Should North America Create Its Own Version of OPEC?

Since the 1970s, the Organization of Petroleum Exporting Countries has set the tone for the price and production levels for world oil.

Now, a hard-charging executive based in Dallas says it’s time for the United States, Canada and Mexico to join forces, flex their economic muscles and create a North American version of OPEC.

“It would be a wake-up to OPEC that you’re no longer the only 800-pound gorilla in the room, that there’s another version of you in North America and you need to take us seriously,” Chris Faulkner, CEO and chairman of Breitling Energy, told

Faulkner envisions a confederation of all three countries, which currently produce about 15 million barrels of oil per day, that could pave the way to North American energy independence while smoothing out price instability at the same time.

“I want to make this very clear: This is not for price manipulation,” Faulkner said in a telephone interview. “This is for price stability, a shield against volatility.”

Breitling Energy issued a news release Friday pitching the idea and quoted Faulkner saying, “If you like paying less than $3 per gallon for gasoline, this is the best way to ensure we’re not subject to being whipsawed around because of OPEC’s distemper.”

Can a U.S.-Mexico-Canada energy alliance really be created?

“It’s an idea that’s been discussed before and the devil’s in the details,” said Carlo Dade, director of the Centre for Trade and Investment Policy at the Canada West Foundation, a think tank based in Calgary, Alberta. “The obvious issues include, would it run afoul of antitrust laws in various countries? So there’s a host of immediate practical issues on the legal front.”

“It’s an intriguing idea, but right off the bat there are a number of things that need to be thought through,” said Tony Payan, director of the Mexico Center at the Baker Insitute for Public Policy at Rice University. “But the potential is there. And the ability of all three to achieve energy independence together is there. I don’t think any one of them can do it alone, but together it is quite possible they can do it.”

Faulkner foresees the three countries trading technology, production, information and infrastructure such as pipelines.

“We’re all in the same boat, all on the same side of the pond, we’re all fighting for the same thing,” Faulkner said. “I know Mexico wants piped oil from us. We’re bringing oil from Canada through truck and train and we’re supplying oil up to Canada so it’s all moving around already. Why not get us all at the same table?”

“That’s one of the quiet problems we have is moving the skilled people,” Dade said. “If you can have that up and down North America, the savings in terms of the labor would be significant and make us a helluva lot more competitive.”

How would a three-nation oil confederation be put together? Would it involve the respective governments? The biggest companies? Both? And who determines who makes decisions and who doesn’t?

“How much do we want to empower a trilateral agency with imposing a North American energy policy?” Payan asked. “How many teeth and how sharp the teeth on this particular council or trilateral agency? Would they have the power to enforce a series of decisions on a sector that, at least in the United States and Canada, operates pretty much on the invisible hand of the market?”

Those are thorny questions, especially regarding Mexico.

The government of Enrique Peña Nieto has made moves to introduce free market reforms to oil giant Pemex, but Payan said the corporation is still in the hands of the Mexican government.

“I’m not sure if this would not end up being another trilateral agency with very little power to truly impose restrictions on what is essentially market forces,” Payan said. “These are complicated questions.”

Dade points out the Canadian government has been reluctant to engage in efforts such as the North American Development Bank, created through the North American Freed Trade Agreement, and questions whether Canada would embrace a North American version of OPEC.

“There are questions about aligning interests,” Dade said in a telephone interview Monday. “The bilateral (agreements) tend to work well — Canada-U.S., U.S.-Mexico — but broadening it to include Canada and Mexico on the same page talking about energy requires a little more work.”

Faulkner knows there are plenty of questions.

“We floated it past our industry guys and … a lot of our senators and congressmen like this idea,” Faulkner said. “I don’t know if (President Obama) would be gung-ho right now. He should be but I don’t know if he will be, but I think it’s time to start talking about it.”

The idea comes a little more than four months after OPEC ministers decided not to cut production, which sent global oil prices — which were already sliding down — into a steep decline.

Since then, North American shale producers have had to slash rig counts and costs.

While OPEC’s dominant member, Saudia Arabia, announced earlier this month it increased production to its highest output in 12 years, other OPEC countries such as Nigeria and Venezuela have seen their economies take nosedives.

“We are the biggest producer and we are at their level, side by side and I think (a North American OPEC) makes a lot of sense,” Faulkner said.

“Whether the energy ministers of these three countries meet, whether it’s a panel or committee of the top oil executives based on producer size in the U.S. meet regularly with these three, or it’s the smartest guys all in one room, it’s a way to have a voice against OPEC that gives us a sizable counterpart to them. I think it reduces their influence. I think it plays into the chink their armor that they’ve already got right now, which is all their infighting.”

“To do it in opposition to OPEC or any other organization is probably not a good idea,” Payan said. “I think it should be a more positive, pro-North American framework than a defensive posture against anybody else.”

Dade thinks a potential U.S.-Canada-Mexico confederation may have more regional than global impact.

“The ability to move skilled people back and forth would allow projects to go ahead much more easily and it would also make us more competitive in North America,” Dade said. “So that would be a huge, huge win right there.”

Faulkner concedes the idea has a lot of moving parts.

“This will not happen overnight, but I think this would be good for North America and the rest of the world going forward,” he said. “It’s time to start talking about it.”

Article Author: Rob Nikolewski

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