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North America: An Energy Collossus

March 26, 2014
By Bernard L. Weinstein and Morgan Allen
A look at several major reforms that must be made to effectively create a common energy market across the continent

An energy revolution has been underway in North America for the past decade. In the United States, for example, hydraulic fracturing has been combined with horizontal drilling to unleash huge quantities of oil and natural gas from shale formations, revitalizing tired economies in places like North Dakota and Pennsylvania. At the same time, deepwater drilling in the Gulf of Mexico—at least until the Macondo accident in 2010—has also contributed considerably to America’s rising hydrocarbon output.

In Canada, meanwhile, oil production has grown more than 50 percent over the past decade, mainly from rapidly rising output in the Alberta oil sands. The oil sands represent the planet’s third largest oil reserves and are expected to produce 3.8 million barrels per day by 2025. And although oil production in Mexico has fallen more than 25 percent over the past decade, there is new hope on the horizon. In December 2013, Mexican President Enrique Peña Nieto signed historic legislation ending 75 years of state monopoly of the energy industry. While secondary legislation is still being drafted, experts anticipate the reform to bring in billions of dollars of foreign investment, create millions of jobs, and help grow the Mexican middle class.

The three countries can best leverage the current revolution by taking immediate steps to integrate their energy sectors. Although the North American Free Trade Act (NAFTA) dramatically increased cross-border collaboration among the United States, Canada and Mexico, the energy sectors have remained largely untouched by the agreement.

But the road will not be easy. This paper discusses several major reforms that must be made to effectively create a common energy market across the continent. If successful, the emergence of the North American “energy colossus” will fuel an industrial revival; further de-tether America from the instability of the Middle East; and stimulate economic growth across the continent.