Bush Pushes Energy Plan in Mexico

When President Bush meets today in Mexico with President Vicente Fox, he will deliver the same message he did to Canadian Prime Minister Jean Chretien last week in Washington: Let’s share energy.

Bush wants a “hemispheric energy policy” that, although only vaguely defined so far, would foster the seamless flow of oil, natural gas and electricity among the three nations and reduce barriers that limit foreign access to energy resources.

It is a goal that Chretien embraces but that presents Fox with big practical and constitutional problems.

And the White House initiative faces opposition from other quarters as a result of California’s power debacle, which is now drawing blame for soaring energy prices in Canada and Mexico, as well as the United States. It has sparked a global reassessment of energy deregulation and could turn America’s energy industry into the latest target for anti-globalization forces.

“The energy companies could easily become a poster industry for the message that, if globalization means a market economy, then that’s bad news,” said Gary Hufbauer, a trade analyst at the Institute for International Economics in Washington.

As the world’s biggest single consumer of energy, the U.S. has a point of view that to some outsiders--especially in energy-producing countries such as Mexico and Canada--is purely one of self-interest. Critics liken the U.S.-led deregulation effort to economic imperialism disguised as free trade, where the U.S. forces other countries to open their energy markets to powerful American firms that then siphon off the energy for SUV-driving, electricity-gobbling Americans.

“We now have a continental energy market largely run by American corporations that is based on a model of increased consumption and the premise that we’ll never run out [of energy],” said Maude Barlow, chairwoman of the Ottawa-based Council of Canadians, that country’s largest public-interest group.

In his first few weeks in office, Bush has used California’s electricity shortage as ammunition to promote the need for a long-term energy policy centered on greater development of oil and natural gas. One element would have oil, gas and electricity flow more freely within North America.

So far, the former Texas oilman’s plans for a continental energy market have been long on rhetoric and short on details. U.S.-Canada trade in energy is already largely unfettered, with Canada sending $27.6 billion in energy products south in 1999. And U.S. energy firms are major players in Canada.

“We are in the business of selling them oil and gas and electricity,” Chretien said after meeting with Bush.

But as its own energy reserves dwindle and its appetite grows, the United States has a lot to gain from reducing barriers everywhere to trade in oil, gas and electric power, an economic enterprise valued at between $600 billion and $1 trillion worldwide.

That is why Washington over the years has sought to open up energy markets through pacts such as the North American Free Trade Agreement and the World Trade Organization.

Previously, energy services such as oil production and electricity transmission were not part of trade agreements because those areas were largely controlled by government-owned monopolies. But today, at least 100 countries are in some stage of energy deregulation or privatization, according to Robert Michaels, a deregulation expert at Cal State Fullerton.

Deregulation advocates argue that tearing down these barriers will foster investment in infrastructure in energy-rich but undeveloped countries, speeding the construction of power systems. They point out that nearly 2 billion people around the world don’t even have access to electricity or other forms of commercial energy.

But the California experience has changed attitudes everywhere. Energy analyst Lawrence Makovich of Cambridge Energy Research Associates in Cambridge, Mass., has been traveling the globe urging anxious governments not to turn their backs on energy deregulation because of California’s failed deregulation scheme.

“We are at a very critical point here,” Makovich said. “Are we going to continue and fix this market and get things right, or retreat back toward government control and regulation?”

Trade agreements such as the WTO establish rules on how markets should be liberalized and the proper role of government. A U.S. proposal to add energy services to the WTO trade pact, for example, would require countries to do away with excessive tariffs on drilling equipment and prohibit preferential treatment for domestic firms in bidding for oil concessions or getting access to electrical grids.

“There are reasons why historically these [energy markets] were set up as integrated monopolies, because they knew security of supply was essential to any modern economy,” said Ellen Gould, an economist in Vancouver, Canada, who served on the board of BC Hydro, British Columbia’s publicly owned utility. “You can’t have the lights go out. [But] you can’t introduce market forces unless you’re prepared to see a little blood.”

Political and economic tensions over energy in the NAFTA region, especially in Canada, illustrate the obstacles facing the Bush initiative.

Under NAFTA, Canada agreed to reduce government intervention and ensure a more stable flow of energy across the border in exchange for increased access to the much larger U.S. market. That included a pledge not to give Canadian customers preferential treatment by charging them less than foreigners and to maintain exports at a certain level, even if Canada was experiencing a shortfall or price surges at home.

Since then, Canada’s exports to the United States have jumped dramatically. Canada’s share of the U.S. natural gas market has tripled to 15%.

Throughout California’s energy crisis, Canadian producers and governments in resource-rich provinces have enjoyed a windfall because of the resulting price run-ups.

But in Alberta, which in January became the first Canadian province to deregulate electricity, a sharp spike in gas and electricity prices has triggered a consumer and business backlash. Energy has become a hot issue in an upcoming provincial election, and the government has provided hundreds of millions of dollars in energy rebates to unhappy customers. Even the province’s largest manufacturers have pronounced electricity deregulation a mistake.

Steven Shrybman, a trade attorney in Ottawa, believes Canada signed onto a pact that undermined its sovereignty while allowing the United States, by getting more oil and gas from Canada, to reduce its dependence on oil from the Middle East and lessen the likelihood of going to war to keep its cars and heaters fueled.

From the American point of view, Shrybman says, “I regard these provisions of NAFTA as an alternative to the Iraq war.”

In Mexico, the constitution requires that natural resources remain under domestic control. The country was exempted from most of NAFTA’s energy market-opening provisions. That has made foreign firms wary of investing in Mexico’s energy sector.

“You can’t have any foreign ownership, and yet they want investment and joint-venture partners,” said Enron’s Hillings. “There’s an awful lot of gas right around the Texas-Mexico border that’s never been developed.”

Meanwhile, Mexico can’t even meet its own burgeoning demand for gasoline or electricity. By some estimates, Mexico needs to invest $30 billion in energy, including natural gas to feed new power plants, money that Fox has said will have to come from outside investors. U.S. energy firms are already building power plants in Baja California and other parts of Mexico, but nearly all the output is needed in Mexico itself.

Sergio Rivas, an economist at Primer Enfoque, an energy consulting firm in Mexico City, predicted that Fox will have trouble persuading Mexicans suffering brownouts themselves that they should provide energy to their wealthier northern neighbors.

“People would ask, ‘How is it possible we are thinking to supply electricity to the United States when we don’t have enough for our own consumption?’ ” Rivas said.

“In the political sense, this issue is very, very complicated.”

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