U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

25–729PDF 2017

ENERGY OPPORTUNITIES IN NORTH AMERICA

HEARING

BEFORE THE

SUBCOMMITTEE ON 

THE WESTERN HEMISPHERE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

FIRST SESSION

JUNE 7, 2017

Serial No. 115–48

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

ADAM KINZINGER, Illinois 

LEE M. ZELDIN, New York 

DANIEL M. DONOVAN, JR., New York 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

ANN WAGNER, Missouri 

BRIAN J. MAST, Florida 

FRANCIS ROONEY, Florida 

BRIAN K. FITZPATRICK, Pennsylvania 

THOMAS A. GARRETT, JR., Virginia 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

KAREN BASS, California 

WILLIAM R. KEATING, Massachusetts 

DAVID N. CICILLINE, Rhode Island 

AMI BERA, California 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

THOMAS R. SUOZZI, New York 

ADRIANO ESPAILLAT, New York 

TED LIEU, California

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON THE WESTERN HEMISPHERE

JEFF DUNCAN, South Carolina, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

MICHAEL T. MCCAUL, Texas 

MO BROOKS, Alabama 

RON DESANTIS, Florida 

TED S. YOHO, Florida 

FRANCIS ROONEY, Florida 

ALBIO SIRES, New Jersey 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

NORMA J. TORRES, California 

ADRIANO ESPAILLAT, New York 

GREGORY W. MEEKS, New York 

(III)

C O N T E N T S 

Page

WITNESSES 

Ms. Sarah Ladislaw, director and senior fellow, Energy and National Security 

Program, Center for Strategic and International Studies ................................ 9

Aaron Padilla, Ph.D., senior advisor, International Policy, American Petroleum Institute ....................................................................................................... 17

Duncan Wood, Ph.D., director, Mexico Institute, Woodrow Wilson International Center for Scholars ............................................................................... 28

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Jeff Duncan, a Representative in Congress from the State 

of South Carolina, and chairman, Subcommittee on the Western Hemisphere: Prepared statement ................................................................................ 4

Ms. Sarah Ladislaw: Prepared statement ............................................................. 12

Aaron Padilla, Ph.D.: Prepared statement ............................................................ 19

Duncan Wood, Ph.D.: Prepared statement ............................................................ 30

APPENDIX 

Hearing notice .......................................................................................................... 60

Hearing minutes ...................................................................................................... 61

Questions submitted for the record by the Honorable Jeff Duncan, a Representative in Congress from the State of South Carolina, and chairman, 

Subcommittee on the Western Hemisphere, and the Honorable Norma J. 

Torres, a Representative in Congress from the State of California, and 

written responses from: 

Ms. Sarah Ladislaw ............................................................................................. 62

Aaron Padilla, Ph.D. ............................................................................................ 65

Duncan Wood, Ph.D. ............................................................................................ 72

(1)

ENERGY OPPORTUNITIES IN NORTH 

AMERICA 

WEDNESDAY, JUNE 7, 2017

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE WESTERN HEMISPHERE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:05 a.m., in room 

2172, Rayburn House Office Building, Hon. Jeff Duncan (chairman 

of the subcommittee) presiding. 

Mr. DUNCAN. A quorum being present, the subcommittee will 

come to order. 

Before we get started, first off, let me apologize to my subcommittee for the markup last week or 2 weeks ago and the snafu 

with me getting here. I am glad we got the markup finished. But 

Ileana actually chaired it for me, so I apologize to the subcommittee. 

We also have some staff changes on the majority side. We have 

promoted Rebecca Ulrich to staff director, and we also have a professional staff member, Juan Carlos Monje here. So there are new 

additions on our side. And we are losing, Ron Criscuolo, he is headed to the Department of Homeland Security. So we have got some 

changes on the subcommittee on the Republican side. I just wanted 

to let y’all know about those. So you can welcome them to the staff. 

Anyway, so we will go ahead and get started. 

Over the past few years, this subcommittee has prioritized the 

issue of energy very intentionally. Not only is it in my wheelhouse, 

but we have taken time to examine opportunities in the region and 

consider how the U.S. can increase energy cooperation with our 

neighbors to pursue greater economic growth, create jobs, lower gas 

prices, and increase our energy security. 

Today’s hearing on North American energy opportunities follows 

legislation that I authored in the 113th Congress to approve the 

U.S.-Mexico Transboundary Hydrocarbon Agreement. The Agreement was negotiated with Secretary Clinton, and we had to provide 

the implementing language. And it was actually included in the 

CR/Omnibus, but became law and opened up about 11⁄2 million 

acres in the western Gulf of Mexico. In the last Congress, we had 

numerous subcommittee energy hearings; a Government Accountability study on North American energy that Ranking Member 

Sires and I requested, which is currently ongoing; a hearing on 

South American energy potential was held last month. 

2

In my view, energy holds a very important key to unlocking untapped potential for the hemisphere. That potential is both energy 

potential but also ways that we can collectively work together for 

energy independence. 

And I believe the Trump administration has an incredible opportunity now to increase U.S. energy engagement in the region to the 

benefit of U.S. interests, as well as those of the region as a whole. 

After all, the United States is the largest energy producer in the 

Western Hemisphere, producing over 12 million barrels of oil, 27 

trillion cubic feet of dry natural gas per day. Collectively, as of 

2015, North America accounted for 72 percent of Western Hemisphere oil production, 85 percent of natural gas production. As 

tight oil and shale gas in the United States, Canada’s oil sands, 

and Mexico’s energy reforms and offshore oil prospects create circumstances for a far more highly integrated and interdependent 

North American energy market. 

A stronger North American energy partnership would expand the 

size of our energy market, lead to more jobs, reduce costs for consumers, and enhance North American energy security and independence. Of course, global oil prices will continue to impact U.S. 

energy interests. However, the U.S. would likely experience less 

impact from the volatility in the Middle East, attempts by OPEC 

to regulate energy output and prices, and even Venezuela’s energy 

production free fall if we relied less on these sources of energy and 

instead built a stronger North American energy market to lower 

our risks and meet our needs more effectively. 

I have long talked about American energy independence and 

North American energy independence. I have broadened that to a 

hemispheric energy independence, which is a little broader than today’s hearing. But if we think hemispherically, the opportunities 

are boundless. 

Consequently, I believe the Trump administration has an excellent opportunity now in efforts to improve NAFTA, to include energy issues in any future deal. The energy landscape has changed 

substantially since NAFTA was first negotiated and thus warrants 

closer examination and potential inclusion, in my view. I hope to 

work with USTR on that issue as well as the Trump administration. 

In addition, the Trump administration has another opportunity 

with the recently concluded negotiation of the U.S.-Mexico Section 

123 agreement to consider how U.S. nuclear exports to Mexico 

might assist our southern neighbor with its stated objectives to reduce the use of fossil fuels and carbon emissions through nuclear 

power. This agreement awaits White House consideration and submission to Congress for review. 

According to U.S. industry, if this Section 123 agreement moves 

forward, Mexico plans to construct two new nuclear plants, which 

could potentially generate more than $2 billion in direct U.S. exports and support more than 10,000 jobs in more than 20 U.S. 

States if U.S. firms end up constructing those new power plants. 

Let’s consider for a moment the recent energy developments in 

North America that have brought us here today. The U.S. has experienced the greatest natural gas supply transformation of any 

country in the world in recent years due to shale. Today, Canada’s 

3

the fifth largest energy producer in the world and our largest foreign supplier of energy. It also has the world’s third largest proved 

oil reserves and is one of the largest producers of dry natural gas. 

Likewise, Mexico is a major producer of petroleum in the world. 

It is the fourth largest in the Americas. Several recent discoveries 

of oil and natural gas in Mexico, the development of unconventional resources, and considerable shale resources near the U.S.-

Mexico border offer additional promising opportunities. Furthermore, Canada’s privatized oil sector and Mexico’s 2013 reforms 

opening its energy sector to private investments make further energy cooperation with these non-OPEC members more critical to 

U.S. national interests. 

We have a slide on the board today from API which shows the 

trilateral trade and energy across our northern and southern border with Mexico and Canada. I would ask everyone to take a look 

at that. It is available for all the members on our screens. 

In conclusion, the collected value of the energy trade between 

U.S. and Canada and Mexico exceeded $140 billion in 2015. More 

can be done, and President Trump’s America First energy plan is 

an important blueprint for achieving greater U.S. energy security 

and independence. However, I believe that in order for that plan 

to maximize its potential, we need to expand North American energy cooperation. Currently, our trilateral trade in crude oil, natural gas, refined products, and electricity is joint and integrated in 

many ways. 

Our neighbors are major buyers of petroleum products refined 

here in our country, and energy products cross our borders multiple 

times. Natural gas originating in Canada is often exported to the 

United States in one part of the country and then reexported back 

into Canada in another part just due to the logistics. 

Over 50 natural gas pipelines link North American energy markets, 6 oil pipeline systems link the U.S. and Canada, and over 30 

major electricity transmissions connect the U.S. and Canada. Yet 

while we have substantial room to improve and grow our energy 

partnership, especially with Mexico, I look forward to hearing from 

our witnesses on how the U.S. can work with our neighbors to 

build a stronger North America. 

I would now turn to the ranking member Sires for his opening 

remarks. 

[The prepared statement of Mr. Duncan follows:]

4


25729d-1.eps

Chairman Jeff Duncan 

Opening Statement 

Page 1 (As Prepared/or Delivery) 

Foreign Affairs Committee's Subcommittee on the Western Hemisphere 

"Fnergy Opportunities in North America" 

Wednesday, June 7, 2017 at 10:00 a.m. in Rayburn Room 2172 

Over the past few years, this Subcommittee has prioritized the issue of energy very 

intentionally. We have taken time to examine opportunities in the region and consider how the 

US. can increase energy cooperation with our neighbors to pursue greater economic growth, 

create jobs, lower gas prices, and increase our energy security. Today's hearing on North 

American energy opportunities follows legislation that I authored in the 113111 Congress to 

approve the U.S.-Mexico Transboundary Hydrocarbons Agreement, which became law; three 

Subcommittee energy hearings last Congress; a Government Accountability Office (GAO) study 

on North American energy that Ranking Member Sires and I requested, which is currently 

ongoing; and a hearing on South American energy potential last month. In my view, energy 

holds a very important key to unlocking untapped potential for the hemisphere, and I believe the 

Trump Administration has an incredible opportunity now to increase US. energy engagement 

with the region- to the benefit of US. interests as well as to the region as a whole. 

After all, the United States is the largest energy producer in the Western Hemisphere, 

producing over 12 million barrels of oil and 27 trillion cubic feet of dry natural gas per day. 

Collectively, as of 2015, North America accounted for 72 percent of Western Hemisphere oil 

production and 85 percent of natural gas production. Tight oil and shale gas in the United States, 

Canada's oil sands, and Mexico's energy refonns and otl'shore oil prospects create circumstances 

for a far more highly integrated and interdependent North American energy market. A stronger 

North American energy partnership would expand the size of our energy market, lead to more 
5


25729d-2.eps

Page 2 (As Prepared/or Delivery) 

jobs, reduce costs for consumers, and enhance North American energy security and 

independence. Of course, global oil prices will continue to impact U.S. energy interests. 

However, the U.S. would likely experience less impact from the volatility in the Middle East, 

attempts by OPEC to regulate energy output and prices, and even Venezuela's energy production 

freefall if we relied less on these sources of energy and instead built a stronger North American 

energy market to lower our risk and meet our needs more effectively. 

Consequently, I believe that the Trump Administration has an excellent opportunity now 

in efforts to improve NAFTA to include energy issues in any future deal. The energy landscape 

has changed substantially since NAFTA was first negotiated and thus warrants closer 

examination and potential inclusion, in my view. In addition, the Trump Administration has 

another opportunity with the recently concluded negotiation of the U.S.-Mexico "Section 123 

Agreement" to consider how U.S. nuclear exports to Mexico might assist our southern neighbor 

with its stated objectives to reduce the use of fossil fuels and carbon emissions through nuclear 

power. This agreement awaits White House consideration and submission to Congress for 

revtew. According to U.S. industry, if this "Section 123 Agreement" moves forward, Mexico 

plans to construct two new nuclear plants, which could potentially generate more than $2 billion 

in direct U.S. exports and support more than 10,000 jobs in more than 20 U.S. states if U.S. firms 

end up constructing those new plants. 

Let's consider for a moment the recent energy developments in North America that have 

brought us here today. The U.S. has experienced the greatest natural gas supply transformation 

of any country in the world in recent years due to shale. Today, Canada is the fifth-largest energy 

producer in the world and our largest foreign supplier of energy. It also has the world's thirdlargest proved oil reserves and is one of the largest producers of dry natural gas. Likewise, 
6


25729d-3.eps

Page 3 (As Prepared/or Delivery) 

Mexico is a major producer of petroleum in the world and is the fourth-largest in the Americas. 

Several recent discoveries of oil and natural gas in Mexico, the development of unconventional 

resources, and considerable shale resources near the U.S.-Mexico border offer additional 

promising opportunities. Furthermore, Canada's privatized oil sector and Mexico's 2013 reforms 

opening its energy sector to private investment make further energy cooperation with these nonOPEC members more critical to U.S. national interests. 

In conclusion, the collective value of the energy trade between the U.S., Canada, and 

Mexico exceeded $140 billion in 2015. More can be done, and President Trump's ''America First 

Enert\Y Plan" is an important blueprint for achieving greater U.S. energy security and 

independence. However, I believe that in order for that Plan to maximize its potential, we need to 

expand North American energy cooperation. Currently, our trilateral trade in crude oil, natural 

gas, retined products, and electricity is joint and integrated in many ways. Our neighbors are 

major buyers of petroleum products retined in our country, and energy products cross our 

borders multiple times. Natural gas originating in Canada is often exported into the U.S. in one 

part of the country and then re-exported back to Canada in another part Over 50 natural gas 

pipelines link the North American energy market, six oil pipeline systems link the U.S. and 

Canada, and over 30 major electricity transmissions connect the U.S. and Canada. Yet, we have 

substantial room to improve and grow our energy partnership, especially with Mexico. I look 

forward to hearing from our witnesses on how the U.S. can work with our neighbors to build a 

stronger North America. I turn now to Ranking Member Sires for his opening remarks. 

### 
7

Mr. SIRES. Good morning. Congratulations, Rebecca and Carlos. 

Welcome on board. 

Good morning to everyone. And thank you, Chairman Duncan, 

for holding this hearing. 

Today’s hearing will focus on the relationship, prospective opportunities, and upcoming challenges in energy cooperation between 

the United States and our close neighbors and allies, Mexico and 

Canada. 

The energy market in North America has become large and integrated. Because of this, North America must take particular steps 

to ensure that our energy cooperation remains beneficial to all parties. The current relationship between the U.S. and its North 

American partners is strong. 

For instance, Canada is currently the largest single supplier of 

crude oil to the U.S. Electricity trade between the U.S. and Canada 

has increased 230 percent between 2006 and 2015, and Mexico is 

the largest customer of U.S. natural gas. Mexico and the U.S. have 

exponentially increased the amount of pipelines between the countries to expand on its ability for future trade. While our current integration is stronger than ever, there are opportunities in the future to have an even more robust relationship. 

With large potential in solar, wind, and hydropower, I believe 

that working toward further integration within the renewable energy industry is in the national interest of the U.S. Countries all 

over the world are already seeing that investing in renewable energy sources is driving their economies into the future and producing jobs for the next generation. We must work with our allies 

to make sure the U.S. isn’t just a part of this trend, but one of the 

leaders. 

Unfortunately, President Trump’s decision to pull out of the 

Paris climate agreement leaves the U.S. out in the cold, joined by 

only Syria and Nicaragua, the only two other nations not party to 

the agreement. I am heartened by the response of many American 

cities and companies to state their commitment to energy diversity 

and making sure the American people have access to the jobs and 

stability that comes with a more efficient and independent energy 

matrix. 

These challenges present unique circumstances for North America to strengthen its commitment to energy integration. The U.S. 

needs to reassure its southern and northern neighbors that we are 

dedicated to energy integration and will help where possible to pursue this interest. However, this requires dedication and cooperation 

on all fronts. I am confident that the U.S. will continue to develop 

an official energy policy with its neighbors. 

I look forward to hearing from our panelists how we can address 

the challenges and where the future of North America and energy 

industry lies. Thank you. 

Mr. DUNCAN. The gentlelady from New Jersey is recognized—I 

am sorry, New York. Ms. Kelly is recognized. 

Ms. KELLY. Thank you, Mr. Chairman. 

I was disappointed by the Trump administration’s recent decision 

to withdraw from the Paris Agreement and retreat into diplomatic 

isolation. This decision not only endangers our planet, but also 

hurts America’s credibility abroad. And let us not forget that PresiVerDate 0ct 09 2002 16:40 Aug 15, 2017 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\WORK\_WH\060717\25729 SHIRL
8

dent Trump has already strained our relationships with Mexico following degrading remarks about Mexican citizens and threats to 

slap a 20 percent tariff on imports. This threatens our position as 

Mexico’s largest trading partner and foreign supplier of natural 

gas. 

How do these actions add to U.S. energy security? How do they 

promote U.S. interests? It is my hope that this hearing will shed 

light on the path forward to promote general economic growth and 

job creation that is as mutually beneficial as possible. The future 

of North American energy is changing as renewable energy becomes cheaper and electric grids become more efficient. Supporting 

these different technologies will promote not only a clean environment, but also decrease our reliance on foreign energy. 

I look forward to hearing from the witnesses on charting a responsible path forward for North American energy policy. And I 

thank you, Mr. Chair. 

Mr. DUNCAN. I thank the gentlelady. 

The chair will go to the gentleman from Florida for a brief opening statement. 

Mr. YOHO. Thank you, Mr. Chairman. I appreciate you convening 

this meeting. And I think this is very important that we have this 

meeting today. 

You know, with the abundance that America and North America 

has been blessed with, as far as natural resources, and with our 

Caribbean Basin and our South American basin, our neighbors so 

close that we have so much energy that we utilize that to bolster 

the security, especially of the Caribbean islands. 

You know, if you look at Puerto Rico, the majority of their oil or 

energy production is from heavy oil that comes from Venezuela. If 

you look at the U.S. Virgin Islands, they have an energy shortage. 

That region pays the most for electricity than anybody else when 

you look at the Continental United States. And so exporting LNG 

out of North America makes sense to bring clean energy to those 

areas, in addition to national security. You know, to have a steady 

supply from an ally to U.S. territories, versus getting it from Venezuela just makes sense. And this is something I look forward to 

hearing your testimonies on. 

And I just have to say, Mr. Chairman, about President Trump 

pulling out of the Paris accord, I think it was the right thing to do. 

I think that tied our hands as Americans. It indebted this country 

to paying and transferring wealth from this country to other countries, and it wasn’t going to really change anything. He has said 

he is going to renegotiate this. And it is not that he doesn’t want 

clean air or clean energy. He wants to do it where it is best for this 

country. And if it is best for this country, it is going to be better 

for the people that we work with. 

I yield back. 

Mr. DUNCAN. I thank the gentleman. 

Mr. Espaillat. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. Ranking Member 

Sires, thank you for putting together this hearing on the energy opportunities in North America. 

Certainly, this is an opportune time to discuss this particular 

issue as we see the impact of the collapse of the oil industry and 

9

how it has impacted the Caribbean and central South America 

from Venezuela. And we saw for many years how the Petrocaribe 

initiative was used as a political tool in that region. Now, many of 

those countries in the Caribbean are either facing extremely high 

rates of electrical costs or have spotty energy supplies, leading to 

their economic development to be delayed, if not stifled. 

But for the longest time, Canada and Mexico have been the 

United States’ allies in matters of energies, commodities and vice 

versa. There has been an active and increased energy trade between our countries where Canada and Mexico have each represented a crucial part in the United States’ energy independence 

and security. Unfortunately, this economic relationship risks disruption due to the actions taken by the current administration, 

most notably the withdrawal from the Paris climate accord, which 

even North Korea has signed onto and stayed there. 

So when we hear that Syria and Nicaragua are the only two that 

have opted out, we also should look at the ones, the countries that 

are still in the agreement. And even North Korea is still in the 

agreement. And, of course, the President’s talks on building the 

wall has strained relationships with Mexico. So all these actions 

may clearly put at risk our lives with Canada and Mexico to continue to excel in topics related to energy. I hope that your testimony will shed some light on some of these issues. Thank you. 

Thank you, Mr. Chairman. 

Mr. DUNCAN. You are welcome. 

Mrs. Torres, do you have an opening statement, briefly? 

Mrs. Torres. No, thank you. 

