect of more opportunities in Mexico as the government reforms the energy sector there could increase the tremendous advantages we have.”
North America’s is more self-sufficient since it produces 20-25% of the world’s total energy, Prentice said. Abundant supplies available at relatively low costs give its manufacturers clear competitive advantages as well as a significant environmental edge with so much natural gas and hydropower, he said.
“All of this has been accomplished with no government intervention. It happened with free markets and free trade,” he said. “Going forward, we need to stay focused on what’s been successful. We need to concentrate on building more infrastructure, aligning standards, and supporting technological development. Standardization will be especially important if we’re going to harmonize our three countries’ carbon policies.”
Extent of price impacts
Impacts from the oil-price plunge since mid-2014 and the earlier drop in natural gas prices have been significant, but not as devastating as might have been expected, according to Alejandro Werner, who directs the IMF’s western hemisphere department. Energy industries have adopted efficiencies aggressively while consumers have increased demand relatively modestly, he said. “We’ve seen the oil market hit some sort of bottom, with a recovery in the last weeks,” he said. “The fundamentals in our report still apply because the opportunities are still there.”
Mexico launched its oil sector reforms when prices were high, noted another speaker, Carlos Hurtado, the IMF’s alternate executive director for Mexico. “We thought a lot of investment would come in for deepwater and other expensive plays, providing a big economic push for 2016-17. That didn’t happen,” he said.
“But the reform is more important to Mexico than depressed prices,” Hurtado said. “It’s not only going to provide new oil and gas opportunities, but also supply more long- and medium-term economic inputs. The energy reform takes network integration accounts, which other Mexican reforms did not. This will make competition more workable not just in oil, but also gas and electricity. A lot of southern US gas now will go to Mexico where there’s been a lot of investment already in combined cycle plants.”
One of the report’s authors, IMF Senior Economist Lusine Lusinyan, said, “North American economies have become increasingly integrated, but there also are trends toward stronger global integration.” Industries’ energy intensity could affect economic benefits, and varies country-to-country with the US one of the world’s lowest, she pointed out. “Our conclusion is that global integration would be more beneficial overall,” she said.
Meg Lundsager, formerly US executive director and alternate executive director at the IMF who now is a Wilson Center public policy fellow, noted, “It’s important that US manufacturing has stayed strong, but it needs to focus on more dynamic areas of the world, which is why the Trans Pacific Partnership is so important. We have to be very careful and do the right public outreach so there’s strong support for more global energy trade. Education reform also will be essential so workers can learn new skills as technology changes job descriptions.”
Contact Nick Snow at firstname.lastname@example.org.