Where U.S. Natural Gas Is Burning Bright

It's like carrying coals to Newcastle: All along the 2,000-mile Mexican border, U.S. companies are piping natural gas to energy-rich Mexico--a new market for beleaguered American producers.

To clean up its air, Mexico is converting power plants and bus fleets to natural gas. It could use its own supplies, but why bother? U.S. gas is nearby and sells for a bargain $1.70 per thousand cubic feet. By importing it, Mexico can concentrate investment on more lucrative petrochemicals and crude oil. "It's simple economics," says Francisco Casanova, a director at Mexico's state oil monopoly, Petroleos Mexicanos (Pemex).

Mexican imports have tripled in the past year and should again in the next 12 months, experts say. In March, Houston's Enron Corp. applied to the U.S. Federal Energy Regulatory Commission to build a pipeline to Reynosa in northeastern Mexico. And El Paso Natural Gas Co. hopes to serve power plants and many of the 2,000-odd U.S. factories, called maquiladoras, that run from the Chihuahua Desert to Baja California. By 1997, experts say, gas sales to Mexico could hit 3 billion cubic feet a day, about 5% of the U.S. market.

The move to gas may blunt environmentalists' contentions that Mexico is using the proposed North American Free Trade Agreement (NAFTA) to lure polluters from up north. Gas imports may also help relieve mounting pressure on Pemex. As its auto sales boom, Mexico's demand for local oil is growing by 5% a year. By converting utilities from oil to gas, Pemex protects its crude exports.

If NAFTA goes through, more U.S. producers should expand to Mexico. The richest prize is Baja California, which has nearly half the maquiladoras. Already, Bechtel Group and Coastal Corp., a Houston pipeline and gas-production company, have plans for a gas-fired electricity-generating and desalination plant near Tijuana.

Even without the trade pact, however, the trend is clear: U.S. producers are finding that Mexico's prickly insistence on energy self-sufficiency is bowing to dollars-and-cents pragmatism.

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