Despite Mexican claims to the contrary, details of diplomatic contacts between Mexico and the U.S. during the last two years on the sale of Mexican natural gas indicate that the U.S. position was far from adamant and that the refusal to buy at the Mexicans' price had been signaled well in advance.
Moreover, both Department of Energy and State Department sources claim that Mexican negotiators were prepared to agree to a lower price late in 1977 but that Jorge Diaz Serrano, director general of Pemex, the Mexican state oil monopoly, who hopes to be elected president of Mexico in 1982, persuaded President Lopez Portillo to refuse the lower price.
Diaz Serrano originally had chosen to tie the price of the gas to the price of No. 2 heating oil delivered in New York harbor, but the U.S. had rejected this as too costly. [Text omitted in source] tacts was furnished by DOE to the Senate Energy and Natural Resources Committee and has been confirmed by State Department sources.
Mexican officials, upset by the refusal of the Carter administration to allow six U.S. pipeline companies to buy Mexican natural gas at that price, repeatedly have denounced the action as one more example of callous disregard by the U.S. of Mexican rights and sensibilities.
Several U.S. senators have picked up the refrain. Sen. Edward Kennedy (D-Mass.) accused Energy Secretary James Schlesinger at a recent congressional Joint Economic Committee hearing of having "spurned the opportunity for negotiations with the Mexicans on price."
At the same hearings, Sen. Jacob Javits (R-N.Y.) demanded, "Isn't it a fact that we have very materially been poisoning the atmosphere between us and the Mexicans by the adamant position that you have taken on Mexican gas?"
And Sen. Charles McC. Mathias Jr. (R-Md.) wrote last month that the "whole fabric" of the agreement between the Mexicans and the six U.S. pipeline companies "was rent when an abrupt, unilaterial ruling was issued by the Department of Energy in Washington on the stated ground of objection to price... The president of Mexico, one of the friendliest in recent history, was left, by his own description, 'hanging by his paint brush' when we knocked over the ladder."
To some, this "insulting indifference" means that President Carter ought to be going hat in hand to appeal for the right to buy Mexican oil and gas during his visit to Mexico beginning tomorrow. There have even been incorrect reports that Carter will agree to the Diaz Serrano price formula.
In an interview with a Mexican television correspondent published Sunday, Carter declared, "We want to be a good customer for the portion of oil and gas that Mexico decides to sell us as a neighbor. But the price must be fair...."
The diplomatic details, given to the Senate committee in response to committee questions, indicate that Diaz-Serrano informed Schlesinger during a visit here in April 1977 of Mexican plans to export 2 billion cubic feet of gas per day to the U.S. through a 84-inch, 821-mile-long pipline from the Peforma field to the border at McAllen, Texas.
After other meetings between lower-level officials, at which the U.S. indicated its unwillingness to allow the pipeline companies to pay that high a price, Diaz Serrano again met with Schlesinger in Washington on June 27. According to the DOE docment, Schlesinger said at that meeting that "the U.S. government would have to approve any pricing aspects of such a project; he noted that there could be a problem if the price went about the $2.16 mcf (per thousand cubic feet) paid for Canadian gas and the escalation were tied to No. 2 fuel oil prices in New York harbor."
Two days later, a group of State Department and Federal Energy Administration officials -- DOE was not yet in existence -- met with Mexican counterparts and representatives of Pemex in Mexico and once more passed the same message.
Yet another meeting was held in Mexico City on July 15, at which the 20 or so Mexican officials attending were told flatly that the U.S. government could not approve importing gas priced through the Mexican formula, which would have meant about $2.60 per thousand cubic feet at that time.
The Mexican government officials urged the U.S. to treat the purchase contract under negotiation between Pemex -- a state monopoly -- and the six pipeline companies as if it were a contract between private entities, one U.S. official present recalled.
The U.S. system of regulating gas prices was explained to the Mexicans including the requirement of the Natural Gas Act that the price of imports had to be "just and reasonable." Given the price of Canadian imports ($2.16) and the highest price under discussion for domestic production ($1.75), the "just and reasonable" criteria could not be met, they felt.
Apparently believing that the U.S. was bluffing, Pemex signed a "memorandum of intentions" on Aug. 3 to sell the companies 2 billion cubic feet of gas a day. A few days later, the companies filed a preliminary application with the Federal Power Commission seeking permission to import the gas. That permission never was given.
An attempt by Sen. Adlai Stevenson (D-Ill.) to block an Export-Import Bank loan for construction of the Mexican pipeline until Congress was assured that the gas price would be reasonable angered the Mexicans furher.
Through the fall of 1977, State and DOE officials met several more times with the Mexicans to discuss the gas situation. It was during these meetings that the Mexicans tentatively agreed to abandon the pricing formula tying the price to No. 2 fuel delivered in New York, sources say.
But that flexibility was rejected by Diaz Serrano and President Lopez Portillo in mid-December, and repeated attempts by the U.S. to reopen the matter have not been successful.
Today, the pricing formula would mean the gas would be selling for about $3.25 mcf because oil prices are up sharply.
For that, and other economic reasons, the U.S. still is refusing to accept the Diaz Serrano pricing formula.