The Weekly Brief: Mexico


April 1, 2019 edition—Oil promised for all; Baja’s power needs; and CRE’s stuck permits.




Last Week in a Minute or Less


Renewables & Electricity. Baja California needs more power; the Lázaro Cárdenas port will be powered up by a new plant; and renewables should consider social inclusion.


Natural Gas & Liquid Fuels. Shell will bring gasoline into Mexico; IEnova is open to negotiate with CFE; and the CRE has 85 permits stuck.


Oil & Gas Upstream. Nahle promises oil for every process, production and refining; and the National Development Plan should consider maintaining rounds and farmouts.


Money & Power. AMLO strengthened ties with US on trade; Mexico’s inflation slowed in March; and INAI asked the government for information on the Dos Bocas refinery.


Déjà vu all over again. Last week’s readers were particularly interested in AMLO’s renegotiation of gas transportation contracts (Platts – English); Sener’s bet on a decentralized power system (El Financiero – Spanish); and the four fighting for the new refinery (El Economista – Spanish).



NAFTA Negotiation


Trump may go back in time, before NAFTA. President Donald Trump said on Fox that if US lawmakers do not approve the USMCA, he may decide to “go pre-NAFTA” (Reuters – English), although he did not explain what that meant.


For the first time, Mexico exported more than Canada. As a first in history, Mexico exported more products than Canada in 2018. Mexico’s exports amounted to US$450.9bn, while Canada’s reached US$449.8bn (El Economista – Spanish). Mexico exports autos, oil, computers, trucks, and cellphones.


AMLO strengthened ties with US on trade. President López Obrador said talks on trade have progressed between Mexico and the US through a senior adviser to US President Donald Trump. AMLO had a good meeting with Jared Kushner (Reuters – English) at the home of a mutual friend.


Trump’s USMCA may face difficulties in Congress. The Trump administration must meet the new lawmakers’ trade priorities to pass the USMCA before August, or it may be delayed until the 2020 elections (Bloomberg – English). In 2008, Nancy Pelosi denied President George W. Bush’s request for a vote on a Colombian trade pact.


Mexico is against a US proposal for steel and aluminum quotas. The Deputy Economy Minister said the application of the US Section 232 on steel and aluminum is not justified and called for the northern neighbor to eliminate the steel and aluminum quotas on the products under such section (Reuters – English). US pipeline producers urged the US to maintain the Section 232 tariffs (Platts – English).



The Road to Reform


Analysts expect energy reform to continue on paper. Analysts expect the new administration to maintain the energy reform to avoid the tiring process of a counter reform (El Financiero – Spanish). The reform will not undergo changes, but may not be fully implemented under this administration.


Some CRE nominees will try again. President López Obrador said that the nominees who lacked two or three votes to obtain the majority (El Financiero – Spanish) will be among the new nominees for the four positions in the Energy Regulatory Commission (CRE). Analysts are concerned the nominees’ cancellation will paralyze the energy market (El Financiero – Spanish).


Nahle promises oil for every process. Energy Minister Rocío Nahle assured the increase in oil production will permit the same level of crude exports and a 70% increase in Mexico’s oil refining capacity (El Economista – Spanish). By 2019, production is expected to reach 1.773 million barrels per day.


The CRE has 85 permits stuck. Once the Energy Regulatory Commission starts meeting again, a total of 85 permits await approval. There are 61 permits for liquid fuels pending and 19 permits for LP gas (El Financiero – Spanish).



Political Economy


INAI asked the government for information on major projects. The National Institute of Transparency, Information Access, and Personal Data Protection requested that the Energy and Communication and Transport Ministries publish information on the Dos Bocas refinery and Mayan Train projects (El Financiero – Spanish).


Power and fuel robbery continue. Illegal connections overload the national grid by 50%, as the CFE estimates that there are 75,500 illegal connections (El Economista – Spanish). The Agency of State Security detained people involved in a fuel robbery in Hidalgo and confiscated 6,000 fuel liters.


