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April 5, 2020 edition—Hydroelectric plants modernization; NFE’s natural gas supply; and the Zama unitization discussed.
Last Week in a Minute or Less
Electric Power & Renewables. AMLO promised to give hydroelectric plants a makeover; Generac Power boosts Mexico’s energy transition; and Nuevo León’s companies rely on self-supply permits.
Natural Gas Mid-Downstream & LNG. New Fortress Energy will supply Mexico with natural gas.
Liquid Fuels Mid-Downstream. Pemex sold less at home; AMLO promises to work on Mexico fuel import regulation; and the Mexican IRS goes after illegal taps.
Oil & Gas Upstream. The Zama unitization discussion continues; the Energy Commission will discuss the hydrocarbons reform; and Imco is not happy with the hydrocarbons proposal.
Government & NGO. The US asked Mexico to open up for energy investment; the Biden administration may help out Mexico’s clean energy sector; and the World Bank expects 4.5% growth.
Déjà vu all over again. Last week’s readers were particularly interested in the American Chamber’s need for certainty (El Financiero – Spanish); AMLO’s hydrocarbons law proposal (Yahoo Finance – English); and Pemex’s natural gas discovery (El Financiero – Spanish).
Geopolitics & Trade
The US asked Mexico to open up for energy investment. After the power law debate, the State Department asked Mexico to “listen to all parts” affected, including private sector companies, to provide an environment of free investment and transparency to maintain investment in the sector (El Financiero – Spanish).
Mexico’s auto plants plan to comply with the USMCA. The USMCA agreement requires that large auto assembly plants in Mexico comply with new labor and production rules (Argus Media – English). Auto assembly plants are looking for supply sources in the region to comply with content rules and have three years to achieve it.
Investors offered advice regarding USMCA energy claims. Foreign investors offered three tips to deal with the potential USMCA claims that may follow after the approved power law: litigation in Mexican courts, the three-year transition period until the investor-state dispute settlement, and the state-to-state dispute settlement (Mondaq – English).
The Biden administration may help out Mexico’s clean energy sector. The Biden administration’s climate proposal plans to fully integrate climate change into US foreign policy and national security strategies, as well as a more integrated energy grid from Mexico through Central America and Colombia supplied by clean energy (JD Supra – English).
Political Economy
Citibanamex improves Mexico’s economy forecast… According to Citibanamex, Mexico’s economy is expected to grow by 4.7% in 2021 (El Financiero – Spanish). The reason is the increased growth forecast for the US, which will boost Mexico’s exports.
…and the World Bank expects 4.5% growth. The World Bank improved Mexico’s economic growth forecast to 4.5% for 2021, from the previous 3.7% forecast (El Economista – Spanish). The recovery will depend on the vaccination campaign speed, US growth, and market recovery.
The Finance Ministry expects 5.3% growth in 2021. The Mexican government forecast a GDP recovery of between 4.6% and 6.3%, with an estimated growth of 5.3% in 2021 and 3.6% in 2022 (Forbes – Spanish). The boost was explained by progress in the COVID-19 vaccination campaign and the recovery in global oil prices.
Fitch maintains Pemex’s stable rating. The international rating agency ratified Pemex’s rating of BB- with a stable perspective (El Financiero – Spanish). Fitch believes Pemex would probably need important governmental support in the short term. Despite the cancellation of the contract, Fitch will continue providing Pemex’s rating to its investor clients.
Legal & Regulatory
The Energy Commission will discuss hydrocarbons reform… The Congress’ Energy Commission will discuss the hydrocarbons reform proposal (El Economista – Spanish). Experts have pointed out how the modification to Articles 57 and 59 could be an expropriation “in disguise” (El Financiero – Spanish).
…and Imco is not happy with it. The Mexican Institute for Competitiveness (Imco) argued that going back on power sector reform could have highly negative consequences for Mexico (El Economista – Spanish). Imco asked lawmakers to reject the presidential proposal regarding the hydrocarbons law as it violates the Mexican constitution (El Economista – Spanish).
