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December 13, 2021 edition—The power reform debate; gas station permits; and Mexico’s oil production.
Last Week in a Minute or Less
Electric Power & Renewables. Nahle criticized self-supply plants; CFE will operate two wind parks in Oaxaca; and the power reform will be discussed on January 17.
Liquid Fuels Mid-Downstream. The CRE stopped US$400m in gas station permits; Pemex may pay more for the Texas refinery; and IMCO is concerned with Pemex’s subsidiary.
Natural Gas Mid-Downstream & LNG. Mexico’s natural gas market is enjoying the mild weather.
Oil & Gas Upstream. Mexico will keep its production rate.
Government & NGO. The government helped Pemex with US$3.5bn; Banxico expects a slow economic recovery in 2022; and inflation reached 7.34% in November.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s mandated halt on gas plants (Forbes – Spanish); and the Texas refinery’s sale (Reuters – English).
Geopolitics & Trade
Mexico threatened the US with legal action over EVs. The Mexican government threatened legal action over the US Build Back Better Act that would give subsidies of up to $12,500 for purchases of union-made, American-made electric vehicles (ABC News – English). The Economy Minister is considering duties (Forbes – Spanish).
Mexico wants a trade agreement with South Korea. Trade representatives from both nations said they are ready to negotiate a free trade agreement (El Financiero – Spanish). Mexico is the main partner of South Korea in Latin America and South Korea is Mexico’s fourth-largest trading partner.
Mexico may become the second US trade market. Mexico is close to losing its position as the first US trade partner (El Financiero – Spanish). Canada and Mexico are currently tied in their total trade share with the US.
Mexico’s exports are expected to skyrocket. In November, Mexico exported US$34.3bn in product value to the US (El Economista – Spanish). The ECLAC expects Mexico’s exports to grow by 17% (El Economista – Spanish).
Political Economy
The government helped Pemex with US$3.5bn. The government plans to strengthen the state-owned company’s finances, offering US$3.5bn to restructure its debt (El Financiero – Spanish). Moody’s expects the money to cut Pemex’s debt by US$20bn between 2021 and 2023 (Forbes – Spanish).
Inflation reached 7.34% in November. Inflation closed November at 7.34%, more than what analysts expected and the highest rate since 2001 (El Financiero – Spanish). The reason was the increase in food and energy prices.
Banxico expects a slow economic recovery in 2022. Mexico’s central bank said the economic recovery will continue in the next year, but at a slower pace and with uncertainty (El Financiero – Spanish). The risks are the result of a slower than expected recovery in the second and third quarters of 2021 in different economies, including Mexico.
S&P maintained a negative outlook for Mexico’s rating. The international rating agency maintained Mexico’s credit rating BBB in foreign currency and BBB+ in local currency with a negative outlook (El Economista – Spanish). The reasons were Pemex and CFE’s debt challenges and the uncertainty surrounding weak growth.
Legal & Regulatory
The private sector will fight AMLO’s decree. The Mexican confederation of businesses are preparing legal actions to stop the Presidential Agreement on Public Works (El Financiero – Spanish). Companies argue the decree could delay economic recovery and the well-being of citizens.
The power reform will be discussed on January 17. The House of Representatives will discuss the power reform on January 17 (Milenio – Spanish). The discussion will last approximately a month. The constitutional reform will be voted after the elections in June 2022.
The CRE okayed CFE’s last resource service. The Energy Regulatory Commission (CRE) approved the commercial contract model to provide last resource supply services (DOF – Spanish). The service is provided by CFE’s basic services.
Coparmex believes the power reform cuts investors’ wings. Businessmen agree the power reform is the biggest risk for Mexico’s economy (El Economista – Spanish). Mexico’s economic recovery is already slowing down and bringing uneven results.
The CRE stopped US$400m in gas station permits. The Energy Regulatory Commission (CRE) needs to speed up gas station permits, as at least US$400m depend on projects that cannot be built without its approval (El Financiero – Spanish). The regulatory commission has only handed out 105 permits this year for the gas station sector.
Market Trends
Companies asked the CRE for fuel market certainty. Several companies complained about the Energy Regulatory Commission’s (CRE) actions that make storage, distribution, and fuel transportation more difficult, as the decision caused a lot of uncertainty (Forbes – Spanish). A growing number of private storage terminals have been closed.
Mexico will keep its production rate. For 2022, Mexico will maintain its oil production rate without cuts, with a similar extraction volume agreed with the OPEC+ of 1.753 million daily barrels (El Economista – Spanish). Rocío Nahle said Pemex produced 1.777 million crude daily barrels in November.
Mexico’s natural gas market is enjoying the mild weather. North American natural gas prices fell to the US$4.00/MMBtu mark for the first time since the summer. Lower prices are fueling higher power burns in Mexico, averaging nearly 3.7Bcf/d (Natural Gas Intel – English).
Strategy & Operations
IMCO is concerned with Pemex’s subsidiary. The Mexican Institute of Competitiveness believes the creation of a new subsidiary of Pemex could bring opacity to Pemex’s actions (El Financiero – Spanish). The subsidiary does not need to publish its financial statements.
Nahle criticized self-supply plants. According to Energy Minister Rocío Nahle, self-supply plants created a parallel market, similar to power contraband (Excelsior – Spanish). Nahle explained the power reform in the Senate.
CFE will operate two wind parks in Oaxaca. CFE’s independent adviser and Oaxaca’s aspiring governor explained the need to reactivate the abandoned wind park in the state and install another to secure power energy for the state residents (Sin Embargo – Spanish).
Pemex may pay more for the Texas refinery. The state-owned company could end up paying US$1.6bn to take over Shell’s Deer Park refinery, more than twice what was announced in May (Bloomberg – English) (López Dóriga – Spanish). Pemex requested US$1.6bn from the National Infrastructure Fund and a bridge loan from commercial banks.
Old School Social Goes Viral
(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)
Mexico Assembly will be held in May 2022 in Mexico City.
Lateral Thinking
The cancellation of power auctions left computers abandoned. The government paid for computer equipment installed in the National Center of Energy Control for power auctions (Forbes – Spanish). Between January 2020 and June 2021, the government paid MXN623,276 pesos for 44 computers.
Quote of the Week
“No escribas como periodista, lo que no puedas sostener como hombre.”
“Do not write as a journalist what you cannot defend as a man.”
– Francisco Zarco (1829-1869), Mexican journalist and politician.
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