Pricing Natural Gas in Mexico: An Application of the Little-Mirrlees Rule--the Case of Quasi-Rents

1. Introduction The Comision Reguladora de Energia (CRE) has implemented the netback rule that uses the price of gas in Texas to set the price of gas in Mexico adjusting for transportation costs since 1996 (see Comision Reguladora de Energia 1996). At that time, the price of gas in Texas was viewed to be the result of a competitive market. The netback rule meant that the Mexican gas market would also have the characteristics of a competitive market as long as there were no constraints to the flow of gas, and gas was able to move to equilibrate supply and demand.