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Mexico Fixes Gas Prices To Assist Industry

Mexico Fixes Gas Prices To Assist Industry

In a move that appeared to appease the country's ailing industrial sector, the Mexican government agreed last week to sell natural gas to domestic industry at a fixed price of $4/MMBtu for the next three years. Steelmaker Hylsamex, among others, which had temporarily shut down facilities and laid off workers because of high natural gas prices, said it would soon restart one of four iron plants.

Another large employer, Compania Minera Autlan, a manganese and iron alloys producer, also said it would reopen its Molango refinery and its shuttered iron-alloy producing plant in Gomez Palacio sometime next month.

Until last week, Mexico was paying natural gas prices under U.S. market prices even though the country's oil and gas industry is managed by Petroleos Mexicanos (Pemex), the state-run monopoly. Natural gas prices in Mexico had reached almost $10/MMBtu since 1999, when fuel sold for about $2/MMBtu. The new agreement was reached by Mexico's Ministries of Energy and Economy and several industrial organizations, and it is retroactive to Jan. 1.

Over the course of this year, Mexico officials have forecast that natural gas will average $3.92/MMBtu. Under the new plan, Pemex will cover the difference if natural gas prices rise above $4/MMBtu. Industries will pay the established price even if international prices go below $4. In recent months, gas prices have been as high as $10/MMBtu.

The Ministry of Energy said Mexico had recently purchased hedging contracts that allow it to extend the benefits to its industrial sector. The plan represents at 20% discount to the market value of the hedging contracts. Pemex, which has been using the South Texas market price as a reference for nearly 10 years and then making adjustments for transmission differences, had earlier estimated that its 2001 budget would earn an average of $3.92/MMBtu this year.

The price-setting action could cause trade problems if U.S. companies challenge it as providing subsidies for competing Mexican exports.

Carolyn Davis, Houston

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