In a move expected to appease the country’s ailing industrialsector, the Mexican government has agreed to sell natural gas todomestic industry at a fixed price of $4/MMBtu for the next threeyears. Some of the largest companies in Mexico, includingsteelmaker Hylsamex, have been forced to temporarily shut downfacilities and lay off workers because of natural gas prices.

Until this 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. Theagreement was reached by Mexico’s Ministries of Energy and Economyand several industrial 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.

In response to the news, Mexico’s industrial conglomerate Alfasaw its stock jump more than 10% yesterday. Hylsamex, a unit ofAlfa, has shut down production at four iron processing plants inthe past year because of high gas prices.

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