The Weekly Brief: Mexico


April 2, 2018 edition—Enel’s solar plant in Coahuila; Round 3.1 had limited success; and Trump pressured NAFTA.




Last Week in a Minute or Less


Renewables & Electricity. Enel opened a solar plant in Coahuila.


Natural Gas & Liquid Fuels. Pemex can now adjust pipeline auctions; gas storage rules are ready and out; and Pemex lost big in refining and gas stations.


Oil & Gas Upstream. Round 3.1 was a success for Pemex, Premier Oil, and Repsol; Mexico’s hydrocarbons reserves dropped; and Total will drill deep in October.


Money & Power. Mexico and the US agreed on customs and border cooperation; the OECD wants Mexico to tax more; and inflation keeps dropping.


Déjà vu all over again. Last week’s readers were particularly interested in Round 3.1 expected assignments (Spanish); the fourth electricity auction (Spanish); and the lack of interest in Pemex’s open season (Spanish).



NAFTA Negotiation


Trump’s deadline for metals tariffs added pressure on NAFTA talks. President Donald Trump will impose steel and aluminum tariffs on Canada and Mexico on May 1 if he is not satisfied with the NAFTA talks (Bloomberg – English). Mexico needs the agreement before the end of April (El Financiero – Spanish), or negotiations to last until after the elections.


Mexico businessmen are happy with the NAFTA progress. A Mexican private sector business leader said that the NAFTA renegotiation talks may allow Canada, Mexico, and the US to reach a deal in weeks (Reuters – English). The head of Canada’s Unifor union said that Washington dropped the insistence on rules of origin.


Mexico and the US agreed on customs and border cooperation. Mexico and the US signed three accords to expedite the flow of agricultural produce and improve bilateral customs procedures (Reuters – English) across the border. The goal is to promote joint cooperation to stop illegal merchandise crossing the border.


NAFTA renegotiation threatens the peso more than the elections. Bloomberg surveyed more than 100 foreign exchange professionals who considered the NAFTA renegotiations the biggest threat to Mexico’s peso this year (Bloomberg – English) (El Financiero – Spanish). The peso had a good week after it was known that the NAFTA revisions could be approved next month (El Financiero – Spanish).


The US and Canada hope for a speedy NAFTA agreement. The Trump administration hopes to reach an agreement on a new North American Free Trade Agreement “in the next little bit” (Bloomberg – English). Justin Trudeau is working to stop foreign steel and aluminum producers from using Canada as a backdoor to the US (Bloomberg – English) before the deadline established by President Trump.



The Road to Reform


Mexico’s hydrocarbons reserves dropped despite ENI and Hokchi Energy’s efforts. ENI and Hokchi Energy added 143.4 million oil barrels (El Financiero – Spanish) and 137 billion cubic feet to the nation’s proven reserves. Nonetheless, by January 1st, 2018, 1P reserves were reduced by 677 million barrels of crude equivalent, a 7.3% fall compared to the previous year (El Universal – English).


Gas storage rules are ready and out. The National Natural Gas Control Center (Cenagas) announced the Energy Ministry (Sener) will publish rage policies that call for 45 billion cubic feet (NGI – English) of underground natural gas storage capacity. The goal of the Sener is to auction rights to use exhausted fields for storage (Reforma – Spanish).


Pemex can now adjust pipeline auctions on its own. The state-owned company will not have to ask the Energy Regulatory Commission (CRE) to modify the capacity and the terms of the pipeline (Reforma – Spanish) and storage terminals auctions. Pemex can now modify the open seasons and improve its conditions.


Round 3.1 was big for Pemex, Premier Oil, and Repsol. The state-owned company won seven of the 16 contracts (El Economista – Spanish) awarded in Round 3.1, out of 35 shallow water areas on offer. The Spanish company Repsol won two contracts while British Premier Oil was awarded two (El Financiero – Spanish) (Bloomberg – English).



Political Economy


Inflation keeps going down. Annual inflation in the first two weeks of March was 5.17%, the lowest level since February 2017 (El Economista – Spanish). Inflation is expected to continue to fall rapidly in the following months and remain low through the end of the year.


Pemex broadened its market to include China and India. The state-owned company wants to sell heavy crude oil to China and India (El Universal – Spanish). Mexico’s refineries will not use 100% light imported crude and will use blends to achieve the optimum for refinery profitability.


