31 March 2017

NAESB to Create a Mexican Addendum for Purchases and Sales of Natural Gas in Mexico

On Wednesday March 30, 2017, the North American Energy Standards Board (“NAESB”) Wholesale Gas Quadrant (“WGQ”) Contracts Subcommittee voted to move forward with the development of a Mexican Addendum to the NAESB Base Contract for the Purchase and Sale of Natural Gas.  Developing a Mexican Addendum should make Mexico a more desirable market for natural gas trading by providing greater certainty about the legal structure of gas trades.

As part of the 2017 NAESB WGQ Annual Plan, the WGQ Executive Committee proposed, and the Board approved, a proposal to review whether to develop a Mexican Addendum.  In December 2016, WGQ members voted not to pursue a Mexican Addendum.  However, that meeting was not well-attended and several parties who had advocated for creating a Mexican Addendum were not present.

In February several parties filed comments with NAESB urging reconsideration.  At that time a representative of Mexico’s Comisión Reguladora de Energía, or “la CRE,” sent an email to NAESB describing the importance of a Mexican Addendum.  Ultimately these comments prompted NAESB to reconsider the no-action vote.  Upon reconsideration, the sub-committee voted to move forward with the Mexican Addendum.

The next procedural step is for participants in the Contracts Subcommittee to mark-up or insert questions in the current working draft of the Mexican Addendum, available here.  Comments should be submitted to the NAESB office (naesb@naesb.org) by close of business on Thursday, April 13, 2017.  NAESB personnel will compile all comments into the working draft, which will be posted to NAESB’s website prior to the next meeting of the Contracts Subcommittee, which will be held on April 20, 2017 from 10 a.m. to 2:00 p.m. Central at NAESB’s Houston headquarters (with dial-in capabilities).  This process of revising drafts and then meeting to discuss them will be done in multiple iterations with a goal of presenting a Mexican Addendum to the Executive Committee, then the Membership, for further review and possible ratification.  According to the Contract Subcommittee Chair’s development approach, the following is the path that will be used to develop and ratify a Mexican Addendum:

ii. Subcommittee develops proposed standard

iii. Subcommittee develops recommendation for Standard to send to Executive Committee

iv. Recommendation available for industry comment

v. Executive Committee reviews recommendation and industry comments and votes on recommendation (approves, revises, and/or denies)

vi. After Executive Committee approval, Standard referred to NAESB Membership for ratification

vii. When ratified, Standard is established and posted.

The date for the next Contracts Subcommittee meeting will be published here once it is scheduled.  Participation in Subcommittee meetings is generally open, subject to payment of $100 participation charge.  It is unclear whether the $100 covers the entire process of developing the Mexican Addendum or if that charge only allows participation in one meeting.  Additionally, personnel interested in being added to the working group list for this project should email NAESB at naesb@naesb.org requesting to be included on future developments related to the WGQ Contracts Subcommittee’s development of a Mexican Addendum.

Development of a Mexican Addendum follows development of the Canadian Addendum, which was adopted on April 19, 2002.  The Canadian Addendum consists of a series of modifications to the Base Contract, as well as modifications to the General Terms and Conditions, that facilitate natural gas trading in Canada.  Topics that were covered in the Canadian Addendum, which will likely be addressed in the future Mexican Addendum, include choice of currency, choice or conversion of units of measure (i.e., gigajoules (GJ) or British thermal units (Btu)), and issues related to cross-border transactions, among others.

Sidley Austin LLP will continue to monitor the development of the Mexican Addendum and keep you informed.  If you would like to discuss participation in the development process, please let us know.