US-Mexico Gas Investment Stalled Amid Trade Dispute

Strategic Insights -

The US-Mexico natural gas trade is embroiled in a trade dispute, with Mexico freezing plans to remove a 4% tariff on US natural gas imports in response to a US anti-dumping investigation. The pipeline projects near the US-Mexico border, worth millions of dollars, are now in jeopardy. Mexico's energy sector is growing at a rate of 9% per year, but this growth may be hindered by the dispute. The North America Free Trade Agreement (Nafta) had planned to eliminate the tariff by 2003.

Key Takeaways:

  • Mexico has frozen plans to remove a 4% tariff on US natural gas imports due to a US anti-dumping investigation.
  • KN Energy, a Colorado-based natural gas supplier, plans to invest $50m in a 174km pipeline from Texas to Monterrey, Mexico, but the project start could be delayed.
  • Mexico's energy minister, Luis Tellez, will press the country's case to US authorities, arguing that selling oil below cost is impossible and counter-productive.
  • The US Commerce Department has a 20-day deadline to decide whether there are grounds for an investigation, and has ruled in favour of domestic producers in 90% of cases.
  • A negative decision would be costly for Mexico, given that 75% of its crude is exported to the US.
  • The anti-dumping petition alleges that US producers are subjected to dumping margins of 24-33% and government subsidies of $6.18 per barrel.
  • The pipeline projects on the US-Mexico border, worth millions of dollars, are in jeopardy due to the dispute.

Statistics:

  • 9%: the annual growth rate of Mexico's energy sector.
  • 4%: the tariff on US natural gas imports that Mexico was planning to remove.
  • $50 million: the investment planned by KN Energy in a pipeline project from Texas to Monterrey, Mexico.
  • 174km: the length of the pipeline project planned by KN Energy.
  • 2003: the planned date for the elimination of the tariff on US natural gas imports under the North America Free Trade Agreement (Nafta).
  • 90%: the percentage of cases in which the US Commerce Department has ruled in favour of domestic producers.
  • 20 days: the deadline for the US Commerce Department to decide on the anti-dumping investigation.
  • July 1: the planned date for the removal of the tariff on US natural gas imports.
  • July 19: the deadline for the US Commerce Department to decide whether there are grounds for an investigation.

Sources:

  • "US scraps plan for Mexican trade deal", Financial Times Limited, 1999.