Mr. DUNCAN. All right. So we will turn to the testimony from our 

witnesses. We thank you for being here today. 

Before we get started, you will notice some lights in front of you: 

Green, yellow, and red. We are going to operate on a 5-minute 

timeframe. As it gets close to the end of your time, it will start 

going to yellow. When it gets to red, your time is up, and you can 

just wrap up. Try to stay on time. Many members have other meetings today, but we want to get to as much as possible. 

So at this time, I will recognize Ms. Ladislaw for 5 minutes. 

STATEMENT OF MS. SARAH LADISLAW, DIRECTOR AND SENIOR FELLOW, ENERGY AND NATIONAL SECURITY PROGRAM, 

CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 

Ms. LADISLAW. Thank you very much. 

Good morning, Chairman Duncan, Ranking Member Sires, and 

members of the committee. It is my pleasure to be here today to 

speak with you about energy opportunities in North America. My 

name is Sarah Ladislaw, and I direct the Energy and National Security Program at the Center for Strategic and International Studies. We are a bipartisan, nonprofit organization headquartered in 

Washington, DC, and we provide strategic insights and sound policy guidance on matters relating to energy. My remarks and written testimony today represent my views and not the views of my 

colleagues or the institution that I represent. 

One thing that Democrat and Republican candidates had in common during our last round of elections is that they recognized the 

United States has amazing energy resources. And these resources 

10

can play an important role in sealing our economy, creating jobs, 

and advancing our foreign policy objectives. 

This newfound energy confidence is a shift from the sentiment of 

years past when growing energy import dependence and high 

prices left the United States feeling vulnerable to global market 

disruptions and searching for secure alternatives. 

For decades, as part of this quest for greater energy security, the 

United States worked with its neighbors Canada and Mexico to cultivate the kind of economic and security advantages that come with 

an integrated, close proximity market in energy trade. We signed 

trade arrangements, fostered cross-border infrastructure, and met 

regularly to discuss energy policy and regulatory issues. And we 

even sought to harmonize standards relating to electric reliability, 

offshore drilling safety, and a host of other issues. 

Because of those efforts, North America is now one of the most 

energy advantaged continents on the planet with ample oil, natural 

gas, coal, nuclear, solar, biomass, wind, and hydropower resources. 

Even beyond its basic resource base, North America has attributes 

that make it additionally advantaged. As one longtime energy executive once told me, resources alone are not enough. To make an energy project work, you must have the critical math: A market for 

these resources; access to financing and technology and skilled 

labor; infrastructure; a sound political, legal, and commercial environment; and a proper return on investment. And North America 

has this critical math. 

Because of this energy advantage and the slowing of our energy 

demand growth, North America is coming close to achieving energy 

self-sufficiency. According to the 2017 BP energy outlook, North 

America is projected to be energy self-sufficient by 2020. 

So does self-sufficiency mean that we have achieved all the promises of energy independence? Definitely not. North America will 

need access to markets to sell its energy resources in technologies. 

We will also need our energy trading partners within the hemisphere and around the world to achieve economic and security advantages that come from building trade relationships. 

Even with all these energy advantages, North America still faces 

energy-related challenges, many related to the important changes 

taking place in the energy sectors of our respective economies. Over 

a period of two decades, as many of you have noted, North America’s low production landscape has undergone some profound 

changes that have altered the oil delivery infrastructure on the 

continent, led us to lift a decades long oil export ban in the United 

States, to historically significant changes in the Mexican Constitution allowing for private investment. 

Similarly, dramatic shifts are taking place in natural gas supply 

and delivery in North America, with the United States now serving 

as an LNG exporter and a major supplier of gas to Mexico; and, 

in the electric power sector, where shifts in consumer preferences, 

available technologies, the cost of renewable energy, and preferences for low-carbon energy sources are challenging the existing 

systems and creating new opportunities in electric power markets 

throughout the continent. 

Indeed, these are exciting and complex times for the North 

American energy landscape. So what should North America do with 

11

its energy advantage? In my view, we should foster it by promoting 

much of what has made it successful thus far: Working toward 

greater integration and shared priorities. 

In order to make the most of these energy advantages, Canada, 

Mexico, and the United States should continue to prioritize highlevel energy policy dialogues that have proven very successful in 

the past, modernize NAFTA to reflect progress that has been made 

and to prepare for future energy challenges, adopt a regional approach to energy infrastructure discussions, and assess and address 

our shared vulnerabilities. 

In closing, I want to thank the committee for taking on this important topic, and I look forward to the discussion. 

[The prepared statement of Ms. Ladislaw follows:]

12


25729a-1.eps

CEN"!EH STRATEGIC'' 

INT!:RNATIONAt ST\JOIES 

Statement Before the 

House Committee on Affairs 

Subcommittee on Western Hemisphere 

Director and Senior 

Center for 

2172 

A Testimony by: 

Sarah Ladislaw 

and National ,,.,··m·HvProgram 

and lntcmational Studies 

.June7,2017 
13


25729a-2.eps

Ladislaw: Testimony. HFAC 06/07/2017 2 

Good morning Chairman Duncan, Ranking Member Sires, and members of the subcommittee. It 

is my pleasure to be here today to speak with you about energy opportunities in North America. 

My name is Sarah Ladislaw, and I direct the Energy and National Security Program at the Center 

for Strategic and International Studies (CSIS). CSIS is a bipartisan, nonprofit organization 

headquartered in Washington, D.C. The CSTS Energy and National Security Program provides 

strategic insights and forward-thinking policy guidance that balances economic, environmental, 

and security priorities in the context of market and geopolitical uncertainties. My remarks and 

written testimony represent my views and not the views of my colleagues or CSlS as an 

institution. 

One thing Democrat and Republican candidates had in common during our last round of 

elections is that they recognized that the United States has amazing energy resources that can 

play an important role in fueling our economy, creating jobs, and advancing our foreign policy 

objectives. This newfound energy confidence is a shift in sentiment from years past when 

growing energy import dependence and high prices left the United States feeling vulnerable to 

global market disruptions and searching for secure alternatives. 

For decades, as part of the quest for greater energy security, the United States worked with its 

neighbors, Canada and Mexico, to cultivate the kind of economic and security advantages that 

come with an integrated, close-proximity market in energy trade. We signed trade arrangements, 

fostered cross-border infrastructure, met regularly to discuss energy policy and regulatory issues, 

and even sought to harmonize standards relating to electric reliability, offshore drilling safety, 

and a host of other issues. 

Because of those efforts, North America is now one of the most energy-advantaged continents on 

the planet with ample oil, natural gas, coal, nuclear, solar, biomass, wind, and hydropower 

resources. On the fossil fuel side of the equation, the continent accounts for 14 percent of world 

oil reserves and 6 percent of global natural gas reserves, from which it produces 23 percent of 

global oil and 27 percent of global natural gas. North America is the second-largest producer of 

wind and solar and the second-largest producer of hydropower. North America also accounts for 

22 percent of global primary energy consumption. 

Even beyond its basic resource base, North America has attributes that make it additionally 

advantaged. Canada, Mexico, and the United States are generally regarded as stable countries in 

which to do business and have excellent labor pools from which to draw talent, world-class 

universities and hubs of innovation, access to financing, and robust private-sector capabilities. 

As one long-time energy executive once told me: resources alone are not enough; to make any 

energy project work you must have the ''critical math"-a market for the resources; access to 

finance, technology, and skilled labor; infrastructure; a sound political, legal, and commercial 

environment; and proper return on investment. North America has this critical math. 

Because of this energy advantage and the slowing of our energy demand growth, North America 

is coming close to achieving energy self-sufficiency. According to the 2017 BP ener!,>y outlook, 
14


25729a-3.eps

Ladislaw: Testimony. HFAC 06/07/2017 

North America is projected to be ener!,'Y self-sufficient by 2020. 1 For nearly 40 years. American 

politicians have set the goal to reach energy independence. Today, the United States, together 

with its partners in Canada and Mexico, are closer to achieving energy selt~sufficiency than 

anytime during that period. The idea of energy independence has deep roots. Initially conceived 

in response to America's vulnerability to oil supply disruptions brought about by the Arab oil 

embargoes, years later the concept was resurrected as American troops headed off to the Middle 

East for what many politicians believed were oil-derived foreign policy interests in Iraq. And 

then again the goal took on new prominence as strong Chinese energy demand growth started to 

raise concerns about resource competition. Energy independence has been a consistent theme of 

U.S. ener!,'Y policy because it resonates with the American public and speaks to so many 

objectives sought by policymakers: insulation from security, economic, and foreign policy 

vulnerabilities. So, does selt~sufficiency mean we have achieved all the promise of energy 

independence? Definitely not. 

Particularly at this moment in time, it is important to note that even as a net exporter of energy, 

the United States and its partners in North America will continue to be dependent on trading 

relationships throughout the world for economic and security benetits. Instead of looking to the 

world for energy resources to fuel our inexhaustible growth, we will be looking to rapidly 

growing markets to sell our resources and technologies. We will also need our energy trading 

partners within and outside the hemisphere to achieve economic and security advantages that 

come from building trade relationships. Indeed, North America's energy advantage does not 

mean complete independence or isolationism-nor does it mean this emerging idea of"energy 

dominance" is a viable or desirable mindset even for the most energy abundant regions in the 

world, especially given that the U.S. has benefited from cooperative trade in energy for many 

decades and still imports nearly 8 million barrels a day of crude oil, only some of which comes 

tram our North American neighbors 

Even with this energy advantage, North America is still faces energy related challenges, many of 

them having to do with the societal objectives that influence our energy production and use, like 

economic growth, security, job creation, and environmental sustainability. Many of the 

challenges are also related to the important changes taking place in the energy sectors of our 

respective economies, namely oil and gas production, electricity production, transmission and 

use, and transportation. Indeed, North America's energy sectors are transitioning in tenns of the 

source, amount, location, and transportation of energy production and consumption. Two years 

ago, the CSIS Energy and National Security Program called attention to the amazing oil supply 

resurgence happening in the United States and the impacts it was having on the volume, location, 

and quality of oil supplies on the continent, including implications for future oil production, 

transportation, and use within North America 2 Over a period of two decades, North America's 

oil production landscape has undergone some profound changes, including the onset of oil sands 

production in Canada, the decline in oil production in Mexico, and the dramatic surge in US. 

tight oil production. These developments have led to even more dramatic changes in the oil 

1 BP, "'BP Encrb'Y Outlook 2017: Regional Insight- North America.·· 

llt!.gjbY\'Viyj211£Qm/ccmk_!l\:/dmll£11n,.'JliH'l'cnergs -cconomi_cs/e_nerg;.· -outloills::.f..Ql7flnJ-em:JID:_-outloof,: .. 2() ll:..reb-'ionmsi>"ht-norLh-amenca.pdf. 

2 Frank Verrastro. ct al. '·Delivering the Goods: Making the Most of North Arncrica·s Evolving Oillnfrastmcturc··. 

February 26.2015. https:/hnYV•/.csis.org/analysis/dclivcring-goods 
15


25729a-4.eps

Ladislaw: Testimony. HFAC 06/07/2017 4 

delivery infrastructure on the continent, to lifting a decades old oil export ban in the United 

States, to a historically significant change in the Mexican constitution allowing for private 

investment Similarly dramatic changes are taking place in natural gas supply and delivery in 

North America-with the United States serving as an LNG exporter and major supplier of gas to 

Mexico-and in the electric power sector where shifts in consumer preference, available 

technologies, the cost of renewable energy, and a preference for low-carbon energy sources are 

challenging existing systems and creating new opportunities in electric power markets 

throughout the continent 

Indeed, these are exciting and complex times in the North American landscape. So, what should 

North America do with its energy advantage? In my view, we should foster it by promoting 

much of what has made it successful thus far- working towards greater integration and shared 

priorities. In order to make the most of these energy advantages Canada, Mexico. and the United 

States should: 

C'ontinue to prioritize high-level energy policy dialogues. 

Each of the last three administrations has engaged in tri- and bilateral dialogues to 

exchange views and even coordinate actions on areas of common interest These 

dialogues have helped foster shared understanding during times change of disagreement 

and have even led to coordinated approaches to electric reliability. They have also been a 

forum for soliciting private sector and civil society views that can help inform policy and 

regulatory discussions. Under the Obama administration, the three countries of North 

America set forth some aggressive joint objectives in the areas of data, regulatory 

cooperation, clean energy promotion, methane emission reduction, and much more. Not 

all ofthese objectives will match the priorities ofthe Trump administration, but some are 

worth doing regardless of the potential difference in agendas. Given the amount of 

change going on in North America's energy sectors, these dialof,'Ues should be continued 

and prioritized. 

• Modernize NAFTA to preparefor the jilfure. 

The United States has signaled its intent to reopen the North American Free Trade 

Agreement (NAFTA). North America's energy sector has benefitted from but is not 

overly impacted by the provisions within NAFTA An excellent paper written by Laura 

Dawson of the Woodrow Wilson Center points out that oil, natural gas, and electricity are 

traded duty free, and products related to energy have relatively low taritTs 3 NAFTA 

affects rules governing investment, services, government procurement, and rules of 

origin, which in tum impact the energy sector but more tangentially. When it comes to 

energy and NAFTA a "do no harm" approach should be taken, recognizing that free trade 

in energy across borders is still in North America's interests. While many of the concerns 

related to NAFTA have little to do with the enerf,>y sector, energy trade can be held 

hostage to other contentious issues or can be affected by other trade-related measures like 

the various Buy America proposals being discussed in the United States today. There are 

things that can be done to address the economic dislocations being experienced in many 

-'Laura Dmvson. ·'\Vhat do NAFTA renegotiations mean for the North American energy sector?,'" \Vilson Center. 

April 3. 2017. htro.~l~DYIY. '.Yi1songmt£Lgn:...@t.l.G.kf.srhat ~do-nafta:.rg.1£imtiillm11s-mcan-f.::n::tllc..:n.Q!t1Hllncricm~.: 

cncr 6'" -sq~.!ill.-
16


25729a-5.eps

Ladislaw: Testimony. HFAC 06/07/2017 

parts of North America and ways to build additional enerb'Y advantages among the three 

countries, but few of these lie within the context of renegotiating NAFTA. 

llegiOIIalize inft·astructure discussions. 

Congress and the administration have indicated that investing in infrastructure is a 

priority. Regardless of efforts to streamline or invest in the nation's infrastructure, many 

of the obstacles faced by developers are at the local and regional level and many of these 

involve cross-border pipelines or infrastructure. Whether pipelines through the Midwest 

or transmission lines in the Northeast and Southwest, infrastructure development requires 

a regional approach to overcome emerging opposition to much of the continent's 

midstream infrastructure. There may also be benefits to creating regional strategies to 

develop innovation clusters and create ties between states and provinces that are pursuing 

aggressive low-carbon policies. 

Assess and address vulnerabilities. 

Despite North America's energy advantages it still has vulnerabilities. For example, all 

three countries are impacted by global oil supply disruptions, which can drive up prices 

and create delays and/or shortages for various fuels. As the United States experienced 

with propane shortages in 2015, market and weather conditions can combine to create 

shortages even in a country experiencing a period of relative energy abundance. While oil 

markets are currently well supplied, in times of disruption-whether caused by 

hurricanes, as was the case in 2003 and 2005, or political instability in other countries, 

like the Venezuelan disruption in 2000 and Libya outage in 2013-North America 

benefits from shared infrastructure, strategic stockpiles of oil, and being part of a global 

network of strategic petroleum supplies. 

Another good example is the vulnerability of the continent's energy systems to cyber 

attacks and more mundane but still serious issues of reliability. Earlier this year the 

Department of Energy released the second installment of the Quadrennial Energy 

Review, which offered a number of recommendations about how North America should 

strengthen its reliability measures (particularly between the United States and Mexico) 

and to work together to assess and prepare for cyber vulnerabilities as well 4 

Tn closing, T want to thank the committee for taking on this important topic. North America is 

one of the most energy-advantaged continents on the planet. Even beyond its basic resource base, 

North America has attributes that make it additionally advantaged. North America's energy 

advantage does not mean complete independence or isolationism. North America's energy 

sectors are transitioning in terms of the source, amount, location, and transportation of energy 

production and consumption. Tn order to make the most of these energy advantages, Canada, 

Mexico, and the United States should modernize NAFTA and other trilateral mechanisms to 

prepare for the future; regionalize infrastructure discussions; and assess and address 

vulnerabilities to continental energy security. Thank you and !look forward to the discussion. 

4 U.S. Department of Energy (DOE), Quadrenniali!.ilerg_v Revie1r.· Tran~forming the .\·arion's icJectricity s:vstem: 

The Second Installment ofrhe QER (Washington, DC: DOE, January 2017), 7-28, 

https://v.,'\Yw.cncrgy .gov/sitcs/prod/filcs/20 17/02/f34/Quadrcmtialo/o20Encrgy%20Rcvic'Y --

Sccond%20lnstallmcnt%20%2SFull%20Rcporto/o29.pdf. 
17

Mr. DUNCAN. Thank you. 

The chair will now recognize Mr. Padilla. 

STATEMENT OF AARON PADILLA, PH.D., SENIOR ADVISOR, 

INTERNATIONAL POLICY, AMERICAN PETROLEUM INSTITUTE 

Mr. PADILLA. Chairman Duncan, Ranking Member Sires, and 

members of the subcommittee, thank you for the opportunity to 

speak with you today. My name is Aaron Padilla, and I am a senior 

advisor for international policy at the American Petroleum Institute, which represents all facets of U.S. oil and natural gas industry. 

Today’s North American energy market, including oil and natural gas, is highly integrated and interdependent. A critical component of the North American energy market is the U.S. energy renaissance. The U.S. is now the largest producer of oil and natural 

gas. According to the EIA, the U.S. is projected to surpass the historical 1970 peak in crude oil production by 2018. Since 2005, natural gas production in the U.S. has increased by 47 percent. 

In recent years, U.S. companies have also experienced unprecedented productivity gains, enhancing the ability of U.S. producers 

to quickly increase production in response to changing global market demand. For example, in 2011, a typical rig operating in the 

Bakken basin in North Dakota or Montana would create 234 barrels per day of new oil production in a month. Today, Bakken rigs 

are nearly five times more productive, generating over 1,100 barrels per day of new oil production every month. 

Greater export market opportunities also have emerged for U.S. 

energy. In 2016, the U.S. exported more than 190 million barrels 

of crude oil to 26 countries, including 11 in the Western Hemisphere. That same year, the U.S. began shipments of liquified natural gas from the lower 48 States. And since February 2016 

through March 2017, the U.S. exported 331 billion cubic feet of 

LNG to 21 countries, including six in the Western Hemisphere. 

Looking closer at North America, the U.S., Canada, and Mexico 

together form a unique global energy center. According to the EIA, 

North America is on the verge of achieving energy self-sufficiency, 

as Sarah mentioned, when you consider the consumption of liquid 

fuels production against the production of liquid fuels and that we 

are on the verge of meeting that as soon as 2020. 

Energy flows between the U.S., Canada, and Mexico are multidirectional, as depicted on the map from the graphic that we produced that the chairman mentioned at the beginning of his remarks. 

Canada is the top export market for U.S. crude oil, motor gasoline blending components, and kerosene type jet fuel. Mexico is the 

largest export market for U.S. pipeline natural gas, total refined 

products, finished motor gasoline, and distillate fuel oil. In addition, significant U.S. crude oil imports from Mexico are manufactured in the U.S. into the refined products that are exported back 

to Mexico. 

As for natural gas in 2016, the U.S. exported 2.1 trillion cubic 

feet of natural gas by pipeline to Canada and Mexico. 

The U.S. pipeline capacity for natural gas exports to Mexico have 

rapidly expanded in the past few years, and they are expected to 

18

nearly double in the next 3 years. Mexico is also a new market for 

U.S. LNG, receiving 67 billion cubic feet of natural gas shipped 

since February 2016. 

U.S. refineries also receive crude oil from Canada and Mexico, 

which all supports U.S. jobs. In 2016, 69 U.S. refineries, primarily 

in the Midwest, processed heavy sour crude oil from Canada. Also 

in 2016, 12 U.S. refineries along the Gulf Coast imported crude oil 

from Mexico, producing refined products for both the U.S. and 

Mexican markets. And since 2000, Mexico’s net imports of gasoline 

and diesel have tripled, most of which are supplied by refineries 

here in the U.S. 

Canada and Mexico are also significant markets for U.S. investment in oil and natural gas. Mexico’s hydrocarbon sector is just 

now opening to foreign investment for the first time in nearly a 

century. In Mexico’s December 2016 bid round of deepwater blocks, 

U.S. companies were successful in capturing five of the eight blocks 

awarded. 

