ENERGY%20INTERDEPENDENCE

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ENERGY INTERDEPENDENCE

• THE NAFTA EXAMPLE
• By Nathan Hinch
• nshinch_at_gmail.com

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Energy INdependence

• Let us set as our national goal that by the end
  of this decade we will have developed to meet our
  own energy needs without depending on any foreign
  sources.
• Pres. Richard Nixon

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Energy INdependence

• Our third goal is to promote energy independence
  for our country, while dramatically improving the
  environment.
• Pres. Bush, 2003 State of the Union Address

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Energy INdependence

• The status quo-in which the security of the U.S.
  and the vitality of our domestic economy is left
  to the whims of foreign regimes and companies
  that may not have the best interest of our nation
  at heart is simply not an option.
• Sen. Harry Reid and Speaker Nancy Pelosi in April
  6, 2006 joint letter to Pres. Bush

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Energy INdependence

• The status quo-in which the security of the U.S.
  and the vitality of our domestic economy is left
  to the whims of foreign regimes and companies
  that may not have the best interest of our nation
  at heart is simply not an option.
• Sen. Harry Reader and Speaker Nancy Pelosi in
  April 6, 2006 joint letter to Pres. Bush

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What does it Mean?

• Focus on
• Transportation Fuels
• Reducing dependence on foreign oil
• Supporting alternative fuels
• Supporting conservation
• Other Energy Consumption
• Concern over home heating costs
• Rising U.S. imports of natural gas
• Security concerns

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Energy INdependence

• BUT
• U.S. produces all but ¼ of its energy needs
• About 85 of heating fuel (natural gas) is
  domestic (rest from Canada)

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Energy INdependence

• BUT
• Oil is a world market
• Principle of scarcity world prices set by world
  supply and demand
• Comparative advantage Why cobble your own shoes
  instead of go to a shoe store?

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Energy INTERdependence

• Diversification U.S. buys only ¼ of oil imports
  from Persian Gulf
• Reserves Help to offset supply shocks on the
  WORLD market (e.g, U.S. reserves help keep
  European price down)
• Regional Interdependence - NAFTA

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NAFTA
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NAFTA

• Effective January 1, 1994
• Chapter 6 Core Principles
• Parties respect each others Constitutions
• Parties indicate desire to strengthen trade in
  energy and petrochemicals
• Parties recognize importance of strong energy and
  petro. sectors in world market

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NAFTA

• Imports/exports have to tax same as domestic
  sales
• General Deregulation, except
• National security or emergencies
• Encourages national reserves

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NAFTA - CANADA

• Canadian oil exports to U.S. gt Saudi Arabian oil
  exports to U.S.
• Canadian oil reserves estimates (unproven)
  exceed Saudi proven reserves
• But Saudi oil is cheaper to retrieve

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Source of U.S. 2004 Oil Imports

• Canada 1.7
• Mexico 1.6
• Saudi Arabia 1.5
• Venezuela 1.2
• Nigeria 1.1
• Iraq .7
• Angola .3
• Kuwait .3

• After declining in 2002, imports to the U.S.
  increased by 10 from 2002 to 2004, reaching a
  total of ten million barrels a day for the first
  time.

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Oil and Middle East Politics
Why Middle East Politics are Important!
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Oil Consumption Per Capita
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NAFTA - CANADA

• Canadian NAFTA complaints
• May cause domestic price increases to match
  export prices
• Depletion of natural resources due to U.S.
• Insatiable oil demand
• Refusal to drill in ANWR
• Lack of alternative energy resources
• U.S. is spoiling Canadas environment to protect
  its own.

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CANADAS ALBERTA SANDS

• Canadas greatest buried treasure.
• 175 bill. Barrels of proven reserves.
• Estimates of totals could be 2 trillion or more
  barrels.
• But costly to produce strip mined, not drilled.

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ALBERTA SANDS Mine and Processing Facility
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NAFTA - MEXICO

• MX reservations to NAFTA can restrict 50 of
  its total oil exports.
• PEMEX exclusive right to produce and export oil.
• 8th Largest oil producer in world
• More proven reserves than U.S.
• Recent deregulation in electric industry

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Conclusions

• Americans want Interdependence of energy Trade,
  not isolation.
• Americans want Independence from single energy
  sources Diversification.
• Energy conservation is necessary to show world we
  are serious.
• Embrace environmental good trade-offs.

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Conclusions From NAFTA

• Energy trade has been good for all 3 countries
• But not all good.
• Canadians want US conservation, respect for CAN
  environmental concerns.
• Mexicans want to keep control of petro-resources,
  but want US help developing.

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Conclusions From NAFTA

• Revise NAFTA to recognize good, address parties
  concerns.
• Provide for period check-ups.
• Recommend expansion of NAFTA energy trade rules
  to other countries.