Natural Gas Trade in North America: Building up to the NAFTA

Abstract

This paper traces the evolution of natural gas trade among Canada, Mexico, and the United States in the 1967-1992 period. In addition, the provisions of the North American Free Trade Agreement (NAFTA) that relate to natural gas trade are examined in the light of the corresponding aspects of the Canada-United States Free Trade Agreement (FTA). One of the main conclusions to emerge is that exports from Canada to the United States would likely continue to dominate North American natural gas trade patterns under the NAFTA. Past experience suggests that regulatory policies play a crucial role in determining trade patterns. In the case of Canada and the United States, the policies of deregulation implemented by the two countries prior to 1989 have proven to be much more important than has the FTA in encouraging cross-border trade in natural gas. Since the NAFTA allows Mexico to maintain a highly interventionist approach to energy policy, an internally-driven process of policy change will be required to liberalize natural gas trade between Mexico and the other parties to the Agreement. A few specific developments relating to natural gas trade among the NAFTA parties are also examined in the light of the Agreement.