How Will US Energy Policy Shifts Alter Relations with Latin America?Dec 14 2016
President-elect Donald Trump has vowed to overhaul US energy and foreign policy in ways that could have important impacts on energy relations with Latin America and the Caribbean. He has promised to open up public lands to oil and gas drilling, reduce environmental regulations and renegotiate NAFTA. But, just weeks after the election, it’s still unclear how these policies would be carried out and what their impacts would be for the rest of the hemisphere. The Inter-American Dialogue, in collaboration with the Institute of the Americas, invited Trump’s advisors, US energy company representatives and Mexican government officials to discuss US-Latin America energy trade and cooperation under the next administration.
In recent years, Latin America has become a key destination for US exports and investment. Half of US refined product exports are sent to Latin America. The US exports significant volumes of LNG to Argentina, Chile, Brazil, and the Caribbean. And, since the US crude oil export ban has been lifted, the United States recently started exporting light crude oil to Venezuela and other countries in the region.
But the largest hemispheric partner in energy trade by far is Mexico. The US now provides 40% of Mexico’s natural gas needs, and US crude oil and refined product exports to Mexico have reached almost 100,000 barrels per day, noted Jeremy Martin, vice president of energy and sustainability at the Institute of the Americas. This trade is enabled by a network of 17 cross-border pipelines, which will double in capacity by 2020.
Latin America is also an important destination for US corporate investment. Mexico’s energy reform has opened up significant investment opportunities, and 25% of the companies that participated in Mexico’s successful deepwater bid round last week were from the United States, noted Hector Castro, minister for energy affairs at the Embassy of Mexico in Washington. Ongoing reforms elsewhere in the region — for example in Brazil and Argentina — will provide additional investment opportunities.
To the extent that economic cooperation, trade, and investment with Latin America are flourishing, the Trump administration will maintain current policies that support these trends, according to Michael McKenna, an energy lobbyist and president of MWR Strategies who formerly led Trump’s Energy Department transition team. But Trump’s team also sees potential to further develop the oil and gas sector and increase production and exports by opening more public lands to drilling, exporting more value-added products, such as petrochemicals, giving local communities a stake in pipelines in an effort to alleviate infrastructure bottlenecks and introducing more efficient regulation to enable investment.
There will likely be important changes to energy-related foreign policy under the new administration as well. Under Obama, promoting climate change mitigation and clean energy has been a key component of US foreign policy. The United States has facilitated the increased use of renewables in some countries, largely through loans from the Overseas Private Investment Corporation (OPIC) and the Export-Import Bank (Exim). Last year, in the lead up to COP21 in Paris, President Obama made climate-related announcements at many meetings with heads of state, including Brazil and China.
Under the new administration, foreign policy on energy issues will focus on the most economically viable energy sources – whether that is wind, solar, or coal – and not the climate impact of those sources, said McKenna. OPIC and Exim will probably no longer be limited to funding renewable energy, air pollution, waste management, and similar projects, but instead will provide support for a wide array of energy projects, including coal and natural gas if it makes commercial sense, he added.
However, the panelists also noted that many aspects of US energy and foreign policy are likely to remain in place. Despite Trump’s promise to unleash the United States’ oil and natural gas potential, in some ways it has already been unleashed thanks to market forces and technological advances, noted Erica Bowman, chief economist at the American Petroleum Institute. Even under current regulations and today’s low price environment, US oil and gas production has remained resilient, she noted.
Energy security cooperation with Central America and the Caribbean has been another important foreign policy focus during the Obama administration, and may continue under the new administration due to bipartisan congressional support on the issue, said Lisa Viscidi, director of the Energy, Climate Change, and Extractive Industries Program at the Inter-American Dialogue. The US has played a role in donor coordination and access to finance and has helped Central America and the Caribbean reduce dependence on foreign oil.
On Trump’s plans to reduce what he sees as a regulatory burden, it’s also unclear how much will change. State-level regulation and technology development will continue to play an important role for energy and the environment, said Mark Nelson, regional vice president at Sempra Energy. Carlos de Regules, executive director of Mexico’s Agency for Safety, Energy, and the Environment (ASEA), views regulation – which provides clear and common long-term rules of the game – as an enabler of the oil and gas business. He noted that technical cooperation with the United States, for example on shale development regulations, has been important to Mexico and that Mexico’s environmental regulations for deepwater drilling drew from best practices and lessons learned from the US Bureau of Safety and Environmental Enforcement and the Bureau of Ocean Energy Management. De Regules also expressed concern that changes to US environmental standards under Trump could turn the country into a “polluter’s paradise,” drawing investment away from countries like Mexico that have maintained commonly agreed upon environmental standards.
It remains to be seen how Latin America policy will develop under the new administration. Panelists agreed that the new president will focus on how the US can continue to be a global leader in oil, natural gas, and refined products and that maintaining exports to and investment in Latin America will remain a priority.