SAN ANTONIO — The Border Energy Forum XXIV drew attendees and speakers from both sides of the U.S.-Mexico border to the banks of the River Walk on Aug. 20-21. The North American Development Bank (NADB), created by the two countries to develop infrastructure and protect the environment along their border, hosted the event, which was begun in 1994 by the Texas General Land Office to exchange information about energy, economic development and environmental issues.
Of course, there have been many political, regulatory and market changes along the border during that quarter century. Duncan Wood, director of the D.C.-based Woodrow Wilson Center’s Mexico Institute, remembered a time “when you couldn’t talk as a foreigner about Mexican oil and gas.”
But when Mexico began opening its electricity market in 2013, it relied on ERCOT and other RTOs for best practices in operating competitive markets. Private investment in renewable projects and transmission was welcomed.
That all changed when Mexico elected Andrés Manuel López Obrador, commonly referred to as “AMLO,” to a six-year term as president. He put the brakes on the market reforms, moved to centralize authority and focused his attention on the country’s natural resources.
“Because of the change in government, we’re seeing a realignment of the priorities in the relationship,” said Wood, who has been tracking the U.S.-Mexico energy relationship since 2005. “We’ve moved from a paradigm focused on energy security to a focus on energy independence. The U.S. wanted a friendly, reliable partner for crude oil, but by 2013, the conversation was no longer about, ‘We need the oil.’ That’s good for Mexico. That will help them transform their economy, and it’s an opportunity for the U.S. to invest in Mexico.”
Wood said while investments have continued on both sides of the border, he is not as optimistic as others that the two countries will continue to share their expertise and trade. He said centralizing the decision-making within the state-run legacy petroleum and electric organizations and the “erosion” within the institutions from political pressure “make it really tough to stay optimistic.”
“Those two factors are really forcing a lot of people who haven’t invested in Mexico to think … ‘Now is not the time to go in,’” Wood said. “I feel we’re in very much of a pause, a prolonged pause. I don’t think we’re going to get very far. There’s much less progress than around [former presidents] Enrique Peña Nieto or Felipe Calderon.
“Are we seeing a closing of Mexico?” he asked, rhetorically. “I think it’s not unusual. This is more normal than the exception. Calderon and Peña Nieto were the exceptions. We hope there’s a further opening or reopening of Mexico. We will be missing out on a greater integration of energy infrastructure and the complementariness of renewable resources.”
“The changes under the last administration were enormous,” said Beth Urbanas, deputy assistant secretary for Asia and the Americas in the Department of Energy’s Office of International Affairs. “We do understand the new administration has priorities and concerns, mainly related to the energy system’s sustainability. We understand these are difficult processes to develop, and the Mexican system is now going through some of those pains.
“We want to be sympathetic and approachable, to carefully look at AMLO’s priorities and see areas where we can work together going forward,” she said. “We want to focus on areas where the door appears to be open. Our goal is about technology exchange and shared goals in the energy sector, like more energy efficiency, cleaner technologies [and] reliable resources. These are all things that are common across both administrations in the United States and Mexico.”
Wood did see a reason for hope. He noted López Obrador is only pausing the reforms, not rolling them back, and he understands the “retail aspect” of the energy reforms. That takes the focus off an economy that contracted by 0.2% in the first quarter this year and where oil production — a key economic driver — fell by 10% in May to its lowest level in 40 years.
“AMLO seems to like infrastructure,” Wood said. “Can he be convinced to spend because Mexico doesn’t have the will to take foreign investment?”
First USMCA, then Infrastructure?
U.S. Rep. Roger Williams (R-Texas), seated alongside Mexican Sen. Cruz Pérez Cuéllar, was among several speakers who extolled the United States-Mexico-Canada Agreement (USMCA). The pact, an update of the 1994 North American Free Trade Agreement, has yet to be ratified by Congress or Canada. Mexico’s government approved it in June.
“I believe NAFTA has really been good for Texas, but it’s a little long in the tooth,” Williams said.
“It’s the right thing to do: the right thing to get it on the floor, the right thing to get it passed. It’s political. One side doesn’t want to support it, because it’s a win for the other side,” he said, referring to political divisions in D.C.
Williams said he would like to see the approval of the agreement followed by infrastructure spending. His concern is the 28 points of entry between Texas and Mexico, where vehicles can wait six to seven hours to clear customs.
“We’ve got to have infrastructure if we want to move products and people across the border,” Williams said. “If you’re in the produce business and have to sit on the bridge for six hours, you may not have a product after that. I hope the passage of USMCA will force Congress to get an infrastructure bill to get things moving down here. Let’s pass this thing and get things going.
“At the end of the day, Mexico is our best friend. You’re our trading partner,” he told Pérez Cuéllar. “If it’s going to be good for you, then it’s good for us.”
The George W. Bush Institute’s Matthew Rooney offered a counterpoint to Williams, though he agreed the USMCA “represents a better effort to seize [on North American integration] than NAFTA did.”
