In a move that appeared to appease the country’s ailingindustrial sector, the Mexican government agreed last week to sellnatural gas to domestic industry at a fixed price of $4/MMBtu forthe next three years. Steelmaker Hylsamex, among others, which hadtemporarily shut down facilities and laid off workers because ofhigh natural gas prices, said it would soon restart one of fouriron plants.

Another large employer, Compania Minera Autlan, a manganese andiron alloys producer, also said it would reopen its Molangorefinery and its shuttered iron-alloy producing plant in GomezPalacio 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 ismanaged by Petroleos Mexicanos (Pemex), the state-run monopoly.Natural gas prices in Mexico had reached almost $10/MMBtu since1999, when fuel sold for about $2/MMBtu. The new agreement wasreached by Mexico’s Ministries of Energy and Economy and severalindustrial organizations, and it is retroactive to Jan. 1.

Over the course of this year, Mexico officials have forecastthat 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 ifinternational prices go below $4. In recent months, gas prices havebeen as high as $10/MMBtu.

The Ministry of Energy said Mexico had recently purchasedhedging contracts that allow it to extend the benefits to itsindustrial sector. The plan represents at 20% discount to themarket value of the hedging contracts. Pemex, which has been usingthe South Texas market price as a reference for nearly 10 years andthen making adjustments for transmission differences, had earlierestimated that its 2001 budget would earn an average of $3.92/MMBtuthis year.

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

Carolyn Davis, Houston

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