The North American region has a strong and vibrant energy 

market. It is imperative that U.S. policy continues to facilitate our 

energy renaissance here at home, allowing for responsible domestic 

oil and natural gas development, and continuing to foster the dynamic energy flows in the region. We also need sufficient infrastructure to ensure additional energy supplies can reach U.S. consumers and international markets. 

In addition, as the President and Congress begin to consider potential changes to NAFTA, we urge them to keep in mind the important role this agreement has played in the North American energy market. NAFTA has eliminated tariffs for oil and natural gas 

products, liberalized natural gas exports to Canada and Mexico, 

and provided strong investment protections which are consistent 

with U.S. law and that are essential for U.S. oil and natural gas 

investments in the region. 

In conclusion, we have a robust and dynamic regional market 

that supports U.S. jobs and U.S. consumers with access to affordable energy. We look forward to working with Congress and the administration to continue the U.S. energy renaissance, energy linkages to North America, to the rest of the Western Hemisphere, and 

to the world. 

Thank you, and I look forward to answering your questions. 

[The prepared statement of Mr. Padilla follows:]

19


25729b-1.eps

U.S. House of Representatives 

Committee on Foreign Affairs 

Subcommittee on the Western Hemisphere 

"'Energy Opportunities in North America11 

Testimony of Aaron Padilla, Ph.D. 

Senior Advisor, International Policy 

The American Petroleum Institute 

June 7, 2017 

Chairman Duncan, Ranking Member Sires, and Members of the subcommittee, thank you for the 

opportunity to speak with you about North American energy within the Western Hemisphere. My name 

is Aaron Padilla, and I am a Senior Advisor for International Policy with the American Petroleum Institute 

(API). 

API is the only national trade association representing all facets of the oil and natural gas industry, which 

supports 9.8 million jobs and 8 percent of the U.S. economy. API's more than 625 members include 

large integrated companies, as well as exploration and production, refining, marketing, pipeline, marine 

businesses, and service and supply firms. 

Today's North American energy market, including oil and natural gas, is highly integrated and 

interdependent (see attached API North American Energy backgrounder). This energy partnership 

benefits the United States by expanding the size of our energy markets, creating economies of scale that 

attract private investment, lowering capital costs, and reducing energy costs for consumers. Energy 

system integration enhances U.S. energy security by enabling North American energy independence and 

creating opportunities to export. 

A critical component of the strong and dynamic North American energy market are the technological 

breakthroughs in the oil and natural gas industry that have unleashed a U.S. energy renaissance, moving 

us from an era of energy scarcity to an era of energy abundance. The United States is now the largest 

producer of oil and natural gas in the world.' The U.S. regions with most significant growth in oil and 

natural gas production include the Bakken play in North Dakota and Montana, Eagle Ford play in the 

south Texas, and Permian basin in west Texas and eastern New Mexico. According to the U.S. Energy 

Information Administration (EIA), the United States is projected to surpass the historical1970 peak of 

crude oil production by 2018.' Natural gas production also continues to demonstrate significant growth. 

Since 2005, natural gas production in the U.S. has increased by 47 percent, and EIA projects a 42 

percent increase in total natural gas production from 2016 to 2040. 

1 https://www.eia.gov/beta/international/ 

'1970 Production Peak- https:/lwww.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A 

EIA forecast- https:/ (www.eia.gov(outlooks/steo/pdf/steo_full.pdf 
20


25729b-2.eps

In recent years1 U.S. companies have experienced unprecedented productivity gains, as more oil and 

natural gas is produced from fewer rigs in less time, 3 enhancing the ability of U.S. producers to quickly 

increase production in response to changing global market demand. For example, in 2011 a typical rig 

operating in the Bakken would create 234 barrels per day of new oil production in a month. Today 

Bakken rigs are nearly 5 times more productive, generating over 1,100 barrels per day of new oil 

production every month. Similar drilling productivity gains are seen in U.S. natural gas basins. In one 

month, a rig operating in the Marcellus basin today creates over 13 million cubic feet per day of new 

natural gas production, over 5 times the production level in 2011.' Increased energy production has 

created jobs right here at home, helped to reduce energy costs for U.S. families and bolster U.S. 

manufacturing. At the same time, carbon emissions are at their lowest levels in almost 25 years5

, 

primarily due to fuel switching to natural gas. 

In recent years, greater export market opportunities have emerged for U.S. energy, creating U.S. jobs, 

incentivizing increased domestic production, helping to further integrate U.S. energy in the world 

market, and enhancing our national security interests abroad. At the end of 2015, Congress and the 

President lifted the 40-year old ban on crude oil exports. In 2016, the United States exported more than 

190 million barrels of crude oil to 26 countries, including 11 countries in the Western Hemisphere' That 

same year, the U.S. began shipments of liquefied natural gas (LNG) from the lower 48 states. Since 

February 2016 through March 2017, the U.S. exported 331 billion cubic feet of LNG to 21 countries, 

including six in the Western Hemisphere.' This also adds to the robust exports of U.S. refined products, 

in particular to Central America, South America, and the Caribbean where local refineries face 

challenges meeting increasing local demand.8 In 2016, the United States exported 1.7 billion barrels of 

total products to 152 countries, including 44 in the Western Hemisphere, which represents 61 percent 

of these exports." 

The U.S. energy boom is also shifting global energy markets. Greater U.S. oil and natural gas production 

and exports, and reduced imports, have increased supplies and put downward pressure on global prices, 

impacting production decisions around the world. For example, the Organization of the Petroleum 

Exporting Countries (OPEC) and several other countries recently agreed to limit oil production for 

another nine months, largely in response to U.S. shale oil production.10 North American energy 

integration has also contributed to greater U.S. influence in global energy markets, which curtails the 

decades of influence OPEC has had on world markets. 

'https:l/www.eia.gov/petroleum/drilling/pdf/dpr·full.pdf 

4 1bid 5 U.S. DOE, Energy Information Administration, Monthly Energy Review March 2017. Lowest since 1992. 6 https://www.eia.gov/dnav/pet/pet move expc a EPCO EEX mbbl a.htm 7 https:l/energy.gov/sites/prod/files/2017/05/134/LNG%20Monthly%202017 l.pdf 8 https://www.reuters.com/article/usa~refining~kemP idUSl8N11Z3SD 9 https://www.eia.gov/dnav/pet/pet move expc a eppD eex mbbl a.htm 10 https://www.wsi.com/artides/how-american-shale-drillers-flipped-opecs-script 1495618203 

2 
21


25729b-3.eps

Looking closer at the dynamics in North America, the United States, Canada and Mexico together form a 

unique global energy center. According to EIA, North America is on the verge of achieving energy selfsufficiency with the production of liquid fuels expected to exceed consumption across the United States, 

Canada, and Mexico by 202011 Energy flows between the U.S., Canada, and Mexico are multidirectional and robust. In 2016, the U.S. exported 1.6 billion barrels of crude oil and total products to 

Canada and Mexico. 12 That same year, the United States imported 1.4 billion barrels of crude oil and 

total products from Canada and Mexico.13 While overall U.S. crude oil production has increased 

significantly, resulting in a decrease in crude oil imports from 3.4 billion barrels in 2010 to 2.9 billion 

barrels in 2016, 14 U.S. refineries continue to receive crude oil from Canada and Mexico. Imported crude 

oil from Canada and Mexico now accounts for a larger percentage of total U.S. imports, growing from 34 

percent in 2010to 49 percent in 2016.15 

Canada and Mexico are top export markets for U.S. energy. Canada is the top export market for U.S. 

crude oil, motor gasoline blending components, and kerosene type jet fuel. 16 The United States is a net 

exporter to Mexico of natural gas and refined products, and Mexico is the largest export market for U.S. 

pipeline natural gas, total refined products, finished motor gasoline, and distillate fuel oil.17 In addition, 

significant U.S. crude oil imports from Mexico are manufactured in the U.S. into the refined products 

that are exported back to Mexico. As for natural gas, in 2016 the United States exported 2.1 trillion 

cubic feet of natural gas by pipeline to Canada and Mexico18 while importing 2.9 trillion cubic feet from 

those countries." The U.S. produces 90 percent of the natural gas it uses, importing 97 percent of the 

rest from Canada. 20 In addition, the United States exported 27 billion cubicfeet of LNG to Mexico in 

2016. 11 

This integrated energy market helps to reduce U.S. exposure to potential supply disruptions from other 

regions. The combination of the surge in U.S. shale production and the flexibility of the free market and 

of free trade means that the United States, as the leading oil and natural gas producer in the world, can 

respond to market forces to help the global market adjust to shortages or surpluses. 

North American energy integration supports American jobs by opening the United States as a 

manufacturing destination for Canadian and Mexican crude oil. Both Canada and Mexico produce heavy 

crude oil, which sophisticated U.S. refineries in the Midwest and Gulf Coast regions are well-suited to 

process. In 2016 for example, 69 U.S. refineries, primarily in the Midwest, processed heavy sour crude 

11 www .eia .gov I outloo ks/aeo/pdf I appa. odf 12 https://www.eia.gov/dnav/pet/pet move expc a EPOO EEX mbbl a.htm 

B https://www.eia.gov/dnav/pet/pet move impcus a2 nus epOO imO mbbl a.htm 14 https://www.eia.gov/dnav/pet/hist/leafHand!er.ashx7n-PET&s"MCRIMUS1&f"A 15 https://www.eia.gov/dnav/pet/oet move impcus a2 nus epcO imO mbbl a.htm 16 https://www.eia.gov/dnav/pet/pet move e}(pc de NUS-ZOO mbblpd a.htm 17 https://www.eia.gov/dnav/pet/pet move exoc de NJS-ZOO mbblpd a.htm 13 https://www.eia.gov/dnav/ng/ng move exoc sl a.htm 19 https:l/www.eia.gov/dnav/ng/ng move impc sl a.htm 20 Government of Canada. Canada- U.S. Relations: Energy- Natural Gas. 21 https://www.eia.gav/dnav/ng/ng move expc sl a.htm 
22


25729b-4.eps

oil from Canada," producing much needed refined products for U.S. consumers and supporting 

thousands of U.S. jobs. The United States and Mexico also form a similar interdependent energy 

partnership. In 2016, 12 U.S. refineries along the Gulf Coast imported crude oil from Mexico, 23 

producing refined product for both U.S. and Mexican markets. Since 2000, Mexico's net imports of 

gasoline and diesel have tripled, most of which are supplied by refineries in the United States." The six 

refineries in Mexico, all owned and operated by the state-owned company Petr61eos Mexicanos 

(PEMEX), were built before 1980. They cannot meet Mexico's increases in domestic demand for fuels, 

and some of their existing capacity is not configured to process the increasingly heavy crude that Mexico 

produces." Mexico therefore exports crude oil to refineries in the United States, which manufacture 

refined products that are exported back to Mexico. EIA states that "while Mexico hopes to reduce its 

imports of refined products by improving domestic refining capacity, analysts contend that Mexico does 

not have a natural competitive advantage in refining, given the country's close proximity to a 

sophisticated U.S. refining center."" 

U.S. and Mexican natural gas markets are also becoming more interconnected. U.S. pipeline capacity for 

natural gas exports to Mexico has rapidly expanded in the past few years; it currently stands at 7.3 

billion cubic feet per day and is expected to nearly double in the next three years." Mexico is also a 

new market for U.S. LNG, receiving 67 billion cubic feet of natural gas shipped since February 2016. 28 

Mexico's energy reforms, strong growth in natural gas demand in the power sector, declining domestic 

production, and availability of U.S. natural gas have all created an opportunity to increase energy trade 

between the United States and Mexico. 

The United States and Canada also benefit from a relatively seamless border that allows electricity grid 

managers to optimize electricity generation assets on both sides of the border in order to improve 

electric reliability and efficiency. Currently, there are more than 30 active major transmission 

connections (69 kilovolts or greater) between the two countries, trading approximately $3 billion of 

electricity in 2014. 29 Although the predominant flow of trade is from north to south, it is not entirely 

one-sided. Canada is an overall net exporter of energy to the United States, but the roles are reversed 

in certain regions, particularly where there are infrastructure constraints. 

The United States and Mexico trade a smaller amount of electricity currently along the border regions 

where Mexico imports some power from California and Texas. However, Mexico's recent energy 

reforms present a huge opportunity for electricity and natural gas trade with the United States. 

"https:/lwww.eia.gov/petroleum/imports/browser/#/7e"201701&f-m&s-200901&vs"PET IMPORTS.WORLD· 

US-All.M 

24 

~ 

International Energy Agency (lEA). 2016. Mexico Energy Outlook, p. 23. 25 1bid 26 https: I fwww, eia.gov /beta/intern ati on a! /an a lysis.cfm ?i so= M EX 27 https://www.eia.gov/todayinenergy/detafl.php?id::;28972 28 https:// e nergy.gov /s ites/prod/fi les/2017/05/f34/LNG %20M onth ly%202017 1. pdf 29 US Department of Energy. 2015. Quadrennial Energy Review (QER]c Chapter VI: Integrating North American Enerov Markets. 

4 
23


25729b-5.eps

Mexico's growth in its domestic electricity market has largely been met with generation from new 

natural gas-fired plants, driving the increase in U.S. natural gas exports to Mexico. 

Canada and Mexico are significant markets for U.S. investment in oil and natural gas. For example, 

according to the U.S. Department of Commerce, Canada and Mexico are the two largest markets for U.S. 

upstream oil and natural gas equipment, with U.S. exports reaching $6.5 billion in 2016 and projected to 

increase to $10 billion in 2020. 30 In 2015, U.S. companies' foreign direct investment (FDI) in Canada 

totaled $4.52 billion for oil and natural gas extraction and $8.8 billion in petroleum refining31 In the 

upstream/exploration and production, these investments include production in the oil sands of Alberta, 

the fields of the McKenzie Delta in the Arctic, and offshore in the Maritimes of Newfoundland and 

Labrador. In the midstream, these investments include pipelines across the country, U.S.-Canada crossborder pipelines. And in the downstream1 these investments include refineries, retail, and marketing 

assets. 

Mexico's hydrocarbon sector is just now opening to FDI for the first time in nearly a century. Mexico 

nationalized the oil industry in 1938 and created a monopoly for the state-owned company, PEMEX, 

which grew to become the largest company in Mexico and one of the largest oil companies in the world. 

However, over time, Mexico's total oil production has declined substantially, falling 32 percent from its 

peak in 2004, and in 2015 reaching its lowest level since 1981.32 In 2013, to address declining 

production and the need for competition and foreign investment to modernize the energy sector, 

Mexico enacted historic constitutional reforms to end PEMEX's monopoly and open Mexico's market to 

foreign investment. 

U.S. strength in oil and natural gas has positioned U.S. companies to meet Mexico's needs for technical 

expertise and capital to modernize their energy sector. In 2015, U.S. companies' FDI in Mexico totaled 

$420 million for oil and natural gas extraction and $1.96 billion for support activities for oil and gas 

extraction. 33 In Mexico's December 2016 bid round of deepwater blocks, API member companies BP, 

BHP Billiton, Chevron, Exxon Mobil, Murphy, Statoil and Total were selected among winning bidders in 

Mexico's most recent and most-subscribed bid round of deepwater blocks in the Gulf of Mexico; each 

operating company's investment may be greater than $1 billion. 34 Considered another way, in Mexico's 

December 2016 bid round of deepwater blocks, U.S. companies were successful in capturing five of the 

eight blocks awarded. One block was won by a venture led by the Malaysian state-owned oil company 

Petronas, and the other two blocks were won by CNOOC, China National Offshore Oil Corporation -the 

Chinese state-owned oil company. CNOOC's two blocks- Blocks 1 and 4 in the Perdido Fold Belt- are 

considered especially promising because they are located near the Trion field and just south of the U.S.-

30 http:l/www.trade.gov/topmarkets/pdf/Oil and Gas Top Markets Report. pdf 31 Source: US Bureau of Economic Analysis (BEA). US Direct Investment Position Abroad on a Historical-Cost Basis: 

Industry Detail for Selected Countries, 2015. 32 h ttps: 1/www. ei a .gov /beta/in tern at! on a I /ana! ys is.dm ?iso-M EX 33 Source: US Bureau of Economic Analysis {BEA). US Dtrect Investment Position Abroad on a Historical-Cost Basis: 

Industry Detail for Selected Countries, 2015. 34 Rigzone. 5 December 2016. BHP. CNOOC European maJors among winners for Mexican deepwater blocks. 
24


25729b-6.eps

Mexico maritime border in the Gulf of Mexico. The CNOOC success in the recent bid round shows that 

Mexico has options for foreign investors in its newly-opened energy sector. The CNOOC success is in 

line with China's recent strategies to secure energy supplies globally and strengthen its ties with 

hydrocarbon-rich countries. 

The North American region has a strong and vibrant energy market, benefiting U.S. families, workers, 

and businesses- as well as those across Canada and Mexico. If we want to maintain and grow this 

important partnership, it is imperative that U.S. policy facilitates our energy renaissance, allowing for 

responsible domestic oil and natural gas development and continuing to foster the dynamic energy 

flows in the region. 

We need sufficient infrastructure to ensure additional energy supplies can reach U.S. consumers and 

international markets. A recent ICF study35 projects that by 2035 the United States will produce up to 12 

million barrels of crude oil per day, up to 131 billion cubic feet of natural gas per day, and up to 19 

million barrels of refined product per day. This will require up to $1.34 trillion in private oil and natural 

gas infrastructure investment by 2035 and support up to 1 million U.S. jobs annually. This infrastructure 

will be critical to maintaining the strong North American energy market. 

As the President and Congress begin to consider possible changes to the North American Free Trade 

Agreement (NAFTA), we urge them to keep in mind the important role this agreement has played in 

fostering the dynamic energy relationship between our countries. As an energy superpower, with the 

United States as the world's leading producer of oil and natural gas, NAFTA has allowed U.S. oil, natural 

gas, and derived products to flow to and from both Canada and Mexico. NAFTA eliminated tariffs for 

crude oil, gasoline, motor fuel blending stock, distillate fuel oil and kerosene type jet fuel- all of which 

would increase without the free trade agreement. NAFTA also liberalizes trade in energy between the 

U.S., Canada and Mexico, including the automatic liberalization, per the Natural Gas Act, of U.S. natural 

gas exports to Canada and Mexico by virtue of NAFTA being a free trade agreement between the 

parties. NAFTA also plays a critical role for U.S. foreign direct investment in Canada and Mexico. 

Although Mexico's hydrocarbon market was excluded originally in NAFTA, Mexico's subsequent energy 

reforms trigger a "ratchet clause" in NAFTA that provides access to Mexico's market, on par with such 

access provided in NAFTA to Canada's oil and natural gas market. In addition, NAFTA's provisions for 

strong investment protections, which are consistent with U.S. law, are essential for U.S. oil and natural 

gas investments in Canada and Mexico. Overall, NAFTA supports U.S. jobs and manufacturing in energy, 

helps to make energy more affordable for American families, enhances energy security and affordable 

energy for U.S. allies, and enables U.S. companies to compete in Canada and gain opportunities for 

development in Mexico. 

In addition, the U.S., Canadian, and Mexican governments should continue and enhance consultations 

and dialogue to further bolster our energy partnerships. From the private sector perspective, we, along 

35 http://www .a pi .org/news -pol icy-and-issues/ energy-infrastructure/ oi! -gas-infrastructu re-study-2017 

6 
25


25729b-7.eps

with the Canadian Association of Petroleum Producers (CAPP) and the Asociaci6n Mexican a de 

Empresas de Hidrocarburos (AMEXHI, the Mexican upstream oil and natural gas industry association), 

have an ongoing and robust dialogue concerning industry practices and policies. 

In conclusion, North America has a robust and dynamic energy market which facilitates the flow of oil 

and natural gas products between our countries and the world, supports U.S. jobs, and provides 

American consumers with access to affordable energy. We look forward to working with Congress and 

the Administration to continue the U.S. energy renaissance and our energy linkages to North America, 

the rest of the Western Hemisphere, and the world. Thank you and I would be happy to answer any 

questions that you may have. 
26


25729b-8.eps

NORTH AMERICAN North American energy markets (oil, natural gas, electricity) are 

integrated and interdependent with energy infrastructure and trade 

crossing the borders of the U.S., Canada and Mexico. The trade in crude 

oil, natural gas, refined products such as gasoline and petrochemicals, 

and electricity between the U.S., Canada and Mexico is multi-directional. 