Nuevo León’s companies rely on self-supply permits. Companies in several states, including Nuevo León, will be affected by the new power reform, as the Energy Regulatory Commission could take back self-supply permits when they are not for the licensee but for a partner (El Economista – Spanish).
AMLO said the previous energy reform will not be repealed. President López Obrador argued that the new hydrocarbons law proposal is not looking to repeal the energy reform made by the previous government, just to sand its sharper edges (El Financiero – Spanish).
The Mexican IRS goes after illegal taps. The Mexican tax office argues that the government loses MXN23bn, 40% of the total in 2020, due to illegal taps and fuel contraband (El Economista – Spanish). The fuel is being stolen in the Gulf of Mexico and imported under false documentation.
Market Trends
Textile industry asked for better power tariffs. The textile production industry asked the government to help it fight illegality and boost competitive power tariffs and adequate commercial practices (Forbes – Spanish). The industry was declared “not essential” and had to stop during the lockdown.
Pemex sold less at home. The opening to imports and commercialization of gas stations made Pemex lose 14% of the local market (El Economista – Spanish). Pemex obtained MXN450bn mainly from crude exports and MXN504bn through local fuel sales.
The World Bank warned about the effects of the energy reforms on private investments. According to the World Bank, private investment could be “greatly” affected if the reforms proposed by the government are not modified, especially the proposals regarding the energy industry (El Financiero – Spanish).
AMLO promises to work on Mexico fuel import regulation. President López Obrador said that he will restore order on Mexico’s fuel imports after years of corruption (Platts – English). The hydrocarbons law will make it harder for companies to obtain a permit for importing fuels.
Strategy & Operations
A leak hit El Caracol water plant. The National Water Commission (Conagua) said a fuel leak was located in Pemex’s facilities, affecting the El Caracol pumping plant in Ecatepec, Estado de México (El Financiero – Spanish). Conagua, Pemex, and Civil Protection will look to locate the origin of the hydrocarbons leak.
AMLO promised to give hydroelectric plants a makeover. President López Obrador will develop a modernization plan to bring CFE’s hydroelectric plants up to date with new turbines (El Financiero – Spanish). Some plants have had the same turbines for 50 years.
Generac Power boosts Mexico’s energy transition. Generac Power Systems cut the ribbon on a power generation plant in Villa de Tezontopec to supply the Americas. The company builds gas- and diesel-powered generators but has started to work on hybrid technologies that rely on solar energy (El Economista – Spanish).
The Zama unitization discussion continues. Talos Energy says the unitization process of the Zama oil field will continue to the next phase, as per a proposal from the Energy Ministry finalizing the terms of a unitization and unit operating agreement (Offshore Mag – English).
New Fortress Energy will supply Mexico with natural gas. New Fortress Energy signed an agreement to provide natural gas to two state-owned power plants in Baja California Sur (Natural Gas Intel – English). The company will supply between 250,000 and 500,000 gallons per day of LNG imported via the port of Pichilingue, currently under construction.
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 is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.
The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.
Lateral Thinking
Mexico may have found “white gold” for renewables in Piaxtla. Since 2015, the Mexican Geological Service (SGM) has explored 1,982 hectares in Puebla for the possible exploitation of a lithium field. Lithium is called white gold as it is considered the mineral of the future, with broad uses for renewable energy (La Jornada de Oriente – Spanish).
Quote of the Week
“Nacer mujer es un inmenso reto, circunstancia toral, dura la vida, la hembra viene en pecado concebida y el hombre nace lleno de respecto.”
“To be born a woman is an immense challenge, fundamental circumstances, makes life hard, the female was conceived in sin and men are born full of respect.”
– Griselda Álvarez Ponce de León (1913-2009) the first female governor in Mexico.
We hope you have a productive week. Please send any news, comments, or white gold discoveries to MexicoWeekly@energynarrative.com.
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