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North America Should Look to Nafta on Oil Boom, Pemex CEO says

North America Should Look to Nafta on Oil Boom, Pemex CEO says

Posted by Juan Gavasa on February 17, 2014

North America will become the world’s cheapest source of energy if Canada, Mexico and the U.S. pool their resources to reduce costs and generate industrial growth across the continent, the chief executive of Mexico’s state-owned oil producer said in an interview.

The call for greater collaboration to leverage North American’s oil and natural gas boom comes as leaders of the three nations prepare to gather in Toluca, Mexico, for a summit on Feb. 19. Mexico, the U.S. and Canada should work together on matters such as regulation and infrastructure to make the most efficient use of the continent’s growing energy production that’s reshaping global markets, said Emilio Lozoya, the CEO of Petroleos Mexicanos, or Pemex.

“More than a counterbalance” to the market influence of the Organization of Petroleum Exporting Countries, or OPEC, “I see it as our own strength,” Lozoya said in a telephone interview with Bloomberg News. “There’s not going to be any other region in the foreseeable future that will enjoy cheaper energy than North America.”

The combined output of the three countries could exceed 20 million barrels a day within a decade, or about two-thirds of OPEC’s current production, according to data and projections from Citigroup Inc., the Canadian Association of Petroleum Producers and the U.S. Energy Information Administration.

Nafta Precedent

Just as the three countries cooperated two decades ago to forge the North American Free Trade Agreement, a similarly collaborative economic structure around oil and gas could be developed to solidify North America as a regional energy superpower, Lozoya said.

As with Nafta, which went into effect in 1994, the U.S., Mexico and Canada could avoid duplication of spending on infrastructure such as pipelines or processing plants to save money and bring petroleum products to market more quickly, Lozoya said. The quickest path for oil or gas to markets in Asia may be through Mexican ports, and U.S. transportation systems would be a boon to anyone drilling in Mexico’s deep-water prospects, he said.

A revolution in drilling techniques and sustained investment due to higher oil prices has pushed the U.S. past Saudi Arabia and Russia as the world’s top producer of oil and natural gas, the EIA estimated in October. By 2016, U.S. crude production will expand to 9.5 million barrels a day, the highest since the nation’s peak in 1970, according to the agency. Growth in Canada spurred by drilling in Alberta’s oil sands may push output to 4.85 million barrels a day by 2020, according to the Canadian producers’s association.

Monopoly Ending

Mexican law changes that are ending the state monopoly over one of the Western Hemisphere’s biggest crude resources may allow the country to double production, according to Ed Morse, the New York-based head of commodities research at Citigroup. That would put Mexican output at 5 million barrels a day, an unprecedented level for Pemex, the state oil company created during nationalization in 1938.

President Enrique Pena Nieto enacted an energy law on Dec. 20 that will allow private producers to pump crude for the first time since the nationalization. Oil companies will be offered ownership of the pumped oil and authority to book crude reserves for accounting purposes.

Though some foreign companies already operate in Mexico under service contracts with Pemex, the changes could increase foreign investment by as much as $15 billion annually and boost potential economic growth by half a percentage point, JPMorgan Chase & Co. said in a Nov. 28 report.

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