FIGURE 1. NORTH /\MERICA ENERGY FLOWS BY COMMODITY, 2016 

© Copynght2017 -llm~ik:a" PalroliUrnlnsiHut~ ]API),all tlghls re~arvBd Olqltal MBtllal DM2017 011101.251 PDF 

Oil production from shale resources, made available 

by hydraulic fracturing and horizontal drilling, has led 

a U.S. revolution in crude oil production. As a result, 

us 

d2y 

tn 7,317 in70itL At the same time, imported 

crude oil from Canada and Mexico now account for 

a larger percentage of total U.S. imports, growing 

from 33.9% in 2010 to 48.7% in 2016. 

Canada is a major producer of heavy crude oil, 

which is suited for the complex refineries in the 

U.S. Midwest and Gulf regions. 

and a large percentage of the heavy 

oil processed at Gulf Coast refineries. Mexico also 

produces heavier crude oil, which is well-suited 

for U.S. refineries. 

FIGUH~ 2. U.S. CRUDE OII.IMPORTB, 2010-2016 

(Thousaml Barrels per Day, Annual Average) 

The U.S. is a net importsr of natural gas from Canada, 

although at declining rates, and the U.S. is a net exporter 

of nahlral gas to Mexico. The U.S. produces 90% of the 

natural gas it uses, importing most (97%) of the rest from 

Canada.' Natural gas pipeline constraints have made 

Canadian imports of fHktrD! 922- mv;c 

cu~.tmrHrrB in certain U.S. markets, especially in 

the Northern U.S. In addition to consumer benefits, the 

interconnectedness of the Canadian and U.S. and Mexican 

natural markets enharHA"S 3i,:3f~;rn jfPJ:~hl!itv owe 

r-aJ}kil:;1· 01 f:~;Hl·~r• in the 

past few years and currently stands at 7.3 billion cubic 

feet per day (Bet/d) and is expected to nearly double In 

the next three years.' 

l!qm:ih.~ri n2:f1Fa! k;;~ ~DWh with 27,845 Mcf 

of natural gas shipped from the U.S. in 2016. Mexico's 

energy reforms, strong growth in nahlral gas demand in 

the power sector, declining domestic production, and the 

lower prices of U.S. pipeline gas compared with more 

expensive LNG imports have all created an opportunity to 

and Mrxico. 
27


25729b-9.eps

NorthAm 

The United States, Canada, and Mexico form a highly-integrated products market, which allows for greater efficiency in responding to 

local advantages (such as lower cost energy sources) and constraints- both natural and artificial. For instance, access to abundant 

natural gas for refining and processing operations provides an advantage for U.S. refineries in the Gulf Coast, which are increasing 

diesel production for export to Mexico and to other South American destinations. The EIA reports the U.S. is the source for most of 

Mexico's refined product imports, and at the same time the destination for most of Mexico's crude oil exports. 

New England relies heavily on Imported energy. Shipping products from the U.S. Gulf Coast requires Jones Act vessels, which generally 

make these products more costly' than foreign imports. Canada's largest refinery, located 65 miles north of the border, sends over 80% 

of its production to the U.S., accounting for a large portion of U.S. gasoline imports. And most U.S. imports of distillate fuel are supplied 

into the East Coast from Canada. 

The United States and Canada benefit from a relatively seamless border that allows electricity grid managers to optimize 

electricity generation assets on both sides of the border in order to Improve electric reliability and efficiency. Currently, 

there are more than 30 active major transmission connections (69 kilovolts or greater) between the two countries. 

Although the predominant flow of trade moves from north to south, It is not entirely one-sided. Canada Is an overall net exporter of 

energy to the United States, but the roles are reversed in certsin regions, particularly where there are infrastructure constraints. 

The U.S. and Mexico trade a smaller amount of electricity currently along the border regions where Mexico Imports some power 

from California and Texas. However, Mexico's recent energy reforms present a huge opportunity for electricity and natural 

gas trade with the U.S. Mexico's growth in its domestic electricity market has largely been met with generation from new natural 

gas-fired plants, driving the increase in U.S. natural gas exports to Mexico. 

North America is on the verge of achieving energy self-sufficiency with respect to liquid fuels, when measured by production 

of liquid fuels exceeding consumption of the same across the U.S., Canada and Mexico. According to the U.S. Energy Information 

Administration 2017 Annual Energy Outlook, a benchmark publication of potential future energy needs, the quantity of petroleum and 

other liquid energy sources produced by the U.S., Canada and Mexico' will soon outpace the quantity of petroleum and other liquid 

energy sources that those countries will consume. In fact, according to the EIA, this will happen as soon as 2020. 
28

Mr. DUNCAN. Dr. Padilla, thank you. I like the words ‘‘North 

American energy renaissance’’; great for saying that. 

Dr. Wood, you are recognized for 5 minutes. Welcome back. 

STATEMENT OF DUNCAN WOOD, PH.D., DIRECTOR, MEXICO INSTITUTE, WOODROW WILSON INTERNATIONAL CENTER FOR 

SCHOLARS 

Mr. WOOD. It is a great pleasure to be here. 

Mr. DUNCAN. Is your mike on? There you go. 

Mr. WOOD. Now I am on. 

Thank you very much, Chairman Duncan, Ranking Member 

Sires, committee members. It is a great pleasure to be here. 

I have been studying Mexican energy for more than a decade and 

been studying U.S.-Mexico energy relations throughout all of that 

period. I now have the privilege directing the Mexico Institute at 

the Woodrow Wilson Center, and a lot of my time is actually spent 

trying to understand the reforms that have taken place in Mexico 

and the path forward. And I will be talking about those in my comments. 

There are three things that I want to get across to you today. 

One is the transformation of the government-to-government energy 

relationship that we have seen over the past 3 years. The second 

is the areas for collaboration that I see looking ahead that would 

be most productive for both sides. And thirdly, that question of political change in Mexico. 

Throughout all of these points, I think that it is important to emphasize that dialogue and institutional cooperation are fundamental elements to preserve the prosperity and interests of both 

the United States and Mexico. 

Let me begin by talking about the transformation of that government-to-government relationship. The Mexican energy reform of 

2013 is a watershed moment in Mexican history because, of course, 

it pushes the possibility of Mexican cooperation with other countries and allowing for an investment. 

We have seen, since 2014, regular meetings between the energy 

ministers of the countries of North America. And those meetings of 

the energy ministers have been enormously productive, bringing 

forth the North American Cooperation on Energy Information initiative, which produces maps of infrastructure and resources across 

the region, which allow us to understand the real potential of 

North America’s energy markets. There has also been a process of 

harmonizing the statistical reporting from the three countries, 

which as nerdy as that sounds, is incredibly important in understanding how things can actually move forward. 

On climate change, from Felipe Calderon’s government through 

the Pena Nieto government, we have actually seen Mexico being a 

leader amongst emerging markets for climate change action, in 

particular, their legislation which forces Mexico to reduce its carbon emissions by 50 percent by 2050. We have seen that play out 

on the North American stage with cooperation on reducing methane emissions from the oil and gas industry, the Ottawa accord of 

July of last year. 

When I looked forward to the future of energy cooperation between Mexico and the United States, I see that there are three 

29

main areas in which this can happen. The first is the energy trade, 

which my colleagues have already talked about, but let me point 

out one thing that hasn’t been mentioned. There has been a complete reversal in that energy trade over the past 3 years. It used 

to be that Mexico had a significant surplus with the United States. 

The United States now has a very, very important surplus with 

Mexico. That is because of the decline of Mexican oil production, 

the drop in the price of crude oil and, of course, because Mexico is 

seeing soaring demand for refined products from the United States 

and for natural gas. 

The natural gas story is extraordinary. Because of the opening 

of Mexico’s energy sector, in particular, electricity generation, we 

are seeing natural gas exports rising dramatically. They are currently, I think the numbers we have up on the board here, we have 

seen them peak at around 4.4 BCF. Some experts are predicting 

that within a few years they will get up to almost 10 BCF. That 

is predicted to be around 10 percent of U.S. production. So you can 

imagine the impact of that on prices of natural gas here. 

Secondary for cooperation is regulatory cooperation. In particular, the question of regulatory simplification or efficient regulation. I know a theme which is dear to the heart of the current administration. Mexico desperately needs to eliminate repetitive paperwork. They need to improve interagency cooperation and they 

need to work on online compliance mechanisms. And these are 

things where the United States and Mexico can work together. 

Lastly, infrastructure. Of course, when we are talking about 

cross-border infrastructure, be it pipelines or transmission lines, 

Mexico and the United States have to sit down together and talk 

these things out. And that is why the institutional mechanisms 

matter. 

Let me say a few words about the future for Mexico. As most of 

you know, there is a Presidential election next year in Mexico. A 

lot of people are predicting that the far left candidate Andres 

Manuel Lopez Obrador will win. He has committed himself to repealing the energy reform that was passed in 2013. My own prediction on that is that if he does win, and that is far from guaranteed, but if he does win, he is going to face an incredibly tough 

time repealing the energy reform, because congress in Mexico will 

provide a barrier to doing that. He will not have the two-thirds majority that he needs in both chambers in order to revoke or repeal 

the energy reform of 2013. 

So let me just close there and emphasize once again that I think 

the institutional mechanisms that we have existing between the 

two countries are vitally important and we need to focus on how 

we can preserve those. Thank you. 

[The prepared statement of Mr. Wood follows:]

30


25729c-1.eps

Testimony before the U.S. House Committee on Forei~:n Affairs 

Sub-Committee on the Western Hemisphere 

Energy Opportunities in North America 

Duncan Wood, PhD 

Director, Mexico Institute 

Woodrow Wilson International Center for Scholars 

The New Vitality of US-Mexico Energy Cooperation 

Over the past three years, the United States and Mexico have deepened their 

cooperation on energy issues to an extent never before seen. By january of 2017, the 

NAFTA partners had developed complementary approaches to questions of energy 

markets, emissions controls, infrastructure planning and regulatory cooperation. 

Through bilateral meetings, and through the trilateral mechanism of the energy 

ministers meetings and the North American Cooperation Energy Information 

initiative, mutual understanding and shared interests were being discussed in ways 

that would have been unthinkable even five years before. Having approved a 

landmark energy reform in 2013, Mexico is now open and willing to cooperate with 

the United States in a wide variety of ways. 

This testimony argues that the United States should embrace energy cooperation 

with Mexico on a wide range of issues, and must not abandon bilateral collaboration 

on climate change. Furthermore, the trilateral energy dialogue with Canada must 

continue through regular meetings of the North American energy ministers, which 

will bring mutual benefit, increased prosperity, and a stronger presence on the 

global stage. Particularly in the light of President Trump's decision to pull the United 

States out of the Paris Climate Accord, regional cooperation that is equitably 

negotiated will provide the three countries with a mechanism for continued 

emissions collaboration. The successes of the past three years in oil and gas, 

renewables and climate cooperation stand as evidence ofthe mutual benefits to be 

had from this process. 

Why this matters 

Before analyzing the progress that has been made in the bilateral and regional 

energy relationship, it is worth remembering why energy matters so much. Of 

course it is a major component of both countries' economies, responsible for wealth 

creation, innovation, and employment. Across Mexico and the United States, millions 

of people work in the traditional energy sector, and millions more are finding work 

in the areas of renewable energy and energy efficiency. 
31


25729c-2.eps

But secure access to comparatively low-priced energy is also crucial for economic 

competitiveness. For example, prior to Mexico's energy reform, high prices for 

industrial consumers of electricity compromised manufacturing competitiveness in 

the country, and natural gas shortages meant repeated stoppages at factories in the 

north ofthe country. Since the reform was passed, prices have been reduced 

dramatically in Mexico, falling by between 21 percent and 30 percent for industrial 

consumers between September 2014 and September 2015. This has significantly 

improved the economic competitiveness of Mexican manufacturers, in turn 

improving the competitiveness ofthe North American manufacturing platform. 

Recent patterns of cooperation 

For decades, Mexican sensitivities regarding the connection between energy and 

national sovereignty prevented the development of a modern and multifaceted 

dialogue over energy cooperation between the two countries. The 2013 reform, 

however, opened the way for comprehensive interaction on energy policy. In 

February 2014, only two months after the reform was approved, the three North 

American heads of government met in Toluca, in the State of Mexico, to discuss the 

future of regional integration. Energy featured high on the agenda, and it was agreed 

that the energy ministers of the three countries would begin a regular dialogue. The 

first meeting took place in Washington, D.C., in December 2014, and agreed on an 

agenda for cooperation on three specific points: 

1. Publicly available collaboration on North American energy data, statistics, and 

mapping; 

2. Responsible and sustainable best practices for unconventional oil and gas 

developments; and 

3. A modern, resilient energy infrastructure for North America, including 

policies, regulations, workforce, innovation, energy efficiency practices, and 

sustainable technologies. 

The breadth of this agenda helps to emphasize the potential for collaboration now 

that the Mexican energy system has been transformed. The memorandum of 

understanding signed by the energy minsters institutionalized an informationsharing framework for participants to promote dialogue and cooperation. Under the 

North American Cooperation on Energy Information initiative (NACEI), the three 

ministers agreed to set up a working group that would facilitate this coordination, 

combining the efforts of the three countries' energy departments and information 

agencies, statistics and census bureaus, and national energy control and regulatory 

boards. The group was specifically tasked with comparing, validating, and 

improving respective energy import and export information; sharing publicly 

available geospatial information on energy infrastructure; exchanging views and 

information on cross-border energy flows; and harmonizing terminology, concepts, 

and definitions of energy products. 

The NACEI immediately began to gather statistics and map resources. The result is 

an impressive resource that allows for a truly regional understanding of energy 
32


25729c-3.eps

resources for the first time. The maps created thus far are an extraordinary visual 

resource of energy infrastructure across North America and expand the potential for 

cross-border cooperation and planning in a way that had not been possible before. 

What is more, the harmonization of statistics from all three countries allows for 

meaningful and simple comparisons. In this way, the North American energy 

dialogue has opened the way for deep long-term collaboration. 

The leadership role played by the United States in this regional approach was 

underlined by the 2015 Quadrennial Energy Review (QER), which focused 

extensively on the opportunities for energy cooperation in North America. The QER 

chapter on North America concluded that the United States has significant energy 

trade with Canada ($140 billion per year) and Mexico ($65 billion), yet greater 

coordination is needed to improve energy system efficiency and build resiliency 

against disruptions ofthe North American energy market, data exchanges, and 

regulatory harmonization. 

In 2015, the U.S. Energy Information Administration (EIA), Canada's National 

Energy Board, and Mexico's Secretarfa de Energia (SENER) produced a Trilateral 

Energy Outlook. This report established projections for crude oil, refined products, 

and natural gas and electricity markets across the region to 2029. Although the 

report's authors emphasize that "it does not reflect results of an integrated North 

American energy model" nor should it "be construed as an official outlook for any of 

the Trilateral members," there is, for the first time, the possibility of a more holistic 

approach to planning the future of North America's energy sector. 

The December 2014 meeting of the energy ministers was followed in May 2015 by a 

meeting on the margins of the Energy and Climate Partnership ofthe Americas and 

the Clean Energy ministerial meetings in Merida, Mexico. The three ministers agreed 

to form a new Working Group on Climate Change and Energy, involving regular 

interactions between teams from all three countries. The agenda that was laid out in 

Merida included reliable, resilient, and low-carbon electricity grids; more focus on 

clean energy and energy efficiency, including energy management systems; carbon 

capture, use, and storage; climate change adaptation and resilience; and oil and gas 

sector emissions, including methane and black carbon. 

The energy ministers praised the new initiative. Mexico's Pedro joaquin Coldwell 

emphasized that its agenda demonstrated a commitment to "a path to achieve deep 

de-carbonization." United States Energy Secretary Ernest Moniz emphasized the 

initiative's potential for "facilitating cooperation to deploy innovative renewable 

energy technologies, modernize the grid, and increase energy efficiency to combat 

climate change and reach greenhouse gas targets while growing low-carbon 

economies inN orth America." 

This institutionalization of a regional energy and climate agenda is a prerequisite for 

meaningful and sustained cooperation. Building on the experience ofthe North 

American Energy Working Group (NAEWG) in the early 2000s, the new working 

group will coordinate its efforts through socialization and harmonization. The first 
33


25729c-4.eps

process has already shown its value: the meetings of the three energy policy 

representatives have encouraged mutual understanding and increased interaction 

between their ministries. The second process will take longer, and we should not 

expect it to be a linear or an even process. It makes more sense to harmonize 

regulations and standards in some areas than in others, and sometimes the 

harmonization should be bilateral rather than trilateral. In most areas, the goal 

should be compatibility and coordination rather than full homogenization. 

Another area that has progressed impressively since 2013 has been regulatory 

cooperation. As Mexico has opened its sector to private participation, its regulatory 

agencies have been strengthened and their power expanded. The CNH has been 

charged with running the bidding process for oil blocks in Rounds 1 and 2, and the 

Comision Reguladora de Energia (CRE) has overseen both the opening of the 

electricity market alongside SENER and the CENACE, and the regulation of 

transportation, storage, and distribution of hydrocarbons, including natural gas. 

Furthermore, the reforms created a new environmental regulatory agency, the 

Agencia de Seguridad, Energia y Ambiente (ASEA), to oversee the industrial safety 

and environmental protection aspects of the hydrocarbons sector. Operating under 

the control of the environmental ministry (SEMARNAT), the ASEA has had to 

progress rapidly since its inception in 2015. In fact, all three regulatory agencies 

have had to adapt to dramatically altered circumstances during the first three years 

of Mexico's new energy model. To do so, they have made a concerted effort to 

acquaint themselves with international best practices, and Mexican contact with U.S. 

and Canadian regulators has been an integral part of that process. Regulatory 

exchanges with California and Texas (and Alberta) have been particularly 

significant, as have exchanges with U.S. federal organizations such as the Bureau of 

Safety and Environmental Enforcement, the Bureau of Ocean Energy Management, 

the Bureau of Land Management, the Environmental Protection Agency, the Federal 

Energy Regulatory Commission, and the Pipeline and Hazardous Materials Safety 

Administration. 

U.S.-Mexico Climate Cooperation 

Mexico has long been recognized as an emerging market leader in international 

climate change negotiations. Beginning with the presidency of Felipe Calderon, 

Mexico has attempted to develop an aggressive approach to global climate talks that 

is backed up by progress on climate mitigation and renewable energy policy at 

home. President Pefia Nieto's continuation of this policy surprised some who had 

predicted a hydrocarbons-friendly approach, and has even strengthened Mexico's 

global climate position by securing legislation in Mexico's Congress for a 50 percent 

reduction in carbon emissions by 2050, alongside ambitious targets for electricity 

generation from renewable sources. Mexico was also the first developing country to 

declare its Intended Nationally Determined Contribution for greenhouse gas 

reductions under the Paris Accord process in April 2015, and has undertaken a 

commitment to reduce its black carbon emissions by 51 percent by 2030. Largely 

thanks to this commitment, Mexico and the United States became partners in 
34


25729c-5.eps

pushing the Paris Accord in December 2015, setting the stage for further regional 

cooperation. 

The North American energy dialogue has also been an important force driving 

cooperation on climate issues. In july 2016, at the Ottawa North American Leaders' 

Summit, Mexico agreed to join the existing U.S.-Canada agreement on methane 

emissions reductions. The trilateral accord commits the countries to reducing 

methane emissions from the hydrocarbons industry by up to 45 percent by 2025. 

Mexico had previously resisted a commitment to reduce its emissions, partly 

because of opposition from Pemex and partly because of the energy reform's 

already overwhelming agenda. Alongside pressure from the Canadian and U.S. 

governments, extensive efforts by civil society groups, including the Environmental 

Defense Fund (EDF) to promote the emissions reductions were successful in 

convincing the Pefia Nieto administration of the importance of a trilateral accord. 

The EDF, quoting Mexican government figures, estimate that methane emissions 

from the hydrocarbon industry make up 19 percent of total methane emissions in 

the country. Trilateral cooperation can also be credited with 2016's most important 

global climate accord, the Kigali Agreement on phasing out hydrofluorocarbons 

(HFCs) in October. In 2009, during a meeting of the Montreal Protocol, the United 

States, Canada, and Mexico (plus the Maldives) pushed for international cooperation 

to reduce HFC emissions as a crucial component of fighting climate change. 

Prospects for cooperation 

Given the energy policy priorities of the current U.S. administration, there are three 

areas that would be of considerable mutual interest: 

• Energy trade 

• Regulatory simplification 

• Infrastructure 

To collaborate effectively on all of these areas, it is imperative that the North 

American Energy Ministers Dialogue is continued. The regional cooperative 

mechanism that has been developed over the past three years will prove to be of 

great utility in identifying future challenges and working effectively to resolve them. 

