March 16, 2015 edition:
Round One contracts, oil worker protests and natural gas role reversal
Blind Spots
Protests planned for Oil Expropriation Day. Unionized oil workers are organizing demonstrations for next 18 March (Spanish), the 77th Anniversary of the Oil Expropriation, to protest the layoff of roughly 3,000 Pemex employees from the Cangrejera, Pajaritos and Lázaro Cárdenas downstream facilities.
The Road to Reform
Senate shows a heavier hand on “oil terrorism.” The Senate’s Justice Committee approved a bill with stricter penalties on fuels theft and smuggling, oil infrastructure sabotage, and altered pumps in gas stations (Spanish). The draft law needs a plenary vote at the upper house (Spanish) before passing on to the Chamber of Deputies for discussion.
Pimping up Round One contracts. Hacienda and CNH eased the return-based adjustment mechanism of Round One’s model contract, increasing the IRR ceiling from 15% to 20% for calculating profit sharing (Spanish). This measure aimed to improve fiscal terms (Spanish) for private E&P companies in response to the challenging oil price environment.
CENACE gets in shape. National electricity system operator CENACE issued its organic statute in the official gazette (Spanish). The statute sets internal rules and competencies for the ISO’s officials in line with the Electricity Industry Law.
E&P contractors seem to like sharing profits. This year, 23 E&P contracts will migrate from previous modalities to the new profit sharing scheme (Spanish) introduced by the 2013 energy reform package. These contracts represent over 672 million barrels of oil equivalent (boe) in 3P reserves plus 1.23bn boe in prospective resources.
Political Economy
Unpromising debut for national oil fund. The oil stabilization and development fund faces a MXN31.6bn gap in the first month of operation (Spanish). This deficit comes from a 43.3% y-o-y decline in oil income in January and lower-than-expected crude oil output—currently 10% below the budgeted 2.4 million barrels per day.
Mexico strengthens energy cooperation with the UK. Pemex inked an MOU with UK Export Finance to open a credit line of up to US$1bn for energy-related investments (Spanish). The state oil company also signed an MOU with the University of Aberdeen for training and human capital development (Spanish).
Experts still gloomy on Mexico’s economy. Consensus estimates from 35 economic consulting firms set a 3.08% real GDP growth rate for 2015 (Spanish). This sixth downward revision (Spanish), reflects analysts’ concerns over organized crime violence, low oil prices, a sluggish domestic market, exchange rate pressures, and an uncertain fiscal environment.
Market Trends
Oil and gas reserves continue to slide. Mexico’s hydrocarbon reserves decreased 3.1% to 13 billion barrels of oil equivalent in early 2015. Proved reserves of natural gas suffered the most after dropping 7.6% to 15.3 trillion cubic feet (Spanish).
E&P investment could top US$21 billion. Energy minister Pedro Joaquín Coldwell announced that Round One’s first licensing phase will bring US$16.7bn in investments to the national oil industry by the end of this year (Spanish). The second stage could entice an additional US$4.5bn in the coming three years.
Strategy & Operations
Pemex enters the South Korean market. Mexico kick started crude oil sales to South Korea for a total volume of 5 million barrels (Spanish), to be delivered through April this year at spot market prices. This operation is part of Pemex’s market diversification strategy (Spanish), which eyes incremental crude exports to energy-hungry Asian customers.
Harnessing Mexico’s renewable energy potential. CFE plans to invest US$4.8bn in 15 renewable energy projects (Spanish) that will add 2.7 GW of power generation capacity to the national grid. The projects portfolio includes hydropower plants such as Chicoasen II, five geothermal units, and eight new wind farms.
Pemex tightens its belt. The state oil company will rent refining units, slash overtime payments, advance retirements, and downsize its support staff to deal with its MXN62bn budget cut. It will also hold off refinery upgrades in Tula, Salina Cruz and Salamanca, originally expected to cost US$12bn (Spanish).
CFE to sell natural gas to Pemex. CRE authorized CFE to sell 100 million cubic feet per day of natural gas to Pemex (Spanish). The national electricity company will transfer marketing costs and prices to Pemex at no profit, but will be able to streamline operations at the Manzanillo regasification terminal.
Industrials want a bigger slice of the energy pie. Five large mining and petrochemical companies are planning to invest over US$6bn in power generation projects through 2020. With an estimated capacity of 6.3 GW (Spanish), these projects could represent 9% of the domestic energy output and 15% of industrial demand for electricity.
Lateral Thinking
Welcome to Museum Land! Mexico City has the largest number of museums in the Americas and the second largest worldwide after London. The long list includes over 350 museums (Spanish), of which roughly 43% are officially recognized.
Quote of the Week
“Un pedazo de luna en el bolsillo es mejor amuleto que la pata de conejo.”
“A piece of the Moon in your pocket is a better amulet than a rabbit’s foot.”
– Jaime Sabines
We hope you have a productive week. Please send any news, comments, or unofficial museum recommendations to MexicoWeekly@energynarrative.com.
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