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