The two-way energy trade 

Mexico is an important partner for the United States in the energy trade, serving as 

both friendly oil supplier and a growing market for U.S. exports. It has long been 

recognized that ensuring "friendly suppliers," such as Canada and Mexico, should be 

a goal of U.S. energy policy, and indeed then-candidate Trump made this part of his 

energy election platform. What's more, although U.S. energy independence will take 

a long time, most experts recognize that North American energy independence is an 

achievable target at which to aim. This means that the United States should 

recognize the importance of ensuring the long-term success of Mexico's energy 

reforms. 
35


25729c-6.eps

Two factors make this point particularly relevant. First, Mexico has seen a 

prodigious decline in oil production in recent years and the reforms are the best 

hope of reversing that decline (see figure 1). Secondly, the reform has come under 

attack from opposition parties in Mexico and, with the possibility of a shift to the left 

in the 2018 presidential election, there is a risk that the reform will stall or be rolled 

back. This would be an alarming prospect for both the United States and for a 

number of its companies that have been successful in first-round oil contract 

bidding. 

Figure 1: Mexican vs. U.S. Oil Production, 2001-16 (thousands of barrels per 

day) 

Source: tradingeconomics.com 

It is also worth focusing on the Trump administration's goal of boosting natural gas 

production and use. If gas production is to grow in the United States, new 

consumers will be needed to sustain a price that allows for investment in the sector. 

Fortunately for gas producers, it is expected that Mexico will see its demand for 

natural gas grow rapidly, and it is estimated that exports to Mexico will soon reach 

between 8 and 10 percent of U.S. production (figure 2). Mexico plans to dramatically 

boost its internal natural gas pipeline network over the next few years, and it is 

expected to grow more than 90 percent before the end of the decade. In addition to 

satisfying demand in Mexico, in the long term there is the opportunity to export U.S. 

natural gas via pipeline to Central America and through liquid natural gas facilities 

built along the Mexican coast. Although this could also, of course, be achieved in the 

United States, zoning restrictions and social license problems often make these 

projects costly and difficult to complete on time. In Mexico, there would likely be an 

easier path to construction, though social opposition to energy projects has been a 

growing problem in recent years. 
36


25729c-7.eps

Figure 2. U.S. Natural Gas Production and Exports to Mexico 

U.S. Natural Gas Marketed Production 

::10.00::1\JGO 

20,1JllJOCO 

U.S. Natural Gas Pipeline Exports to Mexico 

J,:no,Joc 

There is also a growing market in Mexico for U.S. refined products. After the 

country's 2013 energy reform, there has been a liberalization of Mexico's 

downstream and retail markets, driving a growing demand for imported gasoline 

and other products from the United States (which is also due to the sorry state of 

Mexico's refining and petrochemicals industry at the present time). According to the 

EIA, the value of U.S. energy exports to Mexico are now more than twice that of 

imports from Mexico. This growing market provides both prosperity and price 

support for U.S. producers. What's more, it is a trade surplus for the United States 

that is likely to grown in years to come. 
37


25729c-8.eps

Figure 3: U.S.-Mexico Energy Trade 

Value of selected ~nergy trade between Mexico and the United States (200'6-16) 

billkm dollars billion dollars 

5{) 

4{) 

3{) 

2!l 

1!l 

0 

to 

kom Mexico 

Unit&! States 

2005 2003 2010 2012 2()14 2015 

Source: EIA 

50 

40 

30 

~exports from !ile lln ~ted States tn Mexico 

2006 2008 201[1 2012 2014 2016 

Value of selected energy trade between Mexico and the United States (ltl14-16) 

bimon dollars biiHon dDIIars 

3~0 

25 

2~0 

1 ~5 

1.0 

0.5 

00 

Jan-14 Jan-15 Jan-lti 

Regulatory Simplification 

3~0 

2~5 

2~0 

1 ~5 

HJ 

exports fmm tile Unite!! States 

to Mexico 

The second element, regulatory simplification, provides a compelling opportunity 

for Mexico to work with the United States to reduce the burden of its own regulatory 

system for energy firms. Although its regulations and regulatory bodies have seen 

substantial progress since the 2013 reforms, Mexico still has a regulatory system in 

place that seeks to prohibit, rather than facilitate, activity by the energy industry. 

The change of tone in the U.S. administration provides an opportunity for Mexico's 

regulatory agencies to develop a dialogue with their U.S. counterparts that focuses 

on efficient regulation, something that the emerging private oil and gas industry is 

crying out for in Mexico. Critical issues concern repetitive paperwork, interagency 

coordination, permitting, and the use of online compliance mechanisms. If the 

United States is about to see a concerted push toward more efficient regulation, then 

it behooves Mexico to follow suit, to maintain competitiveness and to facilitate the 
38


25729c-9.eps

integration of energy markets. Existing dialogue with state regulators in Texas have 

already emphasized the importance of a paradigm shift in Mexican regulation; the 

approach of the new U.S. government offers a chance to take that conversation 

further, in forums such as the existing North American dialogue. This agenda 

becomes doubly important in the light of prospective political change in Mexico in 

2018. 

Infrastructure 

There are ample opportunities for ongoing energy infrastructure projects that take 

into accountthe increasingly integrated nature of U.S. and Mexican energy markets, 

from oil and gas pipelines to cross-border transmission lines and a coordinated 

approach to refining capacity. A crucial element of the success ofthe Mexican energy 

reform has been the arrival of natural gas from the United States through crossborder pipeline projects (see figure 4). These pipelines took years to plan and build, 

and it is vital that future Mexican demand is considered with enough anticipation to 

ensure that pipeline capacity exists to carry gas to market. 

Figure 4. U.S.-Mexico Cross-border Natural Gas Pipelines 

CQntact: &>a$M't.JJr.i1h1&e:r.v~:r.m~J.i.QlM:tlS' 

Source: SENER 

,.,., .. ''"'""'"'' "'"'''' ""6·'"''·'•:'·"' "~""•\":\·~ .. 

Mexico's refineries are likely to see an overhaul in the next few years as Pemex 

seeks partners for its refining division that consistently loses around US$9 billion a 

year. If Mexico plans to invest in building new refining capacity, it would be wise to 

consider the current and future state of the U.S. refining sector, which is aging and 

has limited capacity. Once again, institutionalized cooperation between the North 
39


25729c-10.eps

American energy ministers is an excellent and existing option for analyzing the case 

for new infrastructure planning. 

The outlook for Mexico's energy reform 

The extraordinary successes of the past 3 and a half years have transformed 

Mexico's energy sector from an almost entirely closed model to one of the most 

open in the world. Mexico is benefiting from growing foreign and national 

investment in the sector as well as competitive prices for electricity. But the new 

energy model in Mexico continues to face serious challenges. According to public 

opinion polls, the reform is still deeply unpopular, and rising gasoline prices due to 

currency volatility and the removal of subsidies has turned more people against the 

reform. 

This is feeding into growing support for parties that opposed the reform process 

and have committed themselves to repealing it. Andres Manuel Lopez Obrador's 

(AMLO) MORENA party will fight the 2018 presidential and congressional elections 

on a platform that includes overturning the opening. Were he to win the presidency, 

it is highly unlikely that he would be able to generate the two-thirds majorities in 

the Mexican Congress (plus a majority of state-level legislatures) required to repeal 

the reforms. Instead, he has promised a referendum on the future ofthe reform. 

Although legal specialists argue that a referendum would be insufficient for 

repealing the reform (due to the fact that it directly impacts state revenues), the 

commitment is indicative AMLO's antagonism to energy liberalization. 

This suggests that a MORENA government in Mexico would take other steps to 

neutralize the reform, including attacking regulatory agency autonomy, enacting 

less business-friendly fiscal terms, or simply refusing to offer new oil and gas blocks 

for investment. Such measures would be highly detrimental to U.S. public and 

private interests and would be deeply negative for Mexico's future energy 

production. 

Conclusion 

By early 2017, the energy relationship between Mexico and the United States had 

reached a historic high point. Mexico's new energy model, based on market 

dynamics and attracting private and foreign investment, has opened the way for a 

highly constructive and productive dialogue between national authorities and their 

U.S. and Canadian counterparts. Regular meetings of the energy minsters of the 

three NAFTA countries have helped deepen mutual understanding and further 

energy cooperation at both the regional and global levels. 

Our two nations have an unprecedented opportunity to build an even stronger 

energy relationship. Existing North American cooperation, the progress seen under 

the energy reform and the interest of the U.S. administration in helping the energy 

sector to grow, provide the ideal platform for a vibrant dialogue on these issues, one 

that can drive prosperity and employment creation in both nations. 
40

Mr. DUNCAN. Thank you, Dr. Wood. 

I will recognize myself for 5 minutes for questioning. 

And it is interesting that the events in Qatar, with what the 

other Arab nations have done to try to isolate Qatar to some degree, will have an impact on global natural gas primarily, but possibly global energy prices altogether. I say that because it is important and it shows the need for this trilateral cooperation between 

the North American countries and the energy sector to lessen the 

volatility of what goes on in the Middle East in so many other 

ways, other than just the Qatar happenings of this week. 

One other thing I want to mention before I get into questioning 

is, we talk about this trilateral opportunity and the energy sector. 

It is more than just the resources that are going back and forth, 

oil and gas; it is the technology. And we can learn from the Canadians from how they extract oil from the oil sands, the technology 

they are using there. The fracking technology that we have here, 

horizontal drilling as well. 

As Mexico tries to reengage and attract more private sector investment based on the 2013 energy reforms that Dr. Wood just 

mentioned, they are just opportunities for American businesses in 

the oil and gas industry to bring that technology to bear. And I 

think, you know, I am going to expand a little bit beyond the three 

countries here, but Venezuela, assuming the political situation 

down there changes, there is opportunity there for that technology 

to improve and bring in the 21st century the oil and gas sector 

there. I think this applies all across Latin America as well. People, 

jobs, and technology are a big component of what we are talking 

about here with the three countries. 

We have got opportunity abounds beyond Canada and Mexico. I 

think Mr. Yoho mentioned the Caribbean Basin. Relying on Venezuela right now, there is opportunity for American LNG to be exported from Florida into the Caribbean to lessen their dependence 

on the volatility of a country like Venezuela. There is opportunity 

there as well. 

I appreciate Dr. Wood mentioning Mexico. How effective do you 

think Mexico’s energy reforms have been thus far? You touched on 

that a little bit. I watched that debate in the Mexican Congress. 

You know, people were stripping clothes off to make points. And 

that was a political debate unseen in Mexico or in congress in a 

very long time. I am not talking about stripping clothes off, but I 

am just talking about the heated debate that went on about what 

is the right role of the government in the nationalization of the energy sector or the privatization of the energy sector? What investment may or may not come, and what it meant for long-term viability of Mexico’s energy sector in 2013. Then we saw the lease sale 

and the first one kind of stumble along. We have seen more robust 

lease sales after that. 

So I would like for you to just talk a little bit more about Mexico. 

You mentioned that they may try to reverse some of that. That is 

the first I have heard, honestly. So if you could just expand a little 

bit about that, Dr. Wood. 

Mr. WOOD. Sure. Thank you for the question. The first thing is, 

is that nudity is a recognized form of political protest in Mexico, 

41

and most of the people who do it should never, ever be seen naked 

in public; I can say that. 

Secondly, that debate in Congress recognized the deep divides in 

Mexican society over a liberalization of the energy sector. And still 

today, the energy reform is deeply unpopular amongst the Mexican 

electorate. That is why the far left party has seized upon that issue 

for its campaign platform for 2018. 

Now, as I said, there is no guarantee that the—Andres Manuel 

Lopez Obrador, the leader of the Morena party, will win in December of next year. Currently, he is at the top of the polls, but not 

by very much. This is his third time running. In previous years, he 

has been out in front at this point in the campaign process by a 

much bigger margin. However, there was an election this weekend 

in the state of Mexico, and his candidate there failed to win, but 

came very, very close. And the Federal Government used a lot of 

resources to support their candidate in that state. So we are going 

to have to follow that over the next 12 months. 

If he does win office, though, as I said in my statement, it is basically an impossibility for him to repeal the energy reform through 

Congress because of the need for a two-thirds majority and the majority of the state legislatures. And his party will not have that. So 

his answer is actually to go to a national referendum. And based 

upon a political reform that took place a few years ago in Mexico, 

a referendum has the possibility of reversing or enacting new legislation. However, there is a caveat. Money bills are not included in 

that. And the constitution—the legal interpretation of the energy 

reform is that it affects Federal revenue because, of course, Pemex, 

the national oil company, and the oil royalties are directly affected 

by the energy reform. 

So constitutionally speaking, I don’t think that referendum would 

actually be successful. 

The other part of the question, is this actually a successful energy reform? It is deeply successful, and the reason is because of 

the diversity of companies that have come in and invested, the 

amount of money that has come in, the resources that are going to 

be released on the oil and gas side, and secondly, on the electricity 

side. The electricity story is an extraordinary success. We have 

seen massive investment producing very, very low generation 

prices which will lower the cost for industry and for the Mexican 

consumer. 

Mr. DUNCAN. Thank you for that answer. 

I want to talk about Section 123 for just a minute. And before 

I do, let me preface it with South Carolina is one of the southeastern States that is expanding its nuclear power with the nuclear 

power plant in Jenkinsville on Lake Monticello, right in Fairfield 

County. And one of the main contractors to provide the reactor was 

Westinghouse. Westinghouse just filed bankruptcy and has basically put the completion of that project in jeopardy. Not only the 

site there in South Carolina, but Southern Power has a site just 

across the Savannah River in Georgia around the Augusta, Georgia 

area. They have got a little different contingency there, but Westinghouse bankruptcy could impact what we are talking about with 

Section 123. 

42

There are other vendors out there that can provide those components, but I am going to ask and, Ms. Ladislaw, if you could talk 

about Section 123 nuclear power in Mexico, possibility inject Westinghouse bankruptcy into this and what that means for U.S. contractors possibly providing components in the Mexican nuclear sector, and how that might affect competition of other international 

firms. So if you could touch base on 123, please. 

Ms. LADISLAW. Sure. I think the way that you have characterized 

it is really helpful, because I think one of the things we are looking 

for in the global nuclear energy market is more markets where nuclear can succeed. And one of the real difficulties that we keep experiencing is if you don’t have regulated guaranteed return on electricity prices, plus some financing, it is really hard to make nuclear 

work. There are some markets where it is working, there are some 

markets where, like the U.K., where they are really trying to create new nuclear opportunities. But as we are seeing in a wide variety of instances in places where you don’t have a guaranteed return on electricity pricing, where you don’t have advantageous financing, a lot of the plans are still running over cost and over time. 

And that is not something that you can’t work out of the system, 

but it is certainly something that is hurting sort of, you know, the 

environment around nuclear. 

I think it is one of those issues where it will actually be quite 

helpful for the North American dialogue to talk about nuclear and 

to talk about the opportunity of nuclear in Mexico. I will be honest, 

I do think, as you brightly pointed out, it does save some 

headwinds, not only in the sort of commercial industry infrastructure with the challenges that we really won’t know where Westinghouse ends up until we understand where Toshiba stands as well. 

And so we have got to sort of let that process work its way out. 

But I think that when you look at everything that Mexico is 

doing to try and incentivize nuclear power, and then you look at 

all of the things that they are also doing to incentivize renewable 

energy, the fact that we are trying to sell a lot of U.S. low price 

gas into the Mexican electric power system, I think you set up a 

pretty competitive dynamic for nuclear power to succeed. And so if 

we are to really want to create a market for nuclear in the United 

States, we are going to have to understand what kind of support 

that is going to require in a North American basis, but also for the 

existing plants that we have in Illinois and New York and Pennsylvania, Three Mile Island didn’t pass their capacity market bid 

round. 

So nuclear, even existing nuclear is being challenged by some of 

the changing electricity dynamics. I think the same thing will be 

true in Mexico, and so I think that the nuclear energy industry, 

quite frankly, globally has to think about how it is going to be more 

competitive. Is it through existing technology? Is it through a next 

version of nuclear energy technology, something smaller, more 

modular? Or do you just really have to make sure you have the system of financial incentives and the return on investment on a guaranteed rate for electricity prices that protects nuclear within your 

market? Because it does have advantages. It is base load. And it 

is really hard to envision a future where you don’t have any nuclear power whatsoever. And so I think there is a lot to work out. 

43

Mr. DUNCAN. So I am glad you mentioned SMR, small modular 

reactors, and I think that is a viable option going forward. When 

I hear about nuclear energy in Mexico and expansion of nuclear 

power production there, one of my gut reactions is that we have 

seen nuclear components, whether it was low-level waste from a 

hospital or whatnot, disappear for a period of time, stolen, mishandled; they have had to find it, get it back in their possession. 

The possibility of proliferation, the possibility of terrorists getting 

their hands on that for a dirty bomb of some sort on a country that 

is on our southern border. They are very close to home. It is not 

like it is overseas. So that is a gut reaction I think a lot of my constituents would even have if they follow those type issues. 

So with that, I will turn to the ranking member for 5 minutes. 

Mr. SIRES. Thank you, Mr. Chairman. 

With the emergence of Lopez Obrador, obviously, he wants to revert to get rid of this 2013 agreement. So that makes him a little 

bit popular in Mexico. 

How about the rhetoric coming out of this country? How is that 

impacting also this emergence from this candidate? 

Mr. WOOD. It is a very, very important question. And at the beginning of the year, it was clear that the breakdown in bilateral 

relations, the increased tension, the conflict, in particular the communications between the two Presidents, were causing a highly nationalistic reaction in Mexico. All politicians across all party lines 

were moving toward a more nationalistic perspective. 

In recent times, things have calmed down a great deal. And the 

reason for that, I would argue, is that the institutional mechanism 

between the two countries are working. Mexico has been very, very 

smart about how it has approached the United States, it has laid 

the entire relationship on the table, and said you need us for lots 

of reasons: For export markets, for integrated production, for security on your southern border, for controlling Central American migration. And, of course, the energy piece is there as well. Mexico 

has been putting that forward over and over again. 

But the effect of the election campaigns last year and the volatility of this year so far is having an effect on the Mexican election. 

It is not as dramatic as we feared it might be, but there is clearly 

an anti-Yankee sentiment among certain sectors of the Mexican 

electorate, and that will help Andres Manuel Lopez Obrador. 

Now, he is putting himself forward as a candidate who is much 

better equipped to negotiate with the United States than the current government. And he has said that if you really want to renegotiate NAFTA, if you really want to reestablish—or establish 

equality between Mexico and the United States at the diplomatic 

level, then he is your man. Mexicans are not completely convinced 

by this. 

So the energy reform process, as it stands right now, although 

it is unpopular, will begin to deliver a lot of the benefits in a couple 

of years’ time, as oil production increases, as royalties start to come 

in, and as Mexicans begin to reap the benefits of having a liberalized downstream and retail market in Mexico. As you may have 

seen, a lot of U.S. firms are opening up gasoline stations in Mexico 

right now, and Mexicans are flocking to them because they recognize that, although the price is probably the same as they are going 

44

to pay at the Pemex station, the quality of the product and the fact 

that they are probably not going to get ripped off in terms of the 

amount of fuel that is being put into their gas tank is a big advantage. 

So we are actually seeing one gas station in the state of Mexico 

which was recently taken over by a U.S. firm saw its sales double 

the month after a U.S. firm took it over. This is a huge opportunity, and Mexicans are beginning to understand those consumer 

benefits of the reform. 

Mr. SIRES. Thank you. 

Venezuela is obviously a disaster. And the political on Venezuela 

used to be oil. How do you see America playing a role in substituting Venezuela in the region, especially in the Caribbean? Dr. 

Padilla, can you talk to us about that? I know you mentioned a little bit about export to the Caribbean. 

Mr. PADILLA. Yes, thank you. You are right to bring the conversation back to Venezuela. The conditions there are very unfortunate. I would say that the primary way in which the U.S. can continue to exert some influence with regards to global oil markets is 

through the energy renaissance here in the U.S. So our growing 

production of oil in the United States has had significant effects on 

global markets and driven down prices globally, which has had an 

impact on states in Venezuela that depend on oil revenue. 

So the primary way which we have already had an impact on 

Venezuela and its role in energy markets is through our increasing 

production here. We just had that effect on global energy markets. 

With regards to the Caribbean, the U.S. also stands ready with 

its increased production in natural gas to offer an alternative and 

more diversified supply to Caribbean countries that have previously relied on crude oil imports from Venezuela. So we already 

see U.S. LNG exports that are going from the lower 48 in the 

United States to the Dominican Republic. We see ISO container 

LNG exports that are going from Florida to Barbados. 

