By OGJ editors
HOUSTON, Aug. 5 -- Dissatisfaction over Mexico's reference sales price for natural gas has led industry users to push the Vicente Fox administration for permanent relief, according to a report issued by Mexico Energy Intelligence (MEI), a Houston-based trade publication published by Baker & Associates that covers energy markets and policy developments in Mexico.
From 1996 to January 2001, the Houston Ship Channel's gas hub was the reference price for natural gas sold in Mexico. This netback pricing system was suspended in January 2001 however, at the demand of Monterrey industry, and the government granted price relief through a 3-year contract for $4/MMbtu. This so-called "Mexico price" will end Dec. 31.
Because Mexico cannot compete against competitors with significantly lower gas prices, MEI said, Mexico's National Manufacturing Association on July 1 sent a "sharply worded, confidential" letter to President Fox criticizing the pricing and regulatory decisions of the previous administration that ended in 2000. It also proposed that Mexico adopt a basket of gas prices that reflects the energy input costs of Mexico's competitors, especially those in the 32 countries in which Mexico has signed free-trade agreements. Use of (the higher) US price indexes for natural gas puts Mexico at a competitive disadvantage, the letter reportedly argues.
"The future of Houston-indexed gas prices (in Mexico) is uncertain," commented George Baker, director of MEI. "Offshore manufacturing is motivated not only by lower labor costs but also by lower input costs of power, gas, water, and fuel. US companies went to Mexico for assembly operations, but continue to pay US gas prices. Chinese products are everywhere in Mexico, and gas prices in China are reportedly a quarter of those in Mexico," he observed. "These demands of Mexican industry will force the Fox administration to act—in one way or another."
Baker's report, MEI 64, which provides an overview of natural gas pricing in Mexico since the early 1990s, also examines and critiques the arguments of the letter to Fox, although the text of the letter has not been made public.