Why the US Needs Its Neighbors for Energy Trade

North America's energy trade is not a single integrated market but rather two powerful bilateral relationships: Canadian oil flowing south into US refineries and American natural gas powering Mexico's economy. As negotiations for the USMCA trade agreement approach, energy executives, regulators, and policy experts largely agree that the current arrangement works remarkably well and the best outcome may be to leave it largely unchanged.

Howard Energy Partners CEO Mike Howard notes that roughly 70% of Mexico's energy comes from the United States, while former Canada Energy Regulator CEO Gitane De Silva points out that about 60% of US oil imports originate in Canada. This interdependence means that any disruption to these flows could have significant implications for energy prices and supply security across the continent. For traders, the stability of these bilateral relationships is a key factor in assessing North American crude and natural gas price differentials, as well as refinery utilization rates.

Looking ahead, the USMCA renegotiation will be closely watched for any changes to energy trade provisions. Market participants should monitor tariff adjustments, rules of origin requirements, and any new restrictions on cross-border energy flows. The current integrated nature of the market—with Canadian heavy crude feeding US Gulf Coast refineries and US natural gas supporting Mexican power generation—has created efficient price discovery and reliable supply chains. Any significant deviation from the status quo could introduce volatility in energy commodity prices across the region.