So these are examples of how the United States and its exports 

in oil and natural gas can have impacts on global markets that affect Venezuela and can have an effect on providing alternative 

sources of fuel to Caribbean nations that have previously depended 

upon Venezuela. 

Mr. SIRES. Thank you. 

Would you like to add something to that? 

Ms. LADISLAW. You know, I agree with everything that Dr. 

Padilla just said. I would also say that we have a lot of renewable 

energy technologies that we, under the last administration, were 

also using within the region to—diversity is the source of security. 

And so really being able to try and help those countries attract 

those technologies as well so that they have a number of different 

energy resources to rely on as well. 

Mr. SIRES. Thank you. I was going to go bring the renewable 

question up. With all this growth and all this different energy, how 

are we integrating in North America the renewable energy part? I 

mean, what part does it play? 

And since you brought up renewable energy, can you——

Ms. LADISLAW. Well, it really is the funny thing about talking 

about energy in a continental basis is the continent is very big, and 

45

all different states and regions and provinces have different approaches. I think one of the things we have seen, and maybe Dr. 

Padilla wants to talk more on the renewable fuel side of the equation, but on the electric power side we are seeing markets all over 

the continent really grappling to deal with the fact that things like 

solar power, in particular things like wind, are not only competitive 

with conventional energy sources, but they have to figure out how 

to integrate them into their energy system in a way that utilities 

continue to make a return on the investment. 

People always will ask me, when will renewables pass a tipping 

point where they are actually competitive? I think we are well past 

that point. I think that when you look at places that have net metering policies or when you look at, even in Mexico, recently starting a lot of their renewable energy policies under their electricity 

reform and already having to ask themselves, how is our electric 

power system going to integrate more and more of these resources, 

not just from utility scale solar farms or wind farms, but also from 

people’s homes through distributed energy resources? 

I think you are starting to see folks used to think that renewables would have to get to 30 to 40 percent penetration within the 

electric power mix for it to really start to cause some questions 

about how utilities make a return on their investment and how we 

manage those electric power systems, we think about things like 

reliability to realizing, no, that is actually here today. 

And so I think there is actually a renaissance going on in the 

electric power sector in North America that if you talk to anyone 

who is in a public utility commission at a State or regional or local 

level, they are grappling with each and every day. And when you 

add low natural gas prices onto that, for some regions of the country, it just becomes more and more profound. So I actually think 

we are in the midst of a transition from just trying to figure out 

how to build more renewable energy generation into the electric 

power mix to actually scaling those up to higher levels and figuring 

out what that mix looks like going forward. 

Mr. SIRES. Thank you. Thank you, Chairman. 

Mr. DUNCAN. I thank the ranking member. 

And the chair will now go to the Republican side, to Mr. Yoho. 

Mr. YOHO. Thank you, Mr. Chairman. Sorry, I had to step out. 

We appreciate you guys being here. 

When you look at the situation, with our natural energies that 

we have here, the abundant resources, and I am particularly focused on LNG, when you look at the feasibility of exporting that, 

do you see any restrictions on that as far as the mobilization of 

that or the transportation of that to taking it down to the Caribbean and what we could do to expedite that? 

Mr. PADILLA. Thank you, Congressman, for the question. LNG 

exports are a great potential for the U.S. with our rising natural 

gas production. I would underscore a couple of things, I think, that 

can help in terms of facilitating policy. 

The first is understanding the important role that free trade 

agreements play. Free trade agreements, when they are in place 

between the U.S. and another country, automatically liberalize 

LNG exports to that country by the provisions of the U.S. Natural 

Gas Act. So that is certainly a priority for the U.S. oil and natural 

46

gas industry, for example, with regards to NAFTA in the way that 

it provides that automatic liberalization of LNG exports and the 

growing market that Mexico represents. 

And then another policy priority for API member companies and 

natural gas producers is expedited approval of permitting and determinations by the Department of Energy with regards to nonforeign trade agreement partner countries. We welcome the most expedited process possible to approve those exports to non-NTA countries so that they too can enjoy the benefits of the abundance of 

natural gas production here that allows us to also export the LNG. 

Mr. YOHO. Okay. And does anybody else want to weigh in on 

that? 

Mr. WOOD. The only thing I would like to point out here is that 

I think that very often we think too small about these issues. There 

are possibilities for exporting U.S. natural gas and LNG through 

Mexico. In many cases, it may be easier to build an LNG plant in 

Mexico than it is here in the United States, which will provide an 

outlet that would otherwise not be possible here in the United 

States because of zoning and permitting. 

In the same way, we need to think seriously about getting U.S. 

natural gas to Central America, which means working very closely 

with the Mexicans on building out that pipeline network in Mexico 

and making sure it gets southwards. I think that those are the 

ideas that we need to put forward on the table. And I would even 

stretch it further. 

I recognize your question is about gas, but think of the possibilities, and the Mexicans have begun to talk about this, of building 

transmission lines in Mexico to move U.S. electrons from one U.S. 

State to another; in other words, go south from Texas, along northern Mexico, back up into California where the demand is. It will 

be easier to do it that way than it is to do it in the United States. 

So I think we need to think bigger, we need to think much more 

outside of the box than we are doing at this point in time. 

Mr. YOHO. I assume you say that because it would be easier 

regulatorywise in Mexico than here. 

Mr. WOOD. Yeah. And it is not because their regulations are 

more lax; it is because they have a unified regulatory system for 

zoning and permitting for these things. Whereas here in the United 

States, of course, you have to go through the Federal, the State, 

and the local. 

Mr. YOHO. Right. You know, I also have the honor and the privilege of being the chairman of the Asia Pacific Subcommittee on 

Foreign Affairs, and we hear probably weekly from Ambassadors 

from different countries around that region how they want to start 

importing LNG from the U.S. And this is something that it would 

be great for our economy, it would be great for using our natural 

resources, and it would be great for building that stability around 

the world. And we have got companies that can do this. 

And our focus in this hearing is obviously the Western Hemisphere. And my goal is for our own territories. You know, why 

should we be a U.S. territory buying oil from Venezuela that is bolstering up a regime that is not friendly to this country? So anything that you can do as far as ideas and how to expedite that and 

help the commercial companies in the islands, whether it is Puerto 

47

Rico or the U.S. Virgin Islands, how we can help transition them 

from using number 2 petrol to LNG? 

And I think Puerto Rico is in the process of doing some of that, 

but the U.S. Virgin Islands, we need to do that, and along with 

wind and solar, absolutely. And if there are any ideas that you 

have, we would sure love to hear them. 

Do you have any comments, Ms. Ladislaw? 

Ms. LADISLAW. Ladislaw, just like it is written. 

I think the only thing I would say is I think we in the U.S. are 

really taken by the fact that we have a lot of natural gas. But we 

have got to really watch out, because a lot of times the midstream 

infrastructure to get that gas to export, as we consider to do more 

of this, as we are attracting more petrochemical investments in certain regions, we are not immune to the sort of complications that 

come from growth. And I would just point to the recent experience 

in Australia. Australia built out a huge amount of LNG export capacity, and they didn’t consider all the domestic politics and infrastructure around being able to make sure their own industrial consumers were paying a low enough price for the gas that they needed and they started to curtail their exports. I am not saying that 

is going to happen here, but I think that those are things that, as 

we think about building out all these opportunities, we have got to 

make sure we have got the midstream infrastructure. 

Mr. YOHO. That is why we depend on experts like you. Thank 

you guys. 

I yield back. 

Mr. DUNCAN. Thank you. We will now go to Ms. Torres for 5 minutes. 

Mrs. TORRES. Thank you, Mr. Chairman. I just got back from a 

trip to Mexico with an interparliamentarian group of 11 members. 

Chairman McCaul was leading that delegation. And while I think 

it is true we found—I mean, we were there during the gubernatorial election on Sunday. We actually landed on Sunday. It was 

very interesting to see how, just like what is happening here with 

a very populist agenda, the Morena party was able to garner a lot 

of support. However, they were still within three points behind and 

finished further than they expected. 

So I found that a little bit concerning, specifically as it relates 

to the comments that have been made by our President against 

Mexicans, against the Mexican people. They are certainly very 

angry about that. They are even more angry, or upset, that we 

have withdrawn from the Paris Agreement. They are feeling that 

they have been left out. America has, in the past, been a great 

leader to them, and they look to us for forward-thinking policy, so 

they are extremely disappointed. 

However, I heard something about an anti-American sentiment, 

and I did not find that, not within the people, not within the comments of their local media, and certainly, not from the representatives of both houses that we met with. 

On the issue of nuclear plants, I just want to caution you as your 

State looks at that. In California, we had to recently shut one down 

because we found an earthquake fault beneath that. So as you are 

looking to build out on nuclear facilities that we look at climate 

48

change and issues of tornadoes and earthquakes that are now not 

limited to the State of California. 

My question to Dr. Wood is following the withdrawal from the 

Paris Agreement, where do you think Mexico and Canada will look 

for leadership on climate change? California, for example, Governor 

Brown was just in China, and certainly, California, and other mayors and other governors across the U.S. are stepping up. What role 

can they play since the Federal Government has really left them 

behind? 

Mr. WOOD. It is a terrific question, and we were discussing this 

actually just before we came into this room. 

Back in the period from 2000 to 2008, Mexico’s Government 

began to collaborate increasingly with U.S. States on questions of 

climate and renewable energy, because there wasn’t a great enthusiasm at the level of the Federal Government. That is where we are 

going to go back to, that is where we are going back to. Already 

we have seen extraordinary energy diplomacy from the States of 

California and Texas, interestingly enough, as well as some others 

who are—Arizona, for example, is engaging very, very actively with 

the State of Sonora. They are talking about an Arizona-Sonora 

megaregion. 

Mrs. TORRES. Right. 

Mr. WOOD. One of things—just a tangential point here—one of 

the things that is remarkable about this period of volatility is that 

people have realized how important, how vital Mexico is to the 

United States’ national interest. Friends that we didn’t know existed have come forward and said Mexico matters. Friends who 

didn’t even know they were friends of Mexico have come forward 

and said, oh, my goodness, I have just realized that Mexico matters. 

Mrs. TORRES. And they recognize that we recognize that. 

Mr. WOOD. Absolutely and that is it. So I think what we are 

going to see is a lot more cooperation between Mexican Federal 

Government and Mexican states and cities and their counterparts 

here in the United States. Cities are going to matter more than 

ever, and as I said, there is a precedent for this happening, and 

I think it is going to be very, very productive. 

Mrs. TORRES. Thank you. I have two more questions and very 

limited time, so I am going state them, and I hope you will have 

an opportunity to follow up with my office. 

Should renewable energy be included in the NAFTA agreement, 

and certainly, from their perspective, they absolutely believe that 

it should be part of what we discuss. And I want to further tease 

your intelligence on the issue of transportation as the Federal Government is looking at an infrastructure bill. 

In California, I have been talking to our State Department about 

a highway of things. Is this something that is possible as we look 

to continue to trade and expand our highways within Mexico, and 

as Mexico looks down to Central America for renewal energy? Is 

that something that could be possible, a highway of things, meaning fiber optics, gas pipes, in addition to vehicle traffic. And I understand I already extended my time, but I would love to hear your 

follow-up and ideas on how something like that could be possible? 

49

Mr. DUNCAN. I thank the gentlelady, and the chair will now go 

to Mr. Castro. 

Mr. CASTRO. I am fine. 

Mr. DUNCAN. No questions there. We can go through a second 

round if the ranking member would like. 

So there was an interesting article in The Wall Street Journal 

recently about peak demand, okay. So when I was growing up in 

the 1970s, we heard peak oil, that the world had found all the recoverable oil resources, and that we were going to see the amount 

of oil available for production decline. It has never done that. It has 

only gone up. 

But the article in The Wall Street Journal, was interesting because of peak demand, and focusing really on the U.S., and I don’t 

disagree with the article that we may be at peak demand for fossil 

fuel usage, just to shift into renewables and that sort of thing. But 

I disagree with The Wall Street Journal in that peak demand has 

been met globally, because we have got a lot of countries around 

the world that are emerging, and they are going to use energy, energy for manufacturing, energy for heating and cooling homes. I am 

one that believes that energy is a great segue to improve the quality of lives of people all over the globe, especially in Third World 

countries where they can’t keep food fresh for very long because 

they don’t have electrical power, or even propane for refrigeration. 

You still have a huge threat of dengue, yellow fever, malaria, Zika 

and other mosquito-borne illnesses in areas of the world that don’t 

have air-conditioning, because they don’t have electrical power and 

they have to leave the windows open. There is just that sort of 

threat. 

You have got poor air quality in homes around the globe because 

no electricity. They are having to heat their homes with wood or 

charcoal. They are having to cook over wood and charcoal. There 

is just a lot of things that are putting particles in the area that 

folks are breathing. So electricity is a life changer for many people. 

You run into what is the source of electricity is a nuclear power 

hydro—there is this battle in Patagonia for more hydro. The environmentalists don’t want that. Huge hydro area possibly, the potential there is immense. Africa, you just don’t have a whole lot of 

hydro that hadn’t already been put in place, and then you have a 

lot of logistics there for transmission lines and country boundaries 

and instability. 

And when you talk about nuclear power, then you have got proliferation issues, you have got nuclear waste issues, you have got 

a threat of terrorism. So when you talk about energy globally from 

the peak demand aspect, peak demand has not been met globally. 

There is opportunity globally. There is opportunity within Mexico. 

There is opportunity within North America in general, and Latin 

America. So I wanted to touch on that. 

We heard a lot in the last 4, 6, 8 years about Keystone Pipeline. 

Keystone Pipeline was a vital component to refining Canadian oil. 

And the argument was, well, they can ship that oil somewhere else. 

Well, you got logistics across the continent of Canada, but there 

was a reason that oil was slated to come to the United States. That 

oil is very similar to the oil coming out of the Middle East. Our refineries are set up to handle that type of oil. 

50

I have made or had the discussion with the energy sector about 

retooling America’s refineries to meet the needs for American oil 

produced in the Bakken and the Permian Basin and other places, 

that is very costly. It is more attractive to U.S. energy producers 

to export that crude which is light sweet and bring in that heavier 

Canadian oil that resembles the oil coming from the Middle East 

that comes to U.S. refineries and is refined into all the different 

components that a barrel of hydrocarbon is refined into. 

So, that was never talked about enough, I don’t think, in the 

whole Keystone Pipeline debate about why it made sense to bring 

that Canadian oil to U.S. refineries. At the same time, we were exporting American produced oil, crude oil, to other parts of the globe 

that were set up to refine that type of oil. So there is a lot of dynamics there. 

Let me get to a question real quick. We talked about Keystone, 

I did all the talking, but NAFTA, you know, President Trump has 

talked about a lot of terrorists and people in Mexico are concerned 

about a border wall and all this is going to be injected into the 

NAFTA debate as NAFTA is renegotiated, which I think it should, 

and I think the energy sector, as you heard in my opening comments, ought to be a big part of that NAFTA debate to bring 

NAFTA into the 21st century. We see on the chart the changes in 

energy trade. We are now importing less crude oil from Mexico, 

and we are exporting more refined products to Mexico, as I think 

one of the panelists mentioned. 

So let me just get your take, and we may have talked about that 

earlier, but your take on NAFTA, NAFTA renegotiation and energy 

in general in regard to that. You can talk about tariffs, you can 

talk about trade issue in general, but NAFTA, and I will just ask 

all three panelists, and then I will go to the ranking member. So, 

Ms. Ladislaw. 

Ms. LADISLAW. I think on NAFTA I think there is two approaches. One is do no harm. So NAFTA has done some great 

things for the energy sector without actually dealing with energy 

too terribly directly, right? So when we negotiated NAFTA, Mexico 

actually didn’t insert much about energy because it wasn’t able to 

do that. But the energy sector benefited from a lot of the trade protections that we talked about earlier and the other benefits that 

come with those sorts of trade agreements. 

And so, I think one of the big concerns in the energy sector is 

because everybody feels like the dynamic on energy has changed in 

North America, that within the context of NAFTA renegotiation, 

energy could be held hostage, right? If you don’t like what you are 

getting back on lumber or autos or some other segment of the trade 

agreement, you can say, well, maybe I am going to treat my gas 

differently or maybe we will treat out oil trade differently. And I 

think we really have to be very careful to say we have had a really 

big boost from all of this energy trade in North America, we don’t 

want to do any harm on that side of the equation. 

And the other part is modernization, right? Can you embed some 

of the progress that has been made in Mexico into the trade arrangement? Can you modernize it to reflect the kind of things that 

you might want in a trade agreement that is coming with an energy sector that is much more digitized, that is going to be autoVerDate 0ct 09 2002 16:40 Aug 15, 2017 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 F:\WORK\_WH\060717\25729 SHIRL
51

mated, that is going to have these new sort of ideas and concepts 

that just didn’t exist in 1994 in a way that you had to deal with. 

And so, I see it as first do no harm, second modernize to be able 

to prepare for the challenges of the future, and embed some of the 

progress we have made over the last several decades. 

Mr. DUNCAN. Mr. Padilla? 

Mr. PADILLA. I think we can think of the benefits of NAFTA with 

regards to energy in a few key dimensions. The first is that NAFTA 

enhances energy security of the United States. So as the world’s 

energy super power, we enjoy the benefits of that to an even greater degree due to the integration that we currently have with Canada and Mexico with regards to oil and natural gas markets. 

NAFTA also supports U.S. jobs and manufacturing here in the 

U.S. The examples that you were referencing around importing 

crude oil from Canada, which flows to refineries in the United 

States and supports the production of fuels that we use here and 

even in export, there are jobs that are produced at those 69 refineries that import crude oil from Canada, those 12 refineries that 

import crude oil from Mexico. 

And then NAFTA also helps to enhance the energy security and 

affordable energy for our allies. So the benefits that accrue to us 

here in the United States are the same for Canada and Mexico. So 

it is a classic case of mutual benefits. And then, also, NAFTA enables U.S. companies to compete and win in the oil and natural gas 

bid rounds in Mexico and increasingly, as they have undertaken investments in Canada as our markets have become more seamless 

and integrated. 

So there are a few key provisions in NAFTA that I think we 

would want to preserve in order to maintain the continuation of all 

these benefits. The first is euro tariffs on few key oil and natural 

gas products. The second is the automatic liberalization of natural 

gas exports, for example, that a free trade agreement affords. And 

then another is market access. The NAFTA agreement, while it 

originally excluded the Mexican hydrocarbon sector from investment by foreign investors, now the constitutional reforms that 

Mexico has undertaken on its own have triggered a ratchet clause 

in NAFTA which solidifies those and makes that part of the agreement and opens that up to U.S. investors. 

And then, finally, there is also investment protections in NAFTA 

that underscore U.S. firms’ investments in Mexico and protect 

them from extreme cases of potential expropriation, and act as a 

deterrent for some of the fears that we have seen and the realities 

that we have seen of U.S. investments in oil and natural gas in 

other places people are. So all of those are the elements of NAFTA 

that have underscored the benefits that we get from the agreement. 

Mr. DUNCAN. Dr. Wood, quickly. 

Mr. WOOD. Thank you, yes. Just on the question of peak demand, 

the most aggressive scenarios that I have seen suggest that demand may fall down to 75 million barrels a day by 2040. To maintain 75 million barrels a day is going to require many, many billions of dollars of investment just to keep that up. The oil industry 

is not going away any time soon. There is going to be a need for 

a lot of investment in a lot of jobs there. 

52

Secondly, on the question of refineries, we need to think about 

where we place refineries in North America, not just in the United 

States or in Mexico, because there are complementarities there, 

and we have already seen this. The case that you used, Canadian 

oil being refined in near the Gulf of Mexico in the United States, 

but there are Mexican refineries that are well-equipped to refine 

U.S. crude as well. We have to think about moving the product 

around a lot better. 

On NAFTA, all of the points that have been raised already, I absolutely agree with. The Mexican reform actually allowed for energy to be included under the existing NAFTA, because there is a 

clause in NAFTA which says any sector which is currently closed 

and excluded once it is opened will be covered by the provisions of 

NAFTA. That is where Chapter 11 comes in. And the crucial point, 

I think here, is that the last thing that any of us want to see is 

any kind of extra costs on cross-border movements of energy in 

North America. It is a fundamental source of our competitiveness 

as a region. 

Mexico has become more competitive because of lower energy 

costs, which means that Mexican components that are part of the 

U.S. production process here that makes U.S. products competitive 

in global markets, all those prices have come down. We need to 

start thinking about this very much in regional terms, not in national terms. 

