141. Telegram From the Embassy in Mexico to the Department of State1

10132. Subject: Ambassador’s Meeting With President Lopez Portillo: Natural Gas.

1. My meeting this morning with Lopez Portillo was a disappointment. The thrust of the President’s remarks was that last year’s USG refusal to accept what he regarded as fair terms had proven an embarrassment and that now Mexico must use its gas domestically.2

2. I explained to the President that following the recent House/Senate Joint Conference Committee action on natural gas pricing,3 I had been authorized to approach him to suggest re-opening the government-to-government talks. I told him that we wished to establish mutually acceptable guidelines under which the companies could negotiate. In this manner we expected to avoid the problems associated with last year’s ill-fated letter of intent. I noted that we were amenable to any form of talks. We would be willing to set up a negotiating team or designate a single representative. The talks could be private or well-publicized. They could take place in Mexico, Washington or some other location.

3. Lopez Portillo said he hoped his remarks would not be misinterpreted and that he has great respect for the U.S. and President Carter. He also insisted that he was speaking as the Mexican President and [Page 310] not as a businessman trying to get a better price for his gas. However, following the lapse of the letter of intent, he had directed PEMEX to study using Mexico’s gas domestically. He said we must understand how delicate politically energy matters and relations with the U.S. are in Mexico. This project had, of course, encompassed both of these sensitive elements. He said he and his advisers had studied the sale of gas to the U.S. thoroughly before deciding to take what for them was a stiff political risk. They felt that gas would offer an opportunity for Mexico to redress the huge trade deficit with the U.S. They assumed the contract would be a simple commercial transaction and never envisaged problems with the USG. Lopez Portillo remarked again that he had been left quote hanging by the paint brush unquote by the USG refusal to accept what he felt were reasonable contract terms.

4. I noted that regardless of Mexico’s efforts to use its gas domestically there would be substantial gas surpluses during the next several years and that the cost of conversion would be enormous. Lopez Portillo agreed with both points but suggested that he had been compelled to make this decision by USG inaction. He noted that the reduced levels of surplus gas could be sold to U.S. buyers on a short-term basis through the existing northern pipeline system. At any rate, he saw no reason for renewed government-to-government talks until after Congress had completed action on the President’s energy bill.4

5. FYI: I am flying to Washington this afternoon and will be available to discuss this matter further.

  1. Source: National Archives, RG 59, Central Foreign Policy File, D780257–0631. Confidential; Immediate.
  2. See footnote 2, Document 137.
  3. The House/Senate Joint Committee considering the gas section of the energy bill agreed on a price of $1.75/thousand cubic feet for natural gas. (Adam Clymer, “Senate Conferees Agree To End Curbs on Gas Prices in ’85,” The New York Times, May 25, p. 1)
  4. The President’s energy bill was passed by Congress on October 15. See Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, Document 164.