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

Abstract

The Mexican energy regulatory commission—Comision Reguladora de Energia (CRE)-has implemented a netback rule for linking the Mexican market for natural gas with the North American market. This paper describes the economic analysis that supported this policy. We show that the netback rule is the efficient way to price natural gas and it is in fact an application of the Little-Mirrlees Rule.

Keywords

Natural gas welfare pricing Mexico regulation Little-Mirrlees Rule

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