LOOSER ENERGY-INVESTMENT RULES SPUR US INTEREST IN NATURAL GAS

LOOSER ENERGY-INVESTMENT RULES SPUR US INTEREST IN NATURAL GAS

Foreign involvement in Mexico's energy sector is in the pipeline.

For more than 50 years, the famous nationalist cry "The oil is ours!" has reflected the country's official policy toward foreign investment in its rich energy reserves. But as the government slowly softens that stance, U.S. energy firms are wasting no time in exploring opportunities in areas such as natural- gas transport and power production.In April, the Mexican government announced the opening of natural-gas transmission, distribution and storage to private and foreign investment. It

plans to allow foreigners to construct and use gas pipelines for residential and industrial delivery and to set up local gas companies alone or with Mexican companies.

Many oil-fired power plants in Mexico will be converted to natural gas, and new power plants will mostly be fed by the cleaner-burning fuel, moves that are expected to help stem the nation's acute air pollution. Natural gas accounted for 32 percent of Mexico's energy consumption in 1992, and officials hope to boost that share to more than 50 percent by 2005.

In the coming month, U.S. energy companies are expected to keep a close eye on Mexico as the government there hammers out regulations to implement the reforms.

Some companies already are firming up plans to enter the market.

For example, San Diego Gas & Electric Co. and Pacific Enterprises International in California have joined forces with Mexico's Proxima SA de CV in a proposal to feed natural gas from Mexico, Canada and the western United States to Mexicali in Baja California.

The companies will spend an initial $10 million to build a 25- to 31-mile pipeline network in Mexicali that will connect at the border to Southern California Gas' pipeline, said George Liparidis, SDGE's manager of Mexico projects. Daily capacity will be 100 million cubic feet.

Mr. Liparidis said investment would rise to up to $50 million in five years as the Mexicali system is expanded.

"We saw this as a way to create a natural-gas market in Baja California that is served through Southern California Gas," he said.

Unocal Corp. in Los Angeles is looking into natural-gas storage and power generation. "We've had discussions with government officials, state-run companies and some major industrials in Mexico," said Thomas E. Fisher, Unocal's vice president of commercial affairs.

Mitchell Energy & Development Corp. in Woodlands, Texas, is interested in third-party gas-processing arrangements in Mexico, under which it would install and operate processing equipment or lease the equipment, said Joe Cloessner, vice president of business development.

Although the state-run Petroleos Mexicanos still reserves monopoly rights on exploration for and production and processing of natural gas, Mr. Cloessner said his company is gearing up in hopes that restrictions will be loosened in the coming months. "At this time, we're working to develop a presence within the Pemex organization," he said.

Despite these developments, energy analysts say ambiguous or vague regulations and the government's unwillingness to open the sector more widely could turn investors away.

"The opening in Mexico is not like that in Venezuela and Argentina. The Mexican government is trying to protect itself by not changing the constitution," said Victor Rodriguez Padilla, chief of the energy-engineering department of the National Autonomous University of Mexico's School of Engineering.

Mr. Rodriguez said preliminary regulations concerning things such as rights to repatriate profits and increase user fees - which investors may need in order to turn a profit - are unclear. Moreover, even if these protections are

put in place, Mexican officials could use the constitution to override them, he said.