Time for US-Mexico Transboundary Agreement

At the climax of the film “There Will Be Blood,” oil man Daniel Plainview declares to Eli Sunday, “I drink your milkshake!” That is, Plainview has drained the Sunday family’s oil by working adjacent lands. 

Such was the concern of many in Mexico that led to an oil exploration moratorium along our maritime border. Congress should now approve a more neighborly solution.

The United States-Mexico Transboundary Agreement (TBA) would enable cooperation between our two federal governments and our companies to unlock the potential for oil and natural gas reserves that extend across our Gulf of Mexico maritime boundary.

Congressional approval of the TBA would enrich U.S.-Mexico relations in the near term while laying the foundation for improved energy security and enhanced environmental protection for the Gulf Coast.

Bilateral relations with Mexico have improved dramatically in recent years, yet energy cooperation has lagged. Oil holds a privileged position of national pride and constitutional protection in Mexico, historically putting it off limits for domestic reform and bilateral cooperation with the U.S. The TBA is, therefore, more than just an energy agreement. Its approval by the Mexican government is a political statement opening a window to richer relations.

While the area under future jurisdiction of the TBA could provide incremental domestic oil production, a far greater prize for the U.S. oil portfolio is the prospect of more reliable oil trade with our ally Mexico. The TBA would, for the first time, allow oil majors to work in joint production arrangements with PEMEX and support the confidence building necessary to enable those arrangements more widely in Mexico. That is not only good for oil major shareholders, it is good for our nation’s energy security.

Even as U.S. domestic oil production increases, the sources of our imports remain critical for economic stability and national security flexibility. Recently, Mexico was supplanted by Saudi Arabia as our second largest foreign oil source after Canada.

Mexican oil production has dropped by more than a quarter over the last decade, and U.S. refiners geared for heavy oil had to look elsewhere to make up the difference. Canadian heavy crude production is increasing in the country’s oil sands region, but pipeline infrastructure is insufficient. Therefore, in effect, the U.S. has had to increase imports of Middle East crudes in order to make up for shortfalls in Mexico. The TBA alone will not structurally reverse Mexico’s oil decline, but it is likely a necessary first step along that path.

Regardless of TBA approval, Mexico’s PEMEX will continue its deepwater exploration near the U.S. border. With memories of Deepwater Horizon still fresh, it is worrisome that Mexico’s oil safety regulator, known as CNH, has almost no capacity to provide independent on-site inspections. All facilities operating under the TBA would be subject to U.S. inspectors with the ability to stop operations. Moreover, U.S. and Mexican regulators would work hand in hand, offering support for more systematic improvement.

Given the foreign policy, energy security, and environmental benefits of the TBA signed in February 2012, it is disappointing that the Obama administration has delayed taking steps necessary for Congress to approve the agreement. That delay does not make it any less important for Congress to approve the agreement soon.

Congress has a critical role in clarifying certain provisions of this international agreement. Dispute resolution mechanisms warrant particular attention. Already, it has been mistakenly argued that the TBA requires greater secrecy in payments of oil deals, encouraging an effort to exempt the agreement from the Cardin-Lugar transparency law. No such secrecy is required by the TBA, which subordinates its confidentiality rules to domestic law.

The longer the TBA sits on the shelf, the more likely it will be hamstrung as a proxy for more rancorous energy disputes.

Prompt Congressional activity could be a useful vote of confidence in the upcoming domestic energy sector reform in Mexico. Mexico needs new oil production from more complex fields to counterbalance its declining fields, let alone increased production. Leaders in Mexico’s two largest political parties know that under current capital and management constraints, PEMEX alone is extremely unlikely to turn Mexico’s oil and natural gas abundance into prosperity for the Mexican people. International oil majors are needed, but that will take political courage.

Congressional approval of the TBA would tangibly demonstrate that the U.S. government and our companies are willing partners. That is good for Mexico and for the U.S.

Brown is non-resident fellow at the German Marshall Fund of the United States. Meacham is director of the Americas Program at the Center for Strategic and International Studies. They previously served as senior advisers on the Republican staff of the Senate Foreign Relations Committee and authored the report Oil, Mexico, and the Transboundary Agreement.