The Weekly Brief: Mexico


April 8, 2019 edition—Soriana’s wind; Yucatán’s natural gas; and CRE nominees battle.




Last Week in a Minute or Less


Renewables & Electricity. Only eight of the first power auction projects are up and running; the CRE nominees support power auctions; and Soriana will be powered by wind.


Natural Gas & Liquid Fuels. Yucatán will get natural gas at last; Sempra has big plans for LNG North American exports; and a CRE nominee believes the Dos Bocas will be up in three years.


Oil & Gas Upstream. International oil explorers push to speed oil production; Mexico has huge gas reserves; but where are Mexico’s oil reserves?


Money & Power. Mexico will be tough on the US over tariffs; AMLO has high hopes for Mexico’s economic growth; and Banxico held interest rates steady.


Déjà vu all over again. Last week’s readers were particularly interested in Baja California’s power needs (Reforma – Spanish); Shell’s gasoline imports (El Financiero – Spanish); and IEnova’s position to renegotiate (El Financiero – Spanish).



NAFTA Negotiation


Trump’s threat heats up the border. Mexico’s Foreign Minister Marcelo Ebrard said Mexico does not act on threats (Reuters – English) after President Trump threatened to close the US-Mexico border if Mexico does not put an end to illegal immigration. President Trump demanded an end to illegal drug flows or he would slap tariffs on vehicles (Bloomberg – English).


Mexico will be tough on the US over tariffs. Mexico will retaliate against US tariffs in April through a carousel of rotating tariffs punishing a range of goods (El Economista – Spanish). Mexico is responding to the US tariffs on steel and aluminum.


The US invites AMLO to discuss migration. US Representative Eliot Engel invited President López Obrador to the House Foreign Affairs Committee in Washington after a meeting in Mexico City (Reuters – English). The Foreign Affairs Committee said they will hold a hearing for AMLO.


Pelosi wants better worker protections in USMCA. US House Speaker Nancy Pelosi said lawmakers will not accept the new NAFTA unless Mexico passes legislation to protect workers’ rights (Reuters – English). Pelosi also mentioned concerns over the enforcement provisions for the USMCA.



The Road to Reform


The battle for the CRE nominees ended at last. President López Obrador renominated 11 out of the 12 nominees (El Financiero – Spanish) and challenged the Senate to refuse them (El Financiero – Spanish). The Senate did, but the President still imposed his choice although analysts believe it would affect the market (El Financiero – Spanish).


Mexico has gas for two centuries. The National Hydrocarbons Commission (CNH) explained that Mexico has enough gas reserves for the next 200 years. The goal is to extract natural gas to stop imports that reached 85% of the national demand (El Financiero – Spanish).


The CRE nominees support power auctions. The nominees were interviewed for more than seven hours. The nominees showed support for restarting the power auctions, private capital, and Mexico’s clean energies goals (El Economista – Spanish).


A CRE nominee believes the Dos Bocas will be up in three years. One of the nominees for the CRE, José Alberto Celestinos Issacs, said the Dos Bocas refinery can be built in three years, although “there are a lot of limitations not related with the construction” (El Financiero – Spanish). He witnessed the construction and the opening of three refineries.



Political Economy


The government tightened its belt in February. The Finance Ministry cut expenses in February by 40%. The Social Development Ministry experienced the highest cut, a 93% reduction in its budget, from MXN20bn in 2018 to MXN1.4bn (El Economista – Spanish).


The CFE will develop more than coal plants. Manuel Barlett, CFE director, denied that the CFE is choosing to use coal as a fuel for the power industry. Barlett insisted the CFE is focused on natural gas (El Economista – Spanish), as he insisted wind and solar power are too expensive (El Financiero – Spanish).


Coparmex does not believe in the Dos Bocas refinery. The president of the Mexican Business Association Confederation warned that the studies and documentation proving the economic, technical, and environmental viability of the Dos Bocas refinery should be published to confirm the refinery will not be an irresponsible expense (El Financiero – Spanish).


Mexico’s sovereign debt is walking on thin ice. Mexico’s sovereign debt credit rating is still at risk due to Pemex’s liabilities, the delays in the ratification and implementation of the USMCA, and a potential decrease in investment (Reuters – English).


