Gas Deal

Call it "Pancho's revenge "

Following the angriest Mexican-American confrontation since General John J. ("Black Jack") Pershing chased Pancho Villa south of the border in 1916, the two countries last week initialed an agreement for the sale of 300 million cu. ft. of gas daily at an initial price of $3.63 per 1,000 cu. ft. The gas involved amounts to less than 1% of total U.S. consumption and is far under the 2.2 billion-cu.-ft.-per-day deal envisaged in July 1977 when Pemex, the Mexican state oil company, signed a letter of intent with six American pipeline companies.

Saying that the $2.60 price being discussed then was too high and could go much higher since it was tied to the cost of home heating oil, then Energy Secretary James Schlesinger entered the deliberations and led them to a breakdown; the Mexicans said he used "colossus of the north" bargaining tactics. While in Mexico last February, Jimmy Carter tried to revive the talks, but Mexican President Jose Lopez Portillo sniffed: "Presidents are statesmen, not merchants."

The talks started anew in June but went nowhere until a month ago, when the U.S. signaled that unless the Mexicans bargained seriously, Lopez Portillo could skip his White House visit this week.

The Mexicans then tabled their $3.63 price, which is to be adjusted quarterly to match OPEC price moves. The White House decided to accept before events drove the price even higher. As it is, the Canadians, who supply 5% of the U.S.'s gas needs, are expected to push their current price of $2.80 up to $3.45 next year.

The American producers, on average, get just $1.18 for their price-controlled gas. The Mexican negotiators could call their good deal "Pancho's revenge."

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