No matter what you call it, it’s valuable to AEC companies
Until the 2016 election, trade was a second- or third-tier topic. We cared about it when debating football, basketball, or baseball player exchanges, but it rarely dominated the news like it has since the election of President Trump. Since then, it’s become a key topic of national and international news, covering the ins and outs of tariffs, trade deficits, or the strength of the dollar in currency exchanges.
Yet while trade has broad geopolitical ramifications, it’s also an important topic for those of us in the AEC industries. In my world of energy, trade continues to impact what we do, where we do it, and our prospects for work with clients and partners throughout North America.
At Prime Engineering, we’re currently working on three projects in Texas directly related to trade. For two of them, we’re partnering with our client to develop infrastructure to transport gasoline and diesel fuel products into Mexico. Our clients face significant competition to bring this infrastructure to market. For the third project, we’re working with our client to expand an existing light product terminal. We’ve worked on a wide variety of pipeline projects as well.
Why is global trade important for our work?
It’s important to these projects because of relatively new energy policies in Mexico and their implications for the North American Free Trade Agreement (NAFTA) or, as it’s now being called, the US-Mexico-Canada Agreement (USMCA). No matter what you call it, it means business for Prime and a host of other energy and transportation-related companies throughout North America.
When Mexico implemented energy reforms in 2013, it opened the door to its oil, natural gas, and electricity industries to foreign companies. Among a host of benefits to Mexico and the US, the reforms allowed companies outside of Mexico to improve their infrastructure in both retail and wholesale fuel sales.
Those reforms coincided with the fracking and shale oil phenomenon in the US that has revolutionized the energy markets. This one-two combo has profoundly impacted the discovery and delivery of fuel oil, natural gas, and electricity.
As with all trade, goods and services flow in both directions. Mexico ships crude oil to the US and the US in turn exports natural gas and gasoline to Mexico. Because the US today produces a substantial percentage of its own oil and natural gas and additionally has the refinery capability that Mexico seeks to replicate, US companies can take raw product, refine it, and ship it back to Mexico to meet Mexico’s high demand for gasoline. In fact, Mexico currently accounts for roughly 60 percent of US gasoline exports. And as the world, including Mexico, seeks cleaner fuel sources, the US, as the top producer of natural gas in the world, is well positioned to meet Mexico’s high demand for it.
Kinder Morgan, a company that transports almost 40 percent of all the natural gas in the US, said that natural gas exports from the US to Mexico are estimated to increase from 2.9 billion cubic feet per day (bcfd) in 2015 to 5.2 bcfd in 2019, an increase of almost 80 percent.
This trade story is far from over. Many analysts see strong opportunities for US companies across the energy horizon. From pipeline construction and refurbishment, to rail and truck infrastructure developments, to ongoing investment in the oil and gas industry here in the US-the future of energy, trade, and transportation looks promising.
But there are also a few clouds on the horizon for US companies.
Just as President Trump rallies his fans with denunciations of unjust trade deals, the new President of Mexico, Andrés Manuel López Obrador, is criticizing his predecessor’s policy reforms that increased Mexico’s reliance on US trade. He has promised to stop importing gasoline and diesel fuel from the US and other countries by 2021: a tall task for a country that currently lacks the infrastructure to accomplish this.
Currently, Mexico can meet approximately one-third of its demand with fuel produced by Mexican refineries. By contrast, Texas refineries produce about 60 percent of that amount.
And as the news of recent weeks indicates, commodities are a volatile group. According to the Wall Street Journal, “Since the start of November, US crude prices have had four days in which daily losses exceeded 6 percent.”
As you read the news on your iPhone over lunch or watch it at the gym while you’re burning those holiday calories, remember that global trade isn’t some arcane political topic. It’s an opportunity for companies in our industry to build a more dependable and globally accessible energy infrastructure for ourselves and our neighbors around the world.
Happy Holidays to you all, and if you have any thoughts on energy challenges or opportunities, drop me a note at BEnochs@Prime-Eng.com.