159. Memorandum From Secretary of State Vance and Secretary of Energy Schlesinger to President Carter1
SUBJECT
- US-Mexico Natural Gas Negotiations
As follow-up to your meeting with Lopez Portillo, 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.
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. 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 [Page 376] 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.2
- Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 49, Mexico, 3–4/79. Confidential.↩
- Carter wrote at the bottom of the page, “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.” In telegram 5537 from Mexico City, April 4, the Embassy reported that, although the two sides were unable to reach agreement at the first round of discussions, “the first session served to lower their [the Mexicans] expectations on price.” (Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 49, Mexico, 3–4/79)↩