Unless the United States buys natural gas from Mexico, the world's new oil colossus could be forced to hold down its oil production in the early 1980s, a new Library of Congress study asserts.
The study, released just three weeks before President Carter's visit to Mexico, concludes that unless the United States agrees to buy gas from Mexico, oil production there will peak by 1983.
In releasing the study, Sens. Frank Church (D-Idaho) and Edward M. Kennedy (D-Mass.) criticized the Carter administration and, in particular, Energy Secretary James R. Schlesinger, for their handling of energy talks with Mexico.
Kennedy's and Church's statement adds to the growing congressional criticism of the administration for not doing enough to encourage Mexican energy producion and improve relations between the two countries.
Mexico's developing oil potential, estimated by some experts to exceed Saudi Arabia's, has allowed it to join the world's oil exporting countries, though Mexico has refused to join the oil cartel.
With proven reserves now set at 40 billion barrels, Mexico could replace Iran as the second-largest oil exporter in the 1980s.
Stepped-up oil production in Mexico could allow the United States to substantially reduce its dependence on Arab oil.
Mexico's natural gas production is closely tied to oil production. "If Mexico does not export gas, cannot use all of it domestically and refuses to waste it, then projected oil production will have to be reduced," the study says.
A contract signed by Petroleous Mexicanos (Pemex), the Mexican national oil company, and six American firms led by Tenneco in August 1977 was rejected by Schlesinger because, he said, the prices were too high.
Pemex asked for a price indexed to the cost of heating oil. Schlesinger and Carter have said that is too high, and that preference should be given to domestic production and, in particular, completing the Alaskan gas piepeline which would carry high-cost gas from the North Slope through Canada to the midwestern states.
On Friday President Carter told out-of-town editors at the White House, "At this time we don't need to bid a very high price for Mexican gas." Carter also said the country should assign a higher priority to using up surplus gas. Schlesinger in recent months has said the same thing, referring to the gas glut as a "bubble of overdeliverability."
Church, the chairman of the Senate Foreign Relations Committee, said, "We cannot wait until 1983 to sign a gas contract." Failure to sign a contract soon, he said, "could force Mexico to adopt a strategy stressing slower oil production."
The study says that with its current proven reserves, Mexico could produce 3.6 million to 4.8 million barrels a day by mid to late 1980s. Still-secret Central Intelligence Agency estimates say that Mexico could produce as much as 10 million barrels a day by 1990.
Kennedy said, "It is a mistake for the Department of Energy to take a hardline position at this time on Mexican natural gas." He added, "The department should not be protecting domestic poducers... To suggest further protection is, at the very least, poor public policy."
Kennedy and Church's criticisms of the administration's posture on Mexican natural gas are not the only ones leveled in recent weeks.
Last week, Sen. Jacob Javits (R-N.Y.) accused Schlesinger's handling of the Mexican gas negotiations as "poisoning the atmosphere" between the two countries. Other key Senate members, such as Energy Committee Chairman Henry M. Jackson (D-Wash.), have pressed the administration to work for better relations with Mexico.
And in the House, Rep. Don J. Pease (D-Ohio) introduced a resolution with 48 cosponsors calling on the White House to pay more attention to Mexico's potential as a major U.S. energy supplier.
Schlesinger, in an appearance before the Joint Economic Committee last Tuesday, said he was "eager" to see the United States buy Mexican oil and gas, but reinterated his position about developing U.S. resources first.
The 67-page Library of Congress study, entitled "Mexico's Oil and Gas Policy: an Analysis," found that:
Increased natural gas production and sales would increase Mexico's gross national product by 5 percent and boost employment by 4 percent while reducing inflation.
Mexican oil could undersell and displace some Alaskan oil and Arab oil, and "slightly lower" refiners costs.
Abrupt cancellation of gas negotiations last year has made "future U.S. access to Mexican gas uncertain."
While Mexico is unlikely to challenge the oil cartel's pricing policies, it will probably not join the cartel.
It seems unlikely that Mexico will allow oil and gas revenues to dominate its economy.