OPEC of the West? North America eyes stronger energy ties

The US, Canada, and Mexico look to bolster a North American energy boom that has redefined global fuel flows. But oil prices continue to plunge, threatening to curtail the expensive kinds of oil and gas that have prevailed across the continent.

High-level officials from a handful of influential oil-producing countries met this week to coordinate energy policy and promote market integration.

No, this wasn’t a meeting of the Organization of the Petroleum Exporting Countries (OPEC), the cartel of petro states that collectively raise or lower production to influence prices. Instead, energy ministers from Canada, the US, and Mexico convened this week to lay out plans for further cooperation on oil and gas, as well as the integration of electric grids and energy data. It was the first such meeting in seven years, and a sign of North America’s growing importance in the oil market.

Of course, the US, Mexico, and Canada are very different from Saudi Arabia, Iran, Iraq and the rest of the countries that make up OPEC. The chances of a formal, price-colluding cartel forming in North America are slim to none. But there’s no doubt that the shifting global energy landscape tips the geopolitical balance away from OPEC. The US is emerging as an energy superpower, and it can look to allies both north and south of its borders for support.

“It will be tempting for North America to band together to try to counterbalance OPEC,” says Deborah Gordon, director of the energy and climate program at the Carnegie Endowment for International Peace, a Washington think tank. Still, Ms. Gordon adds in an email to the Monitor, “North American oil cooperation can only go so far.”

Plummeting oil prices have created a stand-off between OPEC and US shale producers whose booming crude has pushed down the price of oil. In the last five months oil prices have plunged more than 40 percent. The global benchmark, Brent, was just above $60 a barrel Wednesday.

Saudi Arabia, OPEC’s leading voice, has decided to let prices fall even further in hopes that a low price environment will scuttle US shale drilling. But other OPEC nations like Russia and Venezuela, who rely on oil revenues to fund their governments, are sweating as prices fall and threaten their budgets.

Meanwhile, North America’s so-called “Three Amigos” continue to make their presence known in global energy markets.

 

“These nations, with a total production capacity of around 20 million barrels per day of petroleum, now pose a credible threat to OPEC’s dominance of the oil market,” writes Andrew Critchlow, commodities editor of the Telegraph. “The trilateral talks ... will raise eyebrows in the corridors of power in [OPEC’s] headquarters in Vienna.”

Of course, trilateral cooperation on energy is easier said than done, and maybe even more complicated in the West. Unlike OPEC, US and Canadian oil and pipeline firms are not state-owned and naturally compete with one another, challenging efforts at cross national cooperation. Environmental concern plays a larger role in the West as well. Many in the US, Canada, and Mexico would rather develop the region’s renewable resources than assume the role of an fossil-fuel superpower.  

“Commercial and environmental interests are not easy things to overcome – even if the political will is there,” says Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution, a Washington think tank.

There’s another twist: North American energy could end up a victim of its own success. By flooding the market with new oil, the US has helped to push global prices down to five-year lows. That undermines the economic viability of Canada’s costly oil sands production, Mexico’s nascent energy overhaul, and US shale drilling. At Monday’s meeting, the countries appeared to be circling the wagons to promote North American energy security and profitable, unconventional oil extraction.

“We have not had this trilateral dialogue for so long,” US Energy Secretary Ernest Moniz told reporters Monday, adding that 2015 will be a “time for real serious effort and action.”

Leaders characterized their trilateral goals as a “to-do list” rather than a “wish list.” Each will begin working on “action plans” to advance data-sharing and integration initiatives, like coordinating Gulf Coast maps that show drilling operations vulnerable to hurricanes. Those plans will be presented to country leaders in the spring.

There are other ways North America could better integrate their energy systems, analysts say.

“Common regulatory standards would certainly help,” Mr. Ebinger says in a telephone interview Tuesday. “If we could try to expedite licensing for new pipelines ... that would also be beneficial.”

But one potential pipeline was the most notable source of tension during Monday’s press conference: the long-delayed Keystone XL, which would carry 830,000 barrels of Canadian oil sands a day to US Gulf Coast refineries.

Canada is pushing hard for the pipeline because it would bring Alberta’s oil sands to market. But President Obama is reluctant to approve the portion that would cross the US border, concerned that development of carbon-intensive oil sands could increase climate-warming greenhouse emissions. Canadian Minister of Natural Resources Greg Rickford noted there are already 70 pipelines carrying crude between the US and Canada.

“Naturally our government thinks that number should grow to 71, but Keystone XL obviously can help end dependence on insecure sources of crude with a secure and reliable supply from Canada and, of course, helping our friends in North Dakota and Montana with transportation, as well,” Mr. Rickford said Monday.

All sides emphasized that the recent drop in oil prices doesn’t undercut the long-term profitability of unconventional drilling in North America. Still, countries are adapting to cheap oil, with Canadian minister Rickford saying his country is making "conservative adjustments to our fiscal forecasts" with oil revenues expected to dip. And in Mexico, low oil prices could make it hard to attract the foreign financing and expertise it needs to revive a slumping energy industry.

“We think we remain very competitive,” Mexican Energy Secretary Pedro Joaquín Coldwell – who was also at the trilateral meeting – told Financial Times last week.