April 6, 2020 edition—Bravos Energía’s results delay; Pemex’s production; and less gas demand.
Last Week in a Minute or Less
Electric Power & Renewables. IEnova got funding for solar projects; Bravos Energía’s auction results were postponed; and the CFE is looking for mobile turbogas units.
Natural Gas Mid-Downstream & LNG. Mexico needs less natural gas during the coronavirus pandemic.
Liquid Fuels Mid-Downstream. Maya crude prices dropped below US$10 per barrel.
Oil & Gas Upstream. Pemex pledged to maintain production.
Government & NGO. The Finance Ministry changed its growth outlook; Fitch will review Pemex’s rating; and Trump will delay border tariffs payments for 90 days.
Déjà vu all over again. Last week’s readers were particularly interested in Querétaro’s industry (El Economista – Spanish); Sempra’s LNG project (Reuters – English); and CFE’s combined cycle plants (PV- Magazine – Spanish).
Geopolitics & Trade
The US increased troops at the Mexican border to confront the coronavirus. The US sent 500 troops to the US-Mexico border to assist in the efforts to deal with the coronavirus pandemic (Reuters – English). The US currently maintains an average of 5,000 troops at the Southern border.
Mexico’s auto lobby wants the border open for business. The Mexican Automotive Industry Association (AMIA) asked the government to keep the border open for trade despite the coronavirus outbreak in order to help manufacturers manage the crisis (Reuters – English). The AMIA asked for a delay in the implementation of the new NAFTA (Reuters – English).
AMLO asked Mexicans in the US not to visit Mexico. President López Obrador asked Mexicans in the US to avoid visiting their homeland except in emergencies to reduce the spread of COVID-19 (Reuters – English).
Trump will delay border tariffs payments for 90 days. President Donald Trump approved a proposal to defer the levies for so-called most-favored nation duties for three months (Blomberg – English) (El Financiero – Spanish). The order would not apply to tariffs Trump imposed as a result of an enforcement action.
S&P cut Mexico’s and Pemex’s ratings… The international rating agency downgraded Mexico’s sovereign rating and Pemex’s from BBB+ to BBB (Reuters – English) (El Financiero – Spanish). The justification for the downgrade was the impact of the coronavirus pandemic and the fall in oil prices.
…and the CFE was hit too. The rating agency S&P also downgraded the state-owned company’s rating from BBB+ to BBB due to the risk of the energy policy changes made by the current administration, reducing private sector involvement in the power sector (El Financiero – Spanish).
JP Morgan estimates a 7% contraction. Due to the impact of COVID-19, JP Morgan reduced its 2020 growth outlook to a 7% contraction, including a 35.5% drop in the second quarter at a seasonally adjusted annual rate (Reuters – English) (El Financiero – Spanish).
The Finance Ministry changed its growth outlook. The Finance Ministry expects a GDP growth between -3.9% and 0.1%, similar to the projections of the private sector (Forbes – Spanish). The change was made considering the current circumstances that are more complex than what was expected in September 2019.
Legal & Regulatory
Nuevo León’s energy cluster asked for fiscal incentives. The energy cluster of the northern state believes it is necessary for the federal government to hand out fiscal incentives and have strong measures for investments considering the challenges faced by the sector (El Economista – Spanish).
Mexico needs certainty for the energy transition. Mexico signed the Paris Agreement, promising to reach 35% of energy generation from clean sources, but the cancellation of power auctions and transmission projects complicates its ability to reach that goal (El Economista – Spanish). Mexico has the potential to become a leader in renewables, but needs to attract investment (El Economista – Spanish).
The CENACE is in lockdown. The National Center of Energy Control (CENACE) canceled all deadlines and procedures until April 19 due to the COVID-19 outbreak and lockdown (DOF – Spanish). The CENACE also canceled new interconnection and connection requests.
AMLO is considering nuclear power. The government of López Obrador has mentioned interest in exploring nuclear energy projects since 2019 (Forbes – Spanish). However, the construction of a 1,400MW nuclear reactor requires an investment of US$7bn, almost the same amount as the Dos Bocas refinery project.
Mexico needs less natural gas during the coronavirus pandemic. Due to government measures to slow the spread of COVID-19, reductions in commercial and industrial activity will affect gas demand and pipeline imports (Platts – English). According to Platts, gas demand could decline by 7.9% during the pandemic.
Maya crude prices dropped below US$10 per barrel. Mexico’s Maya crude official selling price for delivery to the US Gulf Coast fell, closing at US$9.24 per barrel (Reuters – English). The price fell US$2.56 per barrel compared to March 27 prices (Reuters – English).
Pemex pledged to maintain production. The state-owned company said it will maintain oil production even as the coronavirus pandemic reduces demand (Reuters – English). Pemex’s production fell 4% in February (El Financiero – Spanish).
Fitch will review Pemex’s rating… Fitch will put Pemex’s rating under revision before the end of April (El Economista – Spanish). Since July 2019, Fitch has placed Pemex’s rating at a speculative grade, BB, with a negative outlook.
…and analysts expect Moody’s to follow. After the S&P’s downgrade in the rating, analysts expect Moody’s to follow with a cut in Mexico’s and Pemex’s ratings (El Economista – Spanish). Analysts expect Pemex’s rating to reach speculative rating or junk.
Strategy & Operations
Femsa plans to power up mostly with renewables. The company set the goal to meet 85% of its power needs from renewable sources this year (El Financiero – Spanish). In 2019, Femsa covered 69% of its power needs with clean energy.
IEnova got funding for solar projects. IEnova received a 15-year loan for US$100m from the Japan International Cooperation Agency (JICA) to build solar projects in Mexico (El Financiero – Spanish). The plants will reduce carbon emissions and contribute to the diversification of the country’s energy matrix.
The CFE is looking for mobile turbogas units. The state-owned company plans to purchase four mobile units for turbogas generation and connecting services to guarantee electricity supply in Baja California Sur (El Norte – Spanish).
AMLO criticized wind energy projects in La Rumorosa. President López Obrador complained about the effect of La Rumorosa wind plants on the landscape and accused the administration that approved it as corrupt (Mural – Spanish) (El Financiero – Spanish). The former governor of the state denied the accusations.
Bravos Energía’s auction results were postponed. The results of the winning companies in the private power auction developed by Bravos Energía were suspended. The results are expected by the end of May (El Norte – Spanish).
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!)
2nd Edition of Shallow and Deepwater Mexico was postponed due to coronavirus. Date TBD.
MIREC Week has been postponed from June 2-4 to October 8-10 at Centro Citibanamex.
Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.
Mexico Assembly was postponed due to coronavirus. Date TBD.
The Mexican Energy Forum is scheduled for April 29-30 in Mexico City. It is probable that the event will be postponed to later in the year.
The Mexican Petroleum Congress is scheduled for June 24-27 in Monterrey and may be postponed until September.
The OECD and the IMF have some grim numbers for Mexico. The Organization for Economic Co-operation and Development (OECD) estimates that the impact of the lockdown would be 30% of the GDP (El Financiero – Spanish). The International Monetary Fund (IMF) said that in March, international investors left Mexico’s market with US$4.6bn in investments (El Economista – Spanish).
Quote of the Week
“Para servir a la patria nunca sobra el que llega ni hace falta el que se va.”
“To serve the nation there are never too many who arrive and no one who leaves will be missed.”
-Venustiano Carranza (1859-1920), leader of the Mexican Revolution.
We hope you have a productive week. Please send any news, comments, or effects of the COVID-19 lockdown to MexicoWeekly@energynarrative.com.
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