The government gave the SME a building. The federal government gave the storage building Tacuba Xochinahuac in Azcapotzalco to the Mexican Union of Power Workers (El Financiero – Spanish). The property includes 52,000 square meters.


Progreso will have a special economic zone under a different scheme. The Yucatán governor assured the special economic zone project for Progreso will continue, but under a different scheme (El Financiero – Spanish). The governor discussed power tariffs in Yucatán with President López Obrador.



Market Trends


Experts ask to change the Pemex stabilization fund law. Analysts think the Finance Ministry should modify the law regarding the fund’s use. The goal is to use the stabilization fund as a counter-cyclical fund and to pay Pemex’s debt (El Financiero – Spanish).


Mexico’s inflation slowed down in March. Mexico’s annual inflation was 3.95% for the year in February (Reuters – English) (El Economista – Spanish). The low inflation level increased expectations that Banxico will ease monetary policy this year.


The Finance Ministry plans a customs makeover. The Finance Ministry is considering reforming the customs system (El Economista – Spanish). EY recommended extending it to six years or to make the tax stimulus decree in the northern frontier permanent (El Economista – Spanish).


Pemex imported light crude oil in February. The state-owned company imported 80,000 barrels per day of light crude in February while boosting heavy crude exports to the US (Platts – English). Pemex crude exports to the US reached 769,000 barrels per day.


Analysts disagree on Banxico’s future. Analysts have different opinions regarding the future monetary policy of Mexico’s central bank as the bond market shows downward movement. Banxico could reduce interest rates considering the bond market’s direction (El Financiero – Spanish).



Strategy & Operations


Renewables should consider social inclusion. The head of the Energy Ministry’s Renewable Energy Unit emphasized that the federal government will support the transition to clean and renewable energies, always considering social inclusion. The recommendation was to set up dialogues and communication with communities (El Economista – Spanish).


Shell will bring gasoline into Mexico. The Anglo-Dutch company will start importing fuel by train and sea to supply its gas stations (El Financiero – Spanish). Shell will add between 100 and 300 new gas stations, finishing the year with between 300 and 400 units in Mexico.


IEnova is open to negotiate with CFE. IEnova insisted on its disposition to discussions with the state-owned company. The company said that the contracts were made through public biddings and the contractual conditions were set by CFE (El Financiero – Spanish).


The Lázaro Cárdenas port will be powered up by a new plant. Petróleos Internacionales del Caribe will invest US$6m to install a power plant at the Lázaro Cárdenas port in Michoacán (El Financiero – Spanish). The plant will burn ethane or LNG gas.


Baja California needs more power. The National Center of Energy Control (Cenace) published a request to buy power to cover the deficit experienced in the Baja California area. The goal is to avoid the risk of blackouts (Reforma – Spanish).


Should the PND be boosted? According to Pulso Energético, the National Development Plan should aim to speed up the development of under-explored areas, take advantage of farmouts, keep annual rounds and a strong regulation, and expand energy infrastructure, among others (Pulso Energético – Spanish).



Old School Social


Events in the world beyond your screen—go see and be seen!



Mexico Energy Assembly is scheduled for April 3-4 at St. Regis Mexico in Mexico City.



Lateral Thinking


The Vaquita porpoise reserve will be marked. Mexico will use buoys to signal the limits of the reserve for the endangered vaquita porpoise (US News – English). Fish farms and social programs teaching fishing practices would be developed in the area.



Quote of the Week


“No vamos a obrar en forma irreflexiva y precipitada. Vamos a apresurarnos lentamente, según aconseja el sabio aforismo latino.”


“We are not going to act in a rash or hurried way. We have to speed up slowly, as the Latin and wise maxim advised.”


– Alfonso García Robles (1911-1991), Mexican diplomat and Nobel Prize winner.



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