Mr. DUNCAN. I tend to agree with you, and that is one of the 

messages I will have with USTR. I hope they get it. We don’t need 

to add more costs to this. It actually benefits all three countries, 

and I think that is one benefit of NAFTA in energy sector, and I 

look forward to how they negotiate that. I turn to the ranking 

member. 

Mr. SIRES. Thank you, chairman. You know, so I hear all these 

tariffs. I think businesses in this country, they panic, because I 

don’t think when you talk about these tariffs, I don’t think people 

realize how much economic activity goes between Mexico and the 

United States, especially on the border, and the jobs that are created there on both sides of the border. So sometimes people speak 

without really knowing the facts. 

But if we do put a tariff, I think the energy sector in America 

is going to get hurt worse, because we are now currently exporting 

more into Mexico than we actually are importing. And if we put 

something on the imports from Mexico, you know that they are 

going to retaliate. You know that this is going to happen. 

So I hope that that goes away, quite frankly, and we just continue to promote this harmony between North America, quite 

frankly, because I think it is only to all our benefits, not just one 

country or the other. 

And, I was curious what you mentioned about we have to think 

about where we place our refineries. I couldn’t agree with you 

more, coming from New Jersey. You know, the refineries were 

placed there years ago, and what has happened is people have 

moved all around it, so now it is like the railroads. The lines went 

through there, there was nobody there. Now people have moved all 

around it. So I think that is a very key question. If we are ever 

going to build new refineries, where are we going to place the refinVerDate 0ct 09 2002 16:40 Aug 15, 2017 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 F:\WORK\_WH\060717\25729 SHIRL
53

eries because we are growing and growing, and people are moving 

to these areas, and the first thing they want to do is get rid of 

these things. They were there before you got there. You know, the 

railroad lines were there before you got there. And I am constantly 

struggling with, you know, with this. 

You know, I represent Bayonne, New Jersey. They have a—it is 

not a refinery now, but it is a repository. I think they move up to 

like 50 million gallons of fuel a day. Luckily it is not refined there. 

It comes in already refined and it is moved, but even with the 

tanks, people are still saying, well, can we get rid of these tanks 

because they want a view of New York. 

So I couldn’t agree with you more about where we have to—we 

have to really think in terms of where we are going to place these 

refineries. And I really don’t have a question. You answered most 

of my questions. Thank you, chairman. 

Mr. DUNCAN. Thank you, ranking member. I will now go to Mr. 

DeSantis from Florida. 

Mr. DESANTIS. Thank you, Mr. Chairman. Thank you to the witnesses. The energy sector in Canada, oil, gas, electricity, the exports are 25 percent of Canada’s exports of goods to the U.S. while 

agriculture is only about 7 percent, yet as I understand it, energy 

was excluded in the original NAFTA agreement. Since the north 

American energy market is so interconnected, do you think energy 

should be included in any renegotiation of NAFTA? 

Mr. PADILLA. We believe that the integrated and interdependent 

markets of North America should be borne in mind by the negotiators as they seek to modernize NAFTA. The way in which you 

may do that in terms of the architecture of the agreement will be 

determined by the course of those negotiations, but all of the ways 

in which our markets are connected are really what is at stake 

when NAFTA is being modernized. And I think we want for there 

to be key aspects of a new NAFTA that preserve the provisions of 

the current NAFTA that have worked so well that underpin and 

underscore the ways in which our markets have become increasingly interdependent and integrated. 

One way to think of this is that when NAFTA——

Mr. DESANTIS. Well, before you do that, and I will let you finish, 

but so your concern is more renegotiation would hinder the interconnected markets, rather than facilitate it? 

Mr. PADILLA. That is correct. And I was just going to say that 

in the last generation under the current NAFTA, the free market 

and free trade of trade and energy between the U.S. and Canada 

has really made that a very seamless and integrated market. We 

have the opportunity in the next generation to achieve that with 

Mexico. 

So by preserving what has worked so well in NAFTA to underscore that for the U.S. and Canada trade, we have that opportunity 

in this next generation to achieve that across all three countries. 

Mr. DESANTIS. Anyone else? 

Mr. WOOD. Yes, if I may. First of all, I would just like to emphasize the point that Ranking Member Sires made earlier on about 

the employment dimensions of this. A recent study that was produced in the Wilson Center showed that 4.9 million jobs in the 

United States depend upon that economic relationship with Mexico. 

54

It is partly the exports, but it is also the imports from Mexico that 

make U.S. industry more competitive. 

In terms of whether energy should be included in the negotiations, it is very clear that the Mexican Government has been very 

enthusiastic about putting energy on the table. One of the deep 

concerns that I have about that is that both governments are now 

talking about a very short timetable for getting the negotiations 

done. If they want to get this wrapped up by December of this year 

or January of next year, which is the kind of time frame they are 

talking about, then there is going to be very little time to talk 

through all of this. 

There also seems to be an emerging idea that they don’t want to 

have to present this to their respective Congresses, which suggests 

that the changes they are going to make are minimal. Now, that 

is fine, but if you start talking about energy in there then you open 

up an entire can of worms, and that is going to be very, very complicated. 

So I actually think that the current existing NAFTA works incredibly well. One reason why the Mexicans are enthusiastic, however, is because of the prospect of electoral change next year, and 

they want to have an extra guarantee that the energy reform enacted in 2013 will be respected so that free energy markets become 

part of an international treaty that is enshrined in Mexican law. 

Mr. DESANTIS. North America has become an energy super 

power accounting for 72 percent of Western Hemisphere oil production, and 85 percent of natural gas production in 2015. Both Canada and Mexico produce heavy crude oil, which is well suited for 

U.S. refineries. New technologies in the U.S. such as hydraulic 

fracturing and horizontal drilling, and in Canada, as well as Mexico’s energy reforms, have enhanced opportunities for further trilateral trade and energy cooperation. 

Is North America-wide energy security and independence an 

achievable goal in your view, whoever wants to take that? 

Ms. LADISLAW. Yes, I will take it. I mean, I think as we noted, 

I think we are closer to self-sufficiency on a North American basis 

than we have ever been, and I think that that is wonderful, but 

I think we also have to recognize that that comes from open trading relationships with other countries around the world. And so 

even though we have this advantaged position, it has come from 

interdependence. We get a lot of economic efficiency and a lot of security from that. 

So I think that if we want to focus as a continent on growing 

those advantages to create more jobs and to create more economic 

growth and to insulate ourselves, I mean, the chairman brought up 

the incident in Qatar in the last several days. There is a period in 

time not too long ago where even small incidents like that would 

really cause us to be concerned, and we are not sweating it really 

hard on the energy side, right? So we are deriving some benefits 

in the fact that we have a little bit more strategic latitude in what 

we would like to do on energy, but we can’t ever assume that that 

means we can be isolationists or it leads us to think that we are 

okay in and of ourselves. So I think, yes, we are in a much better 

position, but we have got to think about growing it. 

Mr. DESANTIS. Can he answer my——

55

Mr. WOOD. Very, very quickly, I think there is something we 

often neglect, which is complementarity of resources. Many of you 

may know that Sweetwater, Texas has an extraordinary wind resource, but, of course, the wind only blows certain times of the day 

and not always when Texas needs that wind the most. In 

Tamaulipas, there is a very similar quality resource which blows 

at a different time of day. You think about linking those two resources together. You think about linking solar resources together 

across the width of the continent so you are actually able to overcome a lot of the intermittency problem, or even an easier example 

what already exists where wind power in the U.S. is used to pump 

water back up into Canadian hydroelectric dams at certain parts 

of the day, so you are essentially storing that energy. 

That interconnectedness, I think, is one way in which we are 

really going to achieve North American energy autonomy. 

Mr. DESANTIS. Well, thank you. I yield back. 

Mr. DUNCAN. I thank the gentleman. You are right. I mean, one 

of the battery storage issues is—or solutions right now is to pump 

the water back up, use the water to generate electricity as a normal hydroelectric project and during peak wind or peak solar, use 

that energy to pump the water back up and just continue the cycle. 

We have something similar in South Carolina, although they use 

regular energy production, had a Bad Creek project, release water 

during peak demand and produce electricity, and then use reversal 

of the turbines, which are electric generated, to pump the water 

back up. 

They could use windmill or sun power for that, but that is one 

of the holdups, hangups for renewables is just holding that power 

to be used when it is necessary or needed. We don’t have that capacity or capability right now to hold large amounts of energy for 

a long period of time to be used when the sun isn’t shining or the 

wind isn’t blowing. But reservoir storage is one battery, so to 

speak, capacity. 

So, Ms. Torres, if you have another question we will recognize 

you for 5 minutes. 

Mrs. TORRES. Thank you, Mr. Chairman. I want to say that certainly from the Homeland Security perspective, the economic stability of our closest neighbors to the north and the south has to be 

a priority for U.S. policy, and I am not just speaking to Mexico, 

but, you know, within Central America, I think that those governments have worked very closely with us to ensure that the people 

that want to come through that migrant path to hurt us here in 

the U.S. are detained, and they have great partnerships with our 

law enforcement here in the U.S. 

I wonder if we can go back and maybe talk a little bit about the 

last question that I asked on this highway of things, how we can 

create those opportunities, and then on going back to the NAFTA 

agreement, I think you answered that question, that energy certainly has a role and could be integrated in a new, improved agreement. 

Where do tribal governments, and what sort of role could they 

play in that, not just in the U.S., but the indigenous populations 

within southern Mexico in looking at areas that have not been developed within Mexico? 

56

Mr. WOOD. Thank you. It is an incredibly important question, 

simply because of the diversity of Mexico’s indigenous peoples, and 

because there is a long tradition there of protesting any major infrastructure project. So the question of——

Mrs. TORRES. Because it has been at their cost, the cost of their 

natural resources. 

Mr. WOOD. Absolutely. And the case that you mention of Southern Mexico, both in Oaxaca and in Chiapas, we have seen local 

communities including indigenous communities rise up against energy projects, and not just oil and gas, against renewal energy 

projects as well when they feel that they are not being treated with 

fairness. 

This is a learning process for the industry, I think, and I am actually very, very encouraged to see how seriously the industry is 

taking this in Mexico. They are required by the law, including the 

energy reform of 2013, is a need to do a social impact evaluation 

in any community, whether it is going to be in an energy project, 

in addition to an environmental evaluation. There is a booming industry right now in these kind of evaluations. But most importantly, the industry has recognized that it is in their long-term interest to actually carry out smart investment strategies to make 

sure that they are not going to run into problems down the road 

so they won’t be able to open their energy projects when it comes 

out. They can build them, but they won’t be able to actually open 

them. This is the case that we have seen in the state of Oaxaca. 

In the State of Chiapas, I think what we are going to see is that 

there are a lot of prospective oil resources there on land. It is a 

very divided political space already. Of course, we all know about 

the zapatistas who continue to play a big role there. But also, I 

think we have to see that this is an area which is desperate for 

development. 

And picking up on your point about Central America, we have to 

recognize that one of the best ways to get economic development 

to Southern Mexico and to Central America is to make sure that 

natural gas goes down there. Let’s get that down there as a driver 

of economic growth, and hopefully that rising tide will lift 

everybody’s boats. 

Mrs. TORRES. So do you think that within a renewed NAFTA 

agreement, we can focus on areas of the U.S. such as the Rust Belt 

and areas of Southern Mexico where—these are areas that have 

not seen, and have, in some way, feel that they have been hurt by 

these trade agreements, and what sort of possibilities exist there, 

opportunities for us to do that? 

Mr. WOOD. So first, if we don’t focus on those areas which 

haven’t benefited and feel as though they have been hurt by it, 

then in a few years’ time we are going to have this conversation 

all over again. So this is fundamentally important, I think. And in 

terms of policy proposals, one of the things that we are working on 

right now at the Wilson Center is a proposal for workforce development at a North American level. We have to recognize that the 

economy is changing. It is actually not trade that is pushing people 

out of jobs, it is, of course, the economic transformation, the fourth 

industrial revolution, and we need to focus on the ways in which 

we can educate, train, and retrain the workforce. We need to focus 

57

on ongoing workforce development plans, and government needs to 

think about how it can actually help businesses to do that, whether 

it is through tax incentives or some other scheme. And doing this 

on a North American basis makes perfect sense. Because of the 

educational and training resources that exist in certain parts of the 

continent, and the demand for those skills in others, we need to 

think about how we can get workers to benefit from those things. 

Mrs. TORRES. Thank you. My time has expired, but I do want to 

remind you, I would like to hear your opinions on this highway of 

things. 

Thank you. I yield back. 

Mr. DUNCAN. I want to thank the members’ participation. I want 

to thank the panelists for their participation today. Excellent testimony. Excellent answers to the questions. I think we have just 

scratched the surface really in the potential for the three nations 

here in North America working together in the energy sector. We 

talked about technology. We talked about brain power. We talked 

about the resources themselves. We talked about some challenges. 

It is a changing world, and I think energy is going to be a big part 

of that change, the industrial revolution that you talked about. I 

think energy renaissance and what we do with manufacturing 

where products are manufactured, whether it is consumer goods or 

whether it is energy. 

So I thank you all for being here. I think it is great. And pursuant to Committee Rule 7, members of the subcommittee will be permitted to submit written statements be included in the official 

hearing record. Without objection the hearing record will remain 

open for 5 business days to allow statements, questions, extraneous 

materials subject to the length limitation in the rules. 

There being no further business, we will stand adjourned. 

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.] 

(59)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE RECORD

60

f


25729n.eps

SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

US. HOUSE OF REPRESENTATIVES 

WASHINGTON. DC 20515-6J2g 

Subcommittee on the Western Hemisphere 

Jeff Duncan (R-SC), Chairman 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You are respectfully requested to attend an OPEN hearing of the Committee on Foreign Affairs. to be held by 

the Subcommittee on the \\!'estern Hemisphere in Room 2172 of the Rayburn House Oftlcc Building (and available live 

on the Committee \Vcbsitc at http://\\\Yw.forcignAffairs.housc.u-ov): 

DATE: 

TIME: 

SUBJECT: 

WITNESSES: 

Wednesday. Jtme 7. 2017 

10:00 a.m 

Energy Opportunities in North America 

Ms. Sarah Ladislaw 

Director and Senior Fellow 

Energy and National Security Program 

Center for Strategic and lntcmational Studies 

Aaron Padilla, Ph.D. 

Senior Advisor 

International Policy 

American Petroleum Institute 

Duncan Wood. Ph.D 

Director 

Mexico Institute 

\Voodrow Wilson Tntemational Center for Scholars 

By Direction of the Chai.-man 
61

f


25729m.eps

COMMITTEE ON FOREIGN AFFAIRS 

MINUTES OP SUBCOMMITTEE ON-----~ ____ HEARING 

06!0712()1~7 __ nomn, __ ~2"'1'-'72'----

Starting Time 10:05 AM _ _ Ending Time __ I 1:35AM 

Recesses to )( _to ___ ) L_to -~) L_!o_~) ( __ to __ ) L_to __ ) 

ClwiJ·manJejfDtmcnn 

Open Session I2J Exe-cutiv~ {£!Qsed) Session D Televised 0 

TITLE OF HI£AlUNG: 

Energy Oppm·tunities in Nm·t/1 America 

SUBCOMMITTEE MEMBERS PRESENT: 

Electmnically Recorc!Wjtapcd) []] 

Stcnogrnphic Rcc•1nl LL.1 

Clwimwn JeffDIIllcml, Ranking Member Sire.,, Rep. DeSantis, Rep. Yolw, Rep. Castro, Rep. Torres, Rep. 

E.\1JIIill<il, Rep. /(~f{J' 

NON-SUBCO:\IM!TTEE MEMBERS PRESENT: (.Mark with an • if they are noi members ~ffi•ll cvmmitteeJ 

HI a 

HRARl~G WITNESSES: Same as meeting notice attached? Yes (I] NoD 

({[ ''11o ",please list bel011' and inc!Jtde title, agency, depar!menl, or orgnni:zntion) 

STATI£MI<:NTS ~'01{ '!'HI£ RECORD: (List any statement; submitted.for the record.) 

Question Fo1· lite Recol'</, Clwimwn Duncan 

Qflesliou Fw· tile Recol'fl, Jlep. Tol'l·es 

TIME SCHEJliiJ.!;n '1'0 lmCONVJ<:Nl( ----

OJ' 

'1'JMEAVJULJHNED __ ll_:_3_SA_,_~f_ 
62


25729f-1.eps

Questions for the Record 

Sarah Ladislaw 

House Committee on Foreign Affairs' Subcommittee on the Western Hemisphere Hearing 

({Energy Opportunities in North America" 

June 7, 2017 at 10:00 p.m. in Rayburn Room 2172 

Chairman Jeff Duncan 

TO: ALL WITNESSES: 

1. NAFTA I Mexico I Canada: Mexico is the fourth-largest producer of petroleum in the Americas and 

an important U.S. energy trading partner. In 2015, Mexico accounted for 688,000 barrels per day or 

9% of US crude oil imports. Canada's oil, gas and electricity exports also are nearly 25 percent of 

Canada's exports of goods to the U.S. Energy was also excluded in the original NAFTA agreement. 

Now that Mexico's energy sector has changed so significantly and the North American energy 

market is so interconnected, what would a good energy deal in a renegotiated NAFTA agreement 

look like for U.S., Canadian, and Mexican interests? 

The United States has signaled its intent to reopen the North American Free Trade Agreement (NAFTA). 

North America's energy sector has benefitted from but is not overly impacted by the provisions within 

NAFTA. An excellent paper written by Laura Dawson of the Woodrow Wilson Center points out that oil, 

natural gas, and electricity are traded duty free, and products related to energy have relatively low 

tariffs. NAFTA affects rules governing investment, services, government procurement, and rules of 

origin, which in turn impact the energy sector but more tangentially. When it comes to energy and 

NAFTA a "do no harm" approach should be taken, recognizing that free trade in energy across borders is 

still in North America's interests. 

A "do no harm" approach is important because of the level of interdependency that exists in the trade 

of energy products. The U.S. exported 564 kbld of petroleum products, 300 kbld of crude oil and 2.11 

bcfld of natural gas to Canada in 2016. In addition to this, the U.S. exported 879 kbld of petroleum 

products and 3.79 bcfld of natural gas to Mexico in the same year. On the reverse side, the U.S. 

imported 542 kbld of petroleum products, 1,190 kbld of crude oil and 7.98 bcfld of natural gas from 

Canada in 2016 and the same year imported 87 kbld of petroleum products and 582 kbld of crude oil 

from Mexico. The gas trade relationship is particularly noteworthy. The U.S. imports over 10 percent of 

its daily consumption of natural gas from Canada, which services many areas which U.S. pipeline 

infrastructure cannot currently reach. While U.S. LNG is opening new destination markets, 60 percent of 

total natural gas exports went to Mexico alone in 2016. The trade relationship that exists with Mexico is 

vital for many producers in South Texas, allowing for rapidly growing levels of production to find export 

markets that are in close proximity. 

Additionally, the electricity trade and interconnectedness of the power system of the U.S. and Canada 

and Mexico is an important part of the nation's grid reliability and security. The U.S. and Canadian grids 

are well-connected, with over 30 major transmission connections between the two countries. Due to 

economic growth, the U.S. has been a net importer of electricity from Canada with imports increasing 
63


25729f-2.eps

from 18.1 TWh in 2006 to 59.8 TWh in 2015. The North-Eastern U.S. is the largest recipient of Canadian 

electricity exports, and benefits from being able to take advantage of cheap hydroelectricity. On a 

national basis, these Canadian imports are small, equivalent to less than 1.5% of total generation. In 

terms of Mexico, trade of electricity is confined to a few places mostly in California and overall trade 

with Mexico is also small comprising of one-tenth of the volume of trade with Canada. However, the 

U.S. benefits from the reliability of the U.S.-Mexican transmission connections as in the case of Texas 

where trading mostly happens during periods of constrained electricity supply. 

Following the reforms of Mexico's electricity market in 2014 there are new opportunities for a unified 

North American grid and for increased electricity trade between the U.S. and Mexico. The cost of 

electricity for Mexican residential and business electricity consumers is among the highest in the 

hemisphere, on average 25 percent higher than in the U.S., creating opportunities for U.S. power 

generation to supply the Mexican market. There is also potential for greater electricity exchange from 

natural gas-fired or renewable generation on both sides of the border. Similarly, new transmission 

projects with Canada may enable access to new, existing, or expanded hydropower projects, the use of 

Canadian hydroelectric generation and pumped hydropower storage which would help states better 

meet their renewable portfolio standards and address the intermittency issues of renewables. 

