TPT September 2016

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SEPTEMBER 2016 95
G LOBA L MARKE T P L AC E
Oi l & gas
What would a Donald Trump presidency
mean for the US oil and gas sector?
Mexico offers a bracing preview
Ending a 75-year state monopoly, in 2013 Mexican President
Enrique Peña Nieto proposed a series of reforms to trans-
form his country’s energy sector, opening it up to foreign
investment.
The reforms became law in 2014. Since then, foreign
investment has poured into Mexico “and the energy has
flowed in both directions,” observed Emily Stewart, a staff
writer for the New York-based digital financial media company
TheStreet. She noted that many US-based energy companies
have benefited.
Taking advantage of Mexico’s shift from fuel oil toward
natural gas as a power source, US energy companies
have participated in auctions for Mexican oil contracts and
cooperated with state-owned petroleum company Pemex to
develop its oil holdings, increase production, and improve
technology and infrastructure.
But, wrote Ms Stewart recently, expert opinion suggests that
all that may be in jeopardy if Donald Trump is elected the next
president of the United States.
Mexico is the second-largest trading partner the US has
and, at $19bn, fossil fuels represent its fourth-largest export.
Stephen Munro, a policy analyst with Bloomberg New Energy
Finance, pointed out that, as a developing economy, Mexico
has a far greater potential for growth than Canada.
In the matter of energy exports, he told TheStreet, it represents
“the single most important continental market that American
energy firms have.”
Ms Stewart stated it plainly: Mr Trump’s pledges to build a wall
at the US-Mexico border, shut down immigration, and curtail
or renegotiate the North American Free Trade Agreement
(NAFTA) could have major implications for the American
energy sector. (“Here’s How Trump’s Wall Could Block
US-Mexico Gas and Oil Pipelines – Mexico’s liberalization
of its energy sector has opened up numerous opportunities
for business for US companies, but a President Trump could
potentially roll that back,” 13 July)
Alan Krupnick, senior fellow of the Washington-based
independent and non-partisan Resources for the Future
Center for Energy and Climate Economics, said that what
Mr Trump fails to see is that his policies are “extremely
short-sighted and without logic” and would work against the
interests of North American companies active in Mexico.
Chief among the companies with the most to lose under a
Trump presidency are those that have built infrastructure to
move natural gas from the US into the Mexican market. They
include Kinder Morgan, NET Midstream, TransCanada and
the Sempra Energy subsidiary IEnova.
PAIN ON BOTH SIDES OF THE BORDER
According to the US Energy Information Administration, US
natural gas pipeline exports to Mexico reached 102.6bn cubic
feet in April 2016, up from 77.2 BCF just a year before.
“We export natural gas to Mexico more than anything else,”
said Bloomberg’s Mr Munro, speaking of the US. “More than
coal, more than oil, more than electricity. So that’s where the
real potential damage lies.”
It was pointed out by TheStreet that Mexico’s liberalisation
of its energy market compounds the issue. Importing more
American natural gas to serve the heavily-industrialised
northern parts of the country, Mexico has been sending its
own gas supplies south.
A change in US policy in relation to free trade with Mexico
would, Ms Stewart wrote, “put this process in jeopardy and
throw off plans laid out by businesses and consumers on both
sides of the border.”
These are edited excerpts from industry sources who weighed
in on developments that may lie the other side of presidential
election day in the US (8 November):
› S&P Global Platts, a provider of information and
benchmark prices for the commodities and energy
markets, expects natural gas exports from the US to Mexico
to average 5.3 billion cubic feet per day (BCFPD) in 2021,
accounting for 57 per cent of Mexico’s natural gas supply. US
production will grow by 15.1 BCFPD over the same period. “If
Mexican demand fails to materialise due to upcoming political
[ie Trumpian] changes in policy, prices and producers in the
US will be affected,” said Javier Diaz, manager of energy
analysis and consulting at the firm.
› Since opening up its energy sector to foreign investment,
Mexico has held a series of auctions of its oil fields.
One early bidder, Houston-based Fieldwood Energy LLC,
announced in January that it already had signed a production-
sharing contract in partnership with PetroBal, a Mexican
company. Other big US oil companies like ExxonMobil,
Chevron, Marathon Oil, Occidental Petroleum and Anadarko
Petroleum likely have an eye on Mexico’s oil bidding as well.
However, noted Ms Stewart, should a Trump presidency
change US-Mexico relations, the opportunities on the horizon
could evaporate.
Said Mr Diaz of Platts, “It would affect the whole value chain
in energy if such a disruption happens.”
› Doug Holtz-Eakin, president of the American Action
Forum, sees possibility for even wider impact.
“If [Mr Trump] pursues a NAFTA renegotiation, it would harm
our relationship with Canada as well,” Mr Holtz-Eakin told
TheStreet. “At the moment we have a fairly integrated North
American energy supply system, and this would choose to
fragment it.”
Wind, solar and other forms of energy could take a hit as well,
warned Mr Holtz-Eakin: It is important, he said, “not to think
this is just a couple of oil companies.”