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Quasi-Rents and Pricing Gas in Mexico

Author

Listed:
  • Juan Rosellon

    (Division of Economics, CIDE)

  • Dagobert L. Brito

Abstract

In 1997, the Comisión Reguladora de Energía of Mexico implemented a netback rule for linking the Mexican natural gas price to the Texas price. At the time, the Texas price reflected a reasonably competitive market. Since that time, there have been dramatic increases in the demand for natural gas and there are various bottlenecks in the supply of natural gas. As a result, the price of natural gas in Texas now reflects the quasi-rents created by these bottlenecks. This paper addresses the optimality of the netback rule when the price of gas at the Texas market reflects the quasi-rents created by bottlenecks in the supply of natural gas to the United States pipeline system. In this paper, it is shown that it is optimal for the Mexican government to use the netback rule based on the Texas price of gas to set the price natural gas in Mexico even though the Texas market cannot be considered a competitive market, and the Texas price for natural gas reflects quasi-rents created by various bottlenecks. The indirect welfare function approach used in this paper can be extended to address the problem of pricing gas when there are multiple sources of imported gas from LNG terminals.

Suggested Citation

  • Juan Rosellon & Dagobert L. Brito, 2008. "Quasi-Rents and Pricing Gas in Mexico," Working Papers DTE 423, CIDE, División de Economía.
    • Handle: RePEc:emc:wpaper:dte423
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    File URL: http://www.economiamexicana.cide.edu/RePEc/emc/pdf/DTE/DTE423.pdf
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    References listed on IDEAS

    as
    1. Brito, Dagobert L. & Rosellón, Juan, 2002. "Oportunidad de la inversión en gasoductos de GLP en México," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(276), pages 567-581, octubre-d.
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      Keywords

      Quasi-Rents; Pricing Gas; Mexico; Texas price;
      All these keywords.

      JEL classification:

      • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
      • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation

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