Mexican accord on gas pricing reached between Pemex, users

Jan. 22, 2001
The Mexican government early last week reached an agreement with private industrial customers to resolve a dispute over a spike in natural gas pricing.

The Mexican government early last week reached an agreement with private industrial customers to resolve a dispute over a spike in natural gas pricing.

Reflecting higher prices in the US, state-owned Petroleos Mexicanos has, in recent months, sharply boosted natural gas prices to its customers. After a series of layoffs and operations curtailments in response to the sharply higher gas prices, industrial gas consumers, notably in northern Mexico, had called for intervention by new Mexican Pres. Vicente Fox (see related story, p. 18).

The agreement generally entails that Pemex would pass on to industry the benefits of its gas price hedging coverage and would for 3 years charge customers a flat $4/MMbtu. Mexican industrial customers had demanded $3/MMbtu as a "Mexico price." The basic international reference price for gas that Pemex uses-based on the Houston Shipping Channel price-would continue in force.

The agreement would be optional: The customer could choose this fixed-price policy or continue buying gas on the spot market-from Pemex or importing it via open-access pipelines from the US.

The program is retroactive to Jan. 1 and replaces all previous financing schemes for gas offered by Pemex. The earlier plan, announced Dec. 29, fixed the price of gas at $4/MMbtu-with the difference between that price and the then-market price of $9.56/MMbtu financed for 4 years by Pemex at 8% interest.

It remains to be seen whether the US or Canada, partners in the North American Free Trade Agreement with Mexico, will object to this financing scheme as a disguised form of subsidy, said Houston analyst and Mexico specialist George Baker.

Pemex Gas chief Marcos Ramirez said that the total cost of the program would not be known until 2004. The cost of the earlier program was estimated at $30 million.