Foreign Relations, 1977–1980, Volume XXIII, Mexico, Cuba, and the Caribbean

161. Telegram From the Embassy in Mexico to the Department of State¹

Mexico City, August 3, 1979, 2050Z

13133. For Assistant Secretary Katz from Ambassador. Subject: My Meeting This Morning With Mexican President Lopez Portillo re Gas.

1. (C—Entire text.)

2. Summary: I had a very successful meeting this morning with President Lopez Portillo. He saw no difficulty with a $3.40 per thousand cubic feet price and was confident that if we could get our delegation to Mexico next week, the issue could be resolved once and for all. End summary.

3. I explained to the President that we felt this agreement would be largely symbolic but that that symbol would be very important. I also noted that this agreement would have a political impact in both our countries.

4. I told him, however, that despite the obvious symbolic and political import of the natural gas issue, we could not agree to too high a price. I told him that if Mexico were, in fact, unalterably tied to a price of $4.00 per thousand cubic feet, I would have to, in all good conscience, recommend to my government that we drop the matter. I explained to him our situation vis-a-vis Canada noting the vast difference in the volumes and dollar amounts involved. I also pointed out that we had already offered Mexico considerably more for its gas than we are currently paying Canada. I expressed our disappointment in the lack of progress in the last round of talks and said the formula which we proposed at that meeting would have given a price of $3.31.² This, I said, was very near our maximum and that the range of $3.30 to $3.40 was as far as we could go without damaging our ongoing relationship with Canada. I also explained that we could only go that high because we expected Canada to adjust its prices again in October to reflect the most recent OPEC oil price increases.

5. Lopez Portillo said he saw no difficulty with the price in that range and that his major concern going back as far as 1977 was that Mexico’s export prices be tied to some well-established energy market. I assured him we could work up a formula that would not only justify the base price on that ground but would maintain the desired tie to other energy prices. He recognized the symbolic benefit to Mexico of an agreement but said he had gone out on a political limb before and had taken it on the chin. He said he was willing to take another chance on the gas issue to get an agreement. (The risk he referred to was the fact that the $3.40 price would be substantially below the price of the gas under the original contract—he felt sure some Mexican reporter would pick up on that fact.)³

6. Lopez Portillo said he would prefer to wait on an agreement until such time as the U.S. had a new Secretary of Energy.⁴ I explained to him that no action could be taken on that until after Labor Day because of some U.S. legislative problems. He agreed that under those circumstances no delay was necessary and suggested that if we could get our delegation to Mexico next week, the issue could be resolved once and for all. He said he would inform Patrimony and PEMEX of the substance of our meeting and direct them to reach an agreement along the lines we had discussed. (Note: It was not until after our meeting that I learned that Duncan had been confirmed by the Senate. My understanding remains, however, that he will not take office until after Labor Day.)

7. Other topics discussed during my meeting this morning will be reported septels.⁵

Lucey

1. Source: National Archives, RG 59, Central Foreign Policy File, P840131–1760. Confidential; Niact Immediate; Nodis.
2. See footnote 2, Document 159. Additional talks were held in Washington May 3–4 and Mexico City July 11–13. (Carter Library, National Security Affairs, Staff Material, International Economics File, Box 1, Subject File, Mexico: Gas Negotiations, 3–4/79 and Carter Library, National Security Affairs, Staff Material, International Economics File, Box 1, Subject File, Mexico: Gas Negotiations, 7/79, respectively) The most recent round of discussions took place in Washington on July 27. (Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 49, Mexico, 8–9/79)
3. See Document 137.
4. James Schlesinger resigned as Secretary of Energy on July 20. Charles Duncan was confirmed as his replacement on August 24.
5. Telegram 13203 from Mexico City, August 6, and telegram 13345 from Mexico City, August 8. (National Archives, RG 59, Central Foreign Policy File, D790357–0623 and D790361–0738)