Top U.S. energy officials believe they have found a way out of the impasse over the pricing of Mexican natural gas: keep everybody's eye fastened to the magic number $2.60.
That's what the gas Mexico was willing to sell to six U.S. pipeline companies back in 1977 would have cost then, and it's the number fixed in the Mexican public's mind as the price the U.S. refused to pay.
But with prices generally rising swiftly, and oil prices likely to go up even faster, what was once a bad buy at $2.60 could become at least a less bad buy in 1982 or 1983 -- if the price were still $2.60, and if it were supposed to increase in line with, say, the U.S. cost of living rather than oil prices.
Not all administration energy experts are happy with the $2.60 strategy, because it would still mean that Mexican gas would likely be the most costly in the U.S. market, except for some small quantities of liquified natural gas being imported from Algeria.
There is, in any event, no guarantee that the Mexicans will agree.
U.S. energy officials have argued that, at the full asking price, the Mexican gas was no bargain, and at $2.60 is not today. Their reasons include the following:
The Mexicans have wanted to price their gas according to the cost of an equivalent amount -- in terms of energy content -- of No. 2 heating oil delivered in New York harbor. Currently, that would be $3.25 per thousand cubic feet, and it would rise as oil prices go up, perhaps rapidly. However, getting the gas to the East Coast would add nearly another $1 to its cost.
The Canadians, who already sell the U.S. 1 trillion cubic feet of gas a year, would raise their price from today's $2.16 to the Mexican prices. Energy Secretary James Schlesinger figures that that alone would cost American consumers an additional $800 million a year.
The Mexicans are insisting on a "take-or-pay" contract, which would mean the U.S. would have to use their gas whether or not customers were willing to pay such a high price. If more gas were available than needed which is the case right now, high-cost Mexican gas would be used and lower priced domestic production would be shut in.
Under terms of last year's natural gas legislation, industrial users would have to pay the full incremental cost of the Mexican gas; it could not be averaged in with lower-cost domestic gas. For most potential customers, the alternative energy source is not even No. 2 fuel oil but the much less expensive, heavier residual fuel oil. Those customers would not switch to the most costly Mexican gas.
Even worse, if the law were changed to allow averaging the Mexican gas cost in with the cheaper domestic gas -- a process called "rolling in" -- it might raise the average price sufficiently that some present gas customers would switch to oil. In other word, buying the Mexican gas conceivably could lead to more oil imports, warns one energy official.
These fears may be well grounded. In New England and the Middle Atlantic states, the price of resid is already not far above the cost of interruptible gas, deliveries of which are routinely shut off in the winter. Gas is generally not available to industry in these areas under firm contracts; nor would it be if Mexican gas were available.
Critics of the administration's past position, such as Sen. Jacob Javits (R-N.Y.), fear that if Mexico cannot sell its surplus gas, it will limit its future oil production, sinch much of its gas is produced as a by-product of pumping oil.
Javits suggested to Schlesinger at a recent congressional Joint Economic Committee hearing that the U.S. ought to pay the Mexican price "even though their demands may be what we consider unreasonable considering the greater issues that are at stake, especially, Mr. Secretary, breaking OPEC."
Responded Schlesinger, "We must recognize that the Mexicans have stated that they are concerned about the domestic impact of too rapid development in terms of its social implications... The pace of development of these resources is not going to be -- and perhaps we must all agree with regret -- it is not going to be sufficient to break the OPEC cartel."
Since excess OPEC production capacity of as much as 8 million barrels a day did not break the cartel in recent years, added Mexican production cannot do it, particularly given the events in Iran, according to most energy experts.
"It might be," said Church, "that we would want to consider an arrangement, if it works out that way, that would involve some form of subsidy as a kind of American aid program."
Church added that he thought "it should be explicit, that everyone should understand what we are doing together (with the Mexicans) and what the purposes of it are."
Given the economics of the situation, even $2.60 gas involves a subsidy from American customers -- unless it doesn't arrive for several move years. But few of the people backing the deal have been as willing as Church to be so explicit.