AMLO has high hopes for Mexico’s economic growth. President López Obrador said Mexico will grow 2% this year and by 3% in 2020 (El Financiero – Spanish) (Reuters – English). The Finance Ministry said the Mexican economy will expand between 1.1% and 2.1% (Reuters – Spanish).


Pemex plans to join two subsidiaries. The state-owned company will join two of its seven subsidiaries. Pemex Perforación y Servicios will join Pemex Exploración y Producción and Pemex Etileno will join Pemex Transformación Industrial (El Financiero – Spanish).



Market Trends


Power tariffs skyrocketed in three years. According to Querétaro’s energy cluster, power tariffs for industries increased in three years between 31% and 143% (El Financiero – Spanish). The Senate will ask CFE’s head to explain the increases (El Financiero – Spanish).


Mexico was busy in the bond market. Mexico placed a 7-year bond of 1.5 billion euros and a 20-year bond of 1 billion euros on the international markets (Reuters – English). The expected ratings are A3/BBB+/BBB+ and the banks in charge are Deutsche Bank (B&D), JP Morgan, Santander, and UBS Investment Bank (El Economista – Spanish).


Analysts expect lower inflation. Specialists forecasted lower growth for 2019, from 1.64% to 1.56% and for 2020 from 1.91% to 1.82% (El Economista – Spanish). Analysts cut the inflation outlook for 2019 from 3.67% to 3.65% and for 2020 from 3.71% to 3.65%.


Banxico held interest rates steady. Mexico’s central bank maintained its interest rate steady, considering the risks to economic growth and higher inflationary pressure (Reuters – English). Banxico held the rate at 8.25%, the highest level since August 2008.


S&P has low investment expectations for Mexico. The international rating agency forecasts investment in Mexico will be slower, and that could impact the GDP if political uncertainty continues (El Economista – Spanish). S&P said there is a lot of uncertainty over fixed investment in Mexico that is fed by the new administration’s policies.



Strategy & Operations


Yucatán will get natural gas at last. The Yucatán peninsula will increase its natural gas supply, connecting with the Texas-Veracruz pipeline to supply 300 million additional cubic feet per day to the region (El Financiero – Spanish). The permits for the interconnection and the Zempoala plant are ready.


Only eight of the first power auction projects are up and running. Among the 18 projects awarded in the first power auction, only eight are operating three years later (El Financiero – Spanish). The pending plants are under development or construction: seven solar plants and three wind plants.


International oil explorers push for oil production. International oil companies such as Murphy Oil Corp. and Repsol are speeding up plans to develop Mexico’s deep-water fields (Bloomberg – English). The companies have faced criticism from President López Obrador, who considers production isn’t growing fast enough.


Sempra has big plans for LNG North American exports. Sempra Energy is working to become the biggest liquefied natural gas exporter in North America. Currently, Sempra is developing Costa Azul phases 1 and 2 in Baja California in Mexico (Reuters – English).


Soriana will be powered up by wind. Soriana cut the ribbon on its fourth wind park, located in Tamaulipas, with an investment of US$184m (El Financiero – Spanish). The new park will have an annual generation of 454 GWh.


Where are Mexico’s oil reserves? Among onshore fields, 40% of the total reserves are concentrated in 10 fields, while 57% of the offshore fields are in 10 fields (Pulso Energético – Spanish). Of the 25,000 million barrels of crude on 3P reserves, more than 3,000 million have no operator for development (Pulso Energético – Spanish).



Old School Social


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


La nueva política energética de México will be held April 10 at the Deloitte University in Mexico City.


MIREC Week is scheduled for May 20-22 at the World Trade Center in Mexico City.



Lateral Thinking


Ancient Mayan farms were located. Archaeologists found evidence of ancient Maya surplus crops that supported trade with neighbors on the peninsula (Eurekalert – English). Researchers at UC found evidence of cultivation along irregular-shaped fields in Mexico following canals and natural water channels.



Quote of the Week


“La muerte toma siempre la forma de la alcoba que nos contiene.”


“Death always takes the shape of the room that contains us.”



– Xavier Villaurrutia y González (1903-1950), Mexican poet and playwright.



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