2. Mexico I Ethanol: Recently, Mexico has devised a plan to raise the amount of ethanol that can be 

blended with gasoline. While some argue that this would promote job growth and lower air 

pollution, critics say that ethanol production has negative environmental implications and that other 

fuel additives are better at reducing air contaminants. What is your view on the use of ethanol in 

gasoline in Mexico? Should the U.S. generally support this plan? To what extent would an increase in 

ethanol or an ethanol mandate impact air pollution and ozone in Mexican and US cities? 

I do not have the expertise to answer this question. 

3. Mexico I Gasoline: Mexico has begun to slowly privatize its energy sector, and the Mexican gasoline 

market will be open to foreign suppliers for the first time since 1938 when the energy sector was 

nationalized. To what extent is PEMEX refinery infrastructure and gasoline distribution system 

compatible with increased ethanol production or an ethanol mandate? What new infrastructure 

costs will be needed to transport and blend ethanol into Mexican gasoline at refineries? 

I do not have the expertise to answer this question. 

4. North American Impact from Venezuela: Venezuela holds the largest proven oil reserves in the 

world and the second-largest natural gas reserves in the Americas after the U.S. Yet, the country is a 

mess. The national oil company, PDVSA, is exploiting its reserves so slowly that some experts render 

them worthless. If the U.S. were to impose crude oil restrictions from Venezuela as a result of the 

political situation in the country, what would be the impact in Venezuela, to U.S. companies, and to 

U.S. refineries? What impact would such an action have on the North American energy market? 
64

f


25729f-3.eps

The U.S. is Venezuela's largest crude oil export market. Venezuela produced 2.27 mb/d in 2016, of which 

30-35% was exported to the U.S. (0.7-0.8 mb/d). This represents approximately 5% of U.S. demand. 

Over half ofthese imports go to CITGO's refineries at Corpus Christi, Lake Charles and Lemont. The 

majority of the rest goes to Valero Energy, Phillips 66, and Chevron Corp. The grade of oil that the U.S. 

imports from Venezuela is predominately extra heavy oil. An embargo would force Venezuela to find 

logistical work a rounds in the export of its crude oil. In absence of a U.S. market these 0.7-0.8 mb/d 

would likely be redirected to Asia, which would increase crude shipping costs, which in turn would 

reduce PDVSA's profits. This would also reduce CITGO's profits, who would no longer be able to 

purchase from its parent company, PDVSA, and would be forced to pay more in turning to the spot 

market. Crude oil restrictions would also increase costs for other refiners who would need to purchase 

heavy crude from further afield (likely the middle east). Increased costs for CIT GO and other domestic 

refiners, would in turn be translated to higher gasoline and diesel prices, with the consumer footing the 

bill. 

Rep. Norma J. Torres 

TO: ALL WITNESSES: 

1. NAFTA /Indigenous Communities: If NAFTA is renegotiated, what is the best way to ensure that any 

agreement addresses the needs in those communities, including Native American tribes; the residents of 

the Rust Belt in the United States; and indigenous communities in Chiapas and Oaxaca in Mexico, which 

may have been adversely affected by the original NAFTA? 

While many of the concerns related to NAFTA have little to do with the energy sector, energy trade can 

be held hostage to other contentious issues or can be affected by other trade-related measures like the 

various Buy America proposals being discussed in the United States today. There are things that can be 

done to address the economic dislocations being experienced in many parts of North America and ways 

to build additional energy advantages among the three countries, but few of these lie within the context 

of renegotiating NAFTA. 
65


25729e-1.eps

Chairman Jeff Duncan 

Questions for the Record for Dr. Aaron Padilla 

House Committee on Foreign Affairs' Subcommittee on the Western Hemisphere Hearing 

"Energy Opportunities in North America" 

June 7, 2017 

1. NAFTA I Mexico I Canada: Mexico is the fourth-largest producer of petroleum in the Americas and 

an important U.S. energy trading partner. In 2015, Mexico accounted for 688,000 barrels per day 

or 9% of US crude oil imports. Canada's oil, gas and electricity exports also are nearly 25 percent 

of Canada's exports of goods to the U.S. Energy was also excluded in the original NAFTA 

agreement. Now that Mexico's energy sector has changed so significantly and the North American 

energy market is so interconnected, what would a good energy deal in a renegotiated NAFTA 

agreement look like for U.S., Canadian, and Mexican interests? 

For API and its industry members, there is a strong desire to see the provisions of the current NAFTA 

remain in place. The overall functionality of the current NAFTA agreement works for the oil and 

natural gas industry. API and its industry members therefore wish to ensure that as NAFTA is 

modernized, the provisions of the current agreement remain in place in a new NAFTA. Please find 

attached the comments by Kyle lsakower, API VicP President for Regulatory and Economic Policy, 

submitted on June 12, 2017 in response to the Office of the United States Trade Representative's 

request for comments on "Negotiating Objectives Regarding Modernization of the North American 

[):'"o;;_:I!:_i!9.§:_6g["-t!_"l?DLV~Ci1:.1:>.9.oa da i!.D.d M ~"'-'co." 
66


25729e-2.eps

2. Mexico I Ethanol: Recently, Mexico has devised a plan to raise the amount of ethanol that can be 

blended with gasoline. While some argue that this would promote job growth and lower air 

pollution, critics say that ethanol production has negative environmental implications and that 

other fuel additives are better at reducing air contaminants. What is your view on the use of 

ethanol in gasoline in Mexico? Should the U.S. generally support this plan? To what extent would 

an increase in ethanol or an ethanol mandate impact air pollution and ozone in Mexican and US 

cities? 

We would encourage a free market in Mexico and allowing up to 10% ethanol in Mexico would 

enable that market to work and allow transparent movement of fuels across the borders. We do not 

support a mandate to use any fuel including ethanol. 

Due to concerns regarding ozone, the government of Mexico prohibits the use of ethanol in motor 

gasoline (per Mexican Official Standard NOM 016-CRE-2016) in three of the most densely populated 

metropolitan areas, Mexico City (MCMA), Guadalajara (ZMG) and Monterrey (ZMM), which together 

account for over 10% of the population of the country. 

Vehicle emissions of total hydrocarbons, acetaldehyde, ethanol and nitrogen oxides (NOx) may 

increase and emissions of carbon monoxide (CO) may decrease when fuels blended with ethanol are 

used (based on recent research conducted by the US EPA and available here). Both acetaldehyde 

and NOx are important contributors to photochemical air pollution and ozone (03) 

formation. Recent research published by the Coordinating Research Council (available here) also 

suggests that gasoline containing 10% ethanol by volume contributes to increased emissions of 

particulate matter (PM) from light-duty vehicles. 

A report on the environmental and economic impacts of the US renewable fuel standard that was 

issued by the National Research Council in 2011 (and available here) includes the following 

statement on the air quality impacts of ethanol: 

"Air quality modeling suggests that production and use of ethanol as fuel to displace 

gasoline is likely to increase such air pollutants as particulate matter, ozone, and sulfur 

oxides. Published studies projected that avera// production and use of ethanol will result 

in higher pollutant concentration for ozone and particulate matter than their gasoline 

counterparts on a national average. Unlike GHG effects, air-quality effects from corngrain ethanol are largely localized. The potential extent to which the air pollutants harm 

human health depends on whether the pollutants are emitted close to highly populated 

areas and exposure. n 

It is important to recognize that (a) the fleet of vehicles on the road in Mexico is several years older 

than that in the U.S., and (b) there are differences in the historical stringency of environmental and 

other vehicle-related regulations in Mexico versus the U.S. These have contributed to differences in 

the technology and performance characteristics of the Mexico versus U.S. vehicle fleets which 

consequently influences a determination of the relative impacts of an increase in ethanol or an 

ethanol mandate on air quality in Mexican and US cities. 

2 
67


25729e-3.eps

3. Mexico I Gasoline: Mexico has begun to slowly privatize its energy sector, and the Mexican 

gasoline market will be open to foreign suppliers for the first time since 1938 when the energy 

sector was nationalized. To what extent is PEMEX refinery infrastructure and gasoline distribution 

system compatible with increased ethanol production or an ethanol mandate? What new 

infrastructure costs will be needed to transport and blend ethanol into Mexican gasoline at 

refineries? 

We are encouraged by the Mexican government's movement to a free market and believe the 

citizens of Mexico will benefit from this arrangement. While we do not have specific information 

regarding the gasoline distribution system in Mexico, we would offer that compatibility of retail 

infrastructure is critical to prevent environmental releases of fuel that might contaminate drinking 

water and streams. Further installation of the distribution infrastructure can be challenging. For 

example, the above ground storage tanks, piping and loading rack arms must be proven to be 

compatible and modified as appropriate to ensure the proper storage, mixing before being pumped 

into the truck to take to the retail station. Not to be overlooked, ethanol is incompatible with 

pipelines due to its affinity for water and for various other reasons. Thus the product must be 

transported by rail and/or truck to the terminal as it cannot be added at the refinery. Therefore a 

free market creates the best mechanism to determine where and/or if ethanol should be added to 

the distribution system. Other concerns with mandating volumes of ethanol to mix in the product 

could also have negative economic impacts. To the extent ethanol costs more than gasoline or its 

mandated use requires costly infrastructure upgrades, it could result in increased costs for 

consumers 

At the retail station, the U.S. EPA's Office of Underground Storage Tanks (UST) finalized a rule 

addressing compatibility in July 2015. If equipment was not built for ethanol blends it can damage 

equipment and as mentioned above, it can result in releases that harm the environment and 

potentially drinking water. The preamble to the EPA's final regulation finds: 

"EPA understands that the chemical and physical properties of ethanol and biodiesel 

can be more degrading to certain UST system materials than petroleum alone. As the 

use of ethanol- and biodiesel-blended fuels increases, EPA is concerned that not all UST 

system equipment or components are compatible with these fuel blends. For purposes 

of compatibility, EPA uses the term equipment to mean a group of components 

assembled together by the manufacturer. Compatibility can be determined for all 

components of a piece of equipment. Compatibility determinations for equipment are 

typically useful when an UST system is newly installed or when a complete piece of 

equipment is replaced. Examples of equipment include the piping system, STP assembly, 

and automatic shutoff device assembly. A component is considered an individual piece 

of an UST system and is typically a single piece of the equipment. Component 

compatibility is determined on a piece by piece basis. [Emphasis added.] A component 

compatibility determination is typically needed when performing repairs on an UST 

system where only parts of a piece of equipment are replaced. Examples of components 

include gaskets, seals, and other individual pieces that form a piece of equipment. 

Gasoline containing 10 percent or less ethanol (ElO) has been used in parts of the 

3 
68


25729e-4.eps

United States for many years. UST equipment and component manufacturers 

accommodated the E10 market by producing compatible equipment and components." 

[The EPA established a requirement to address compatibility.] Owners and operators of 

these UST systems must meet one of the following options: 

Use equipment or components that are certified or listed by a nationally 

recognized, independent testing laboratory for use with the fuel stored 

Use equipment or components approved by the manufacturer to be compatible 

with the fuel stored. 

In addition, owners and operators may use another option determined by the 

implementing agency to be no less protective of human health and the environment 

than the methods listed above. 

Many pieces of UST equipment and components in the ground today were 

manufactured before regulated substances containing ethanol or biodiesel existed 

and are not approved by nationally recognized, independent testing laboratories for 

use with these fuel blends. [emphasis added] Currently, certain tanks and piping have 

been tested and are listed by UL for use with higher-level ethanol blends. However, 

many other pieces of equipment and components of UST systems, such as leak 

detection devices, sealants, and containment sumps, may not be listed by UL or another 

nationally recognized, independent testing laboratory for use with these blends." 

[41602-41603 Federal Register I Vol. 80, No. 135 I Wednesday, July 15, 2015 I Rules 

and Regulations] 

4 
69


25729e-5.eps

4. North American Impact from Venezuela: Venezuela holds the largest proven oil reserves in the 

world and the second-largest natural gas reserves in the Americas after the U.S. Yet, the country is 

a mess. The national oil company, PDVSA, is exploiting its reserves so slowly that some experts 

render them worthless. If the U.S. were to impose crude oil restrictions from Venezuela as a result 

of the political situation in the country, what would be the impact in Venezuela, to U.S. 

companies, and to U.S. refineries? What impact would such an action have on the North American 

energy market? 

We recognize the crisis in Venezuela and the potential issues it could raise, specifically for the oil 

and natural gas industry. In the short-term, limiting crude oil imports from Venezuela may impact 

production of refined products at several U.S. refineries, which support American workers and 

produce refined products for U.S. consumers and international customers. Venezuela is the third 

largest exporter of crude oil to the United States behind Canada and Saudi Arabia. In 2016, 13 U.S. 

refineries imported 271 million barrels of crude oil from Venezuela, representing approximately 10 

percent of all crude oil imports. 

Should the United States impose crude oil restrictions from Venezuela, these U.S. refineries would 

need to find alternative sources of crude oil. However, those refineries are specifically configured to 

efficiently process that heavy crude oil from Venezuela, requiring them to identify alternative 

supplies and negotiate new purchase contracts. These refineries also may have to re-configure 

operations to meet the physical characteristics of the new crude oil. 

While U.S. refineries in the Gulf Coast import and process Venezuelan crude oil, we believe that 

market forces are best suited to address any potential reduction in Venezuelan imports. As you 

know, private enterprise and market forces dictate the level of oil and natural gas production and 

where energy flows based on demand. For example, the U.S. energy renaissance increased supplies 

and put downward pressure on global crude oil prices, impacting production decisions and 

government revenues around the world. That is why it is so important to maintain and enhance the 

robust North American energy market, which facilitates the flow of energy across our borders with 

Canada and Mexico and helps to insulate American families and businesses from potential supply 

disruptions from other regions. 

5 
70


25729e-6.eps

Representative Norma J. Torres 

Question for the Record for Dr. Aaron Padilla 

House Committee on Foreign Affairs' Subcommittee on the Western Hemisphere Hearing 

"Energy Opportunities in North America" 

June 7, 2017 

1. NAFTA/Indigenous Communities -If NAFTA is renegotiated, what is the best way to ensure that 

any agreement addresses the needs of communities, including Native American tribes, rust belt 

residents, and indigenous communities in Chiapas and Oaxaca in Mexico that may have been 

adversely affected by NAFTA? 

The safety, health and protection of people, the environment and communities are the top priorities 

for the natural gas and oil industry. For development to be a positive experience for communities, it 

needs to be aligned with community concerns and priorities while remaining grounded in 

responsible practices. The industry has worked to gather and share best practices for community 

engagement and to encourage widespread company adoption as part of its commitment to the 

communities in which it works. The industry's commitment to being a good neighbor throughout 

the full project life cycle requires integrity, transparency, consideration of community concerns and 

ongoing dialogue with local communities and other key stakeholders. These principles form the 

basis for American National Standards Institute (ANSI)/ API Bulletin 100-3 Community Engagement 

Guidelines (First Edition, July 2014). 1 The guidelines outline what local communities and other key 

stakeholders can expect from operators, so both sides can refer to it. The industry strives to be 

aware of and sensitive to community1 cultural 1 economic and environmental context. That means 

considering the norms, values and beliefs of local stakeholders and how they live and interact with 

one another. 

The 21st century energy renaissance has created unprecedented opportunities for Americans of all 

backgrounds. The potential is outlined in a study conducted by IHS entitled "Minority and Female 

Employment in the Oil and Natural Gas and Petrochemical Industries, 2015-2035." 2 The study 

estimates that nearly 1.9 million job opportunities could be created through 2035 in America's oil, 

natural gas and petrochemicals industries. This includes nearly 244,000 job opportunities in the East 

North Central and Middle Atlantic states. These are good-paying careers that pay an average of 

nearly $50,000 higher than the U.S. average. The report also estimates there are nearly 707,000 job 

opportunities projected to be filled by African American and Hispanic workers, and 290,000 

projected to be filled by women. In addition, the study states that "Growth in the oil and gas and 

related industries has been significant in regions where American Indians and other Native 

populations constitute a larger portion of the population, such as Alaska (20 percent of the 

population), Oklahoma (13 percent of the population), and the Dakotas (8 percent of the 

population). Further, in 2011 an estimated 20% of known U.S. oil and gas reserves were beneath 

_http://vvww.~Qledis/Files/Policv[lobs/16-Marc:h-Women-fViinorities~JobHM_inoritv-and-FemaieE mp I oymem-2015-2035. pdf 

6 
71

f


25729e-7.eps

tribal lands; according to the Department of the Interior (DOl), Indian lands could produce up to 

5.35 billion barrels of oil and 37.7 trillion cubic feet of natural gas." 

7 
72


25729g-1.eps

Questions for the Record 

Duncan Wood 

House Committee on Foreign Affairs' Subcommittee on the Western Hemisphere Hearing 

"Energy Opportunities in North America" 

June 7, 2017 at 10:00 p.m. in Rayburn Room 2172 

Chairman Jeff Duncan TO ALL WITNESSES 

I. NAFTA /Mexico I Canada: Mexico is the fourth-largest producer of petroleum in the Americas and an 

important U.S energ! trading partner. In 2015. Mexico accounted for 688.000 barrels per day or 9%, of US 

crude oil imports. Canada· soiL gas and electricity exports also arc nearly 25 percent of Canada· s exports 

of goods to the U.S. Energy was also excluded in the original NAFTA agreement. Now that Mexico·s 

energy sector has changed so significantly and the North American energy market is so interconnected, 

what would a good energy deal in a renegotiated NAFTA agreement look like for U.S., Canadian, and 

Mexican interests? 

In my opinion. the best deal is one that achieves several goals: 

i) Free trade in energy and energy products between the three NAFTA nations: this means free 

flow of electrons and molecules and energy services, which will greatly benefit US producers 

ii) A process of regulatory convergence for industrial safety and environmental protection 

iii) Strong investor protections and effective dispute settlement mechanisms 

2. Mexico I Ethanol: Recently. Mexico has devised a plan to raise the amount of ethanol that can be blended 

\vith gasoline. ~'hile some argue that this vvould promote job gro\\th and lower air pollution, critics say 

that ethanol production has negative ein-ironmcntal implications and that other fuel additives arc better at 

reducing air contaminants. \Vhat is your vie\Y on the usc of ethanol in gasoline in Mexico? Should the U.S. 

generally support this plan? To \\hat extent \\Ould an increase in ethanol or an ethanol mandate impact air 

pollution and ozone in Mexican and US cities? 

The usc of ethanol in Mexico is severely hindered by supply problems. largely because Mexico-s 

production of ethanol is insufficient. Mexican com is ill-suited to produce ethanol and alternative sources 

have not been developed yet. Increased ethanol use in the gasoline mix in Mexico would be a good tiling if 

it resulted in a cleaner mix and if the ethanol could be produced in an energy/carbon efficient manner. 

3. Mexico I Gasoline: Mexico has begun to slO\\ly privatize its energy sector, and the Mexican gasoline 

market will be open to foreign suppliers for the first time since 1938 \Yhen the energy sector \Vas 

nationalized. To vvhat extent is PEMEX refinery infrastructure and gasoline distribution system compatible 

with increased ethanol production or an ethanol mandate? \\rl1at new infrastructure costs \\ill be needed to 

transport and blend ethanol into Mexican gasoline at refineries? 

Mexico· s refinery system is aged and desperately in need ofne\v im-estment and technology On its own, 

Pemex cannot hope to meet these needs. Partnerships \Vith the private sector could make it happen, but at 

the present time ti1ere is not a huge interest in such partnerships 

4. North American Impact from Venezuela: Venezuela holds the largest proven oil reserves in the world and 

the second-largest natural gas resen'es in the Americas after ti1e U.S. Yet. ti1e count~)· is a mess. The 

national oil company. PDVSA. is exploiting its reserves so slowly that some experts render them 

worthless. If the U.S. \\ere to impose crude oil restrictions from Venezuela as a result of the political 

situation in the cmmtr:y, \Vhat vvould be the impact in Venezuela. to U.S. companies. and to U.S. refineries? 

What impact would such an action have on the North American energy market? 

I do not have a response to this 
73

Æ


25729g-2.eps

Rep. Norma J. Torres TO ALL WI1NESSES 

I. NAFTA /Indigenous Communities: If NAFTA is renegotiated. what is the best wa~ to ensure that any 

agreement addresses the needs in those communities. including Native American tribes; the residents of 

the Rust Belt in the United States: and indigenous communities in Chiapas and Oaxaca in Mexico, \Yhich 

may have been adversely affected by the original NAFTA? 

What is needed is a fully inclusi\·e and ongoing consultation across the three countries and special 

mechanisms to ensure that the renegotiated agreement otiers opportunities for all such conmnmities to 

benefit from trade. Workforce development is an issue that has been proposed b)- the Mexican govenunent 

and that we should consider at a regionalle;el