“But missing from both USMCA and NAFTA are real commitments to cross-border infrastructure,” Rooney said. “There are no commitments to how we’ll move forward. That’s true in the energy space, and that’s true in transportation.”
Roberto Coronado, senior vice president at the Federal Reserve Bank of Dallas, said NAFTA’s integration of supply chains among the three North American countries has allowed Texas and other U.S. states to become more competitive in international markets, particularly in the manufacturing sector.
“We would expect the Texas economy and the U.S. economy should become even more competitive globally,” he said.
Agreeing with Wood that there’s a pause in investment in Mexico, Coronado said, “In due time, we can come back to the table and continue [investing in Mexico], because it presents even greater opportunities.”
Wood Urges Regional Approach to Border Energy
Wood used an example from the Great White North to suggest a regional approach, unhampered by national borders, to improved energy production. He cited a MISO initiative that he said stores renewable-sourced energy in pumped hydro facilities in the Canadian province of Manitoba.
“That seems commons sense. Why wouldn’t you use storage that’s just across the border?” he said. “The border is a literal line in the sand. It’s meaningless, but it affects us in so many ways. When you think in North American contexts, we would go a long way.”
“I love the idea of regional cooperation,” said Michelle De Blasi, senior energy and environmental attorney at Fennemore Craig and executive director of the nonprofit Arizona Energy Consortium. “Yes, countries have borders, but when you’re talking about energy and regional cooperation, it makes all the sense in the world. We miss opportunities because of border issues. You’ve got to get rid of the arcane laws that don’t make any sense to us.”
De Blasi’s organization helps the energy industry to support and retain companies in the state. She suggested a need to partner with Texas and New Mexico to share in the “plethora” of solar power. “In certain instances, California is paying us to take their solar power,” De Blasi said.
“Money follows certainty. If you don’t have the goal posts set for investors, they’re not going to invest,” she said. “The Mexican market is competing for dollars from investors who have other opportunities.
“Regulatory issues, mostly on the Mexican side, have changed [Mexico’s market]. You used to be able to bring outsiders into the market, but where there’s regulatory uncertainty … I don’t think we’ll get there,” De Blasi said.
Turning Attention to Central America
According to the Harvard Review of Latin America, the U.S. has intervened, directly or indirectly, in Central America 19 times since 1903. Several Border Forum speakers called for a joint intervention of a different sort to help stem the flood of Central American refugees at the U.S.-Mexico border.
“Mexico, because of the [energy] pause, is missing out on the chance to export energy to Central America,” Wood said. “AMLO wants development to solve the immigration problem. The U.S. and Mexico ought to be working much closer for providing gas and electricity to Central America.”
“We here in America would do wise in helping Mexico and countries south of Mexico to create an economy, build plants and facilities, give them a good wage,” said Williams, a co-sponsor of legislation in the House of Representatives that would increase U.S. funding of NADB. “When [Central America] has a strong economy, that’s one of the best things we can do as a country.”
Rooney said the energy price differentials between the U.S., Canada and Mexico reveal opportunity costs that reduce the continent’s global competitiveness.
“There’s an opportunity that the U.S., with its trading partners in the energy space, to open up economies for our friends in Central America,” he said. “By integrating the Central America energy market with the Mexico energy market, you will see the price differential decline between Mexico and Guatemala. That’s a huge impediment to the industrial development of Central America. We have an opportunity as a group to reach out and overcome that impediment and help Central America, which North America has been ignoring for decades.”
Energy Storage, Batteries Ahead of Regulations
A panel focused on new technology trends offered an optimistic view of the future.
Chris Melley, the director of business development for solar firm Origis Energy, said battery technologies are ahead of regulatory tariffs as their capacity improves and their costs decrease.
“We’re seeing a big change in battery energy storage,” he said. “Instead of more residential uses, we see an increased interest [in] utility-scale systems for commercial and industrial applications.”
“We’re living in the middle of a power sector transition,” said Riccardo Bracho, with the National Renewable Energy Laboratory. “Everywhere across the world, energy systems are looking for reliability, reducing carbon emissions [and] putting new cost-effect technologies to use, but they’re also looking at the challenges of electrification and also serving customers.”
Bracho said funding remains a concern in bringing these new technologies to market. “Funding gaps are very difficult to [overcome]. That’s where governments and universities have to take on [the responsibility] before private sectors can do something about it,” he said.
But Melley said many companies are not going to wait on governments or private investment to bring about the changes. He has first-hand experience, having been in Puerto Rico since Hurricane Maria devastated the electric grid in 2017.
“Multinational companies are doing this on their own [with batteries and microgrids],” he said. “They don’t want any electrons flowing past their meter, so that they get regulated. They’re not waiting for the regulators when the economics make sense, and they have the money to do so.”
— Tom Kleckner