Pemex lost in refining and new businesses. Five of the six new subsidiaries that Pemex created in 2015 generated losses of MXN63.3bn in 2017 (Reforma – Spanish). After overreaching in Round 0, Pemex hit its lowest historic production in 2017 (Mural – Spanish), and the franchise is losing its place in the market.


The OECD advised Mexico to tax more. The Organization for Economic Co-operation and Development (OECD) recommended Mexico increase government income by increasing taxes on personal income and general consumption (El Financiero – Spanish). The Director of the Latin American Unit also advised Mexico to increase public spending.


Mexico’s presidential race tightened. GEA-ISA survey had Lopez Obrador at 37%, Anaya at 32% and Meade at 28%. Lopez Obrador is leading by only 5% (Bloomberg – English), a sign that the race may be tightening.



Market Trends


The IADB worries about the effect of US protectionism on Mexico’s GDP. The Inter-American Development Bank (IADB) fears a trade conflict due to US protectionist policies would cut Mexico’s economic growth by 1.3 GDP points in the next three years. Mexico could lose approximately 0.84 points of annual growth through 2020 (El Economista – Spanish).


Cepal says low public investment dropped in Latin America and will slow growth. Cepal’s executive secretary warned that the drop in public investment in the last few years will limit growth in Latin America and the Caribbean. The cut in public investment lowered Latin America’s GDP to 3.5% in 2017, from 3.7% in 2016 (El Economista – Spanish).


Oil hedges cut the risk premium. According to the IMF, oil hedges protect Mexico from unexpected falls in oil prices and help to reduce the cost of sovereign-issued debt (El Economista – Spanish). The evaluation of oil hedges should consider not only the cost but also the stability provided.


Mexico enjoys cheap natural gas thanks to the US. Thanks to its proximity to the US, Mexico has access to the cheapest natural gas producer in the world (El Economista – Spanish). Mexico’s natural gas prices reached a record in February (El Financiero – Spanish), with an average price of 4.62 dollars per MMbtu.



Strategy & Operations


Total will drill deep in October. The French oil giant will start drilling its first exploration well in deep waters in the Gulf of Mexico in October (Platts – English). The four-year exploration plan for the block includes drilling one or two exploration wells between October and March (El Economista – Spanish) in the Cinturón Plegado Perdido basin.


Enel cut the ribbon on Coahuila’s solar plant. Enel Green Power México opened the Villanueva solar plant with a capacity to produce 754MW (El Financiero – Spanish) (Green Power Solar – English). The project includes the energy production of Villanueva 1 (427MW capacity) and Villanueva 3 (327MW capacity).


Cydsa will bet US$300m on Mexico. Cydsa plans to invest US$300m in 2018, half in an additional project to the ongoing one in processing, storage and hydrocarbons logistics (Reforma – Spanish) and half in a new plant to produce chlorine and caustic soda. The projects will be completed in two years.


Pemex and Lewis Energy will work on Mexico’s Eagle Ford. The state-owned company signed an exploration and extraction contract with Lewis Energy Group to work in Olmos field in Coahuila (OGJ – English). The goal is to assess and develop the Eagle Ford in Mexico to produce 117 MMcf per day of natural gas by 2021.



Old School Social


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


The 33rd Annual Global Power Markets Conference is scheduled for April 9-11 at The Wynn Las Vegas in Las Vegas.


The 2018 Mexican Energy Forum will be held on April 17-19 at W Mexico City, Mexico.


The 2018 Columbia Global Energy Summit is scheduled for April 19 at the Center on Global Energy Policy in New York.


The 2018 SEPA Utility Conference will be held on April 23-25 at the Rancho Mirage in California.


The AltFuels Mexico 2018 is scheduled for April 23-26 at the WTC in Mexico City.



Lateral Thinking


Google celebrated Mexican astronomer Guillermo Haro’s birthday. Google Doodle celebrated Guillermo Haro’s (1913-1988) 105th birthday; he discovered a new type of large planetary nebula (Independent – English) with Hawaiian colleague George Herbig. The new objects were named Herbig-Haro objects in their honor.



Quote of the Week


“Aquí no pasa nada; mejor dicho, pasan tantas cosas juntas al mismo tiempo que es mejor decir que no pasa nada.”


“Here nothing happens; better said, so many things happen at the same time that it is better to say that nothing happens.”



-Jaime Sabines (1926-1999), Mexican poet and politician.



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