195. Memorandum From Secretary of State Vance and Secretary of Energy Schlesinger to President Carter 1

SUBJECT

  • US-Mexico Natural Gas Negotiations

As follow-up to your meeting with Lopez Portillo,2 we have proposed and the Mexican Government has agreed to begin discussions on April 3 and 4 in Mexico City on possible United States purchases of Mexican natural gas.

Our objective at this first meeting will be to resume the previously terminated discussions and to obtain a better understanding of the current Mexican position. Specifically, we will seek to ascertain the readiness of the Mexican Government to proceed with gas sales in the near future, the volumes which might be available, the term of a possible contract, and, finally, the pricing mechanism.

The indications we have so far are that the Mexicans may not be in a hurry to conclude an understanding. They may continue to maintain that they have not yet determined available volumes. They will undoubtedly open with the position that the price should be determined on the basis of the BTU equivalent of distillate fuel oil—a formula which would yield a price in excess of $3.30 per mcf.

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For these reasons we propose to use the initial meeting to probe Mexican intentions, to analyze the market for Mexican gas, and to seek to establish what are the competitive alternatives for Mexican gas in the US market in order to determine the appropriate BTU equivalency. In this manner, we believe that we can find areas of agreement and avoid prematurely an impasse on the question of price. After this initial meeting we can better determine our follow-on strategy.

In preparation for our meetings with the Mexicans, an advisory group was formed, made up of a number of representative groups from the private sector including interstate pipeline companies, natural gas distribution companies, state regulatory authorities, and gas consumers. In the first meeting, held on March 26, there was a useful exchange of views which established a clear interest in the importation of Mexican gas at an acceptable price.3 The general view was that a price of $2.60 per mcf at the present time would be in the interest of natural gas consumers but that a price as high as $3.30 would limit the market severely. The advisory group suggested a number of useful areas for discussion with the Mexicans. We intend to consult with the advisory group following our meeting with the Mexicans and as our negotiations with the Mexicans proceed.

We will, of course, keep you closely advised of the progress of the discussions with the Mexican Government.

Recommendation

We recommend that you approve the exploratory approach we propose to have the United States delegation take at the first meeting with the Mexicans.4

  1. Source: Carter Library, National Security Affairs, Staff Material, North/South File, Box 31, Pastor Country Files, Mexico: Gas Negotiations Briefing Book, 1–3/79. Confidential. Sent for action. Brzezinski sent this memorandum to the President under a March 30 covering memorandum, in which he concluded: “Before too long, I believe we will be faced with some hard decisions on how much we will be willing to pay to develop a good relationship and to contribute to the development of Mexico. We will be in a better position to know after these negotiations.” He recommended that Carter approve Vance and Schlesinger’s strategy, and the President indicated that he did by checking the Approve option. (Ibid.)
  2. See Document 190.
  3. No other record of this meeting has been found.
  4. Below this recommendation, the President wrote: “Do not let the Mexicans nor US oil companies adversely affect the interests of American people. Do not assume the role of supplicant. Do not let imported gas prices boost overall domestic prices.” Brzezinski returned the memorandum to Vance and Schlesinger on March 31, informing them that Carter had approved their strategy and asking them to “note the President’s handwritten comment.” (Carter Library, National Security Affairs, Staff Material, North/South File, Box 31, Pastor Country Files, Mexico: Gas Negotiations Briefing Book, 1–3/79)