The Weekly Brief: Mexico


April 19, 2020 edition—Hydrocarbons Law okayed; CFE’s power tariffs increase; and Pemex’s natural gas production.




Last Week in a Minute or Less


Electric Power & Renewables.

Mexico may go into the hydrogen rush; IMCO estimated CFE’s costs of killing independent generators; and CFE warned power tariffs will go up in April.


Natural Gas Mid-Downstream & LNG. Prud’homme expects changes in the natural gas market.


Liquid Fuels Mid-Downstream. Gas stations asked for legal certainty; and the Lázaro Cárdenas refinery will be out until April 30.


Oil & Gas Upstream. Lawmakers okayed the Hydrocarbons Law; lawmakers believe the new Hydrocarbons Law will not impact the budget; and Pemex plans to boost natural gas production in 2021.


Government & NGO. Fitch warned that the new laws may hit Mexico’s rating; IMEF has big hopes for Mexico’s recovery; and Banxico is concerned with heterogeneous economic recovery.


Déjà vu all over again. Last week’s readers were particularly interested in KKR’s purchase (Platts – English); CFE’s tenders (Platts – English); and Mexico’s fiscal framework for natural gas (Natural Gas Intel – English).



Geopolitics & Trade


The rules to fight non-compliant Mexican carriers are done. The International Trade Commission finished a rule regarding practices and procedures for investigations of US-Mexico cross-border long-haul trucking services considered in the USMCA Implementation Act (Landline – English). The final rule will go into effect on May 10.


How to understand the environmental issues at USMCA. The USMCA includes certain administrative mechanisms related to environmental issues, especially in Chapter 24, compared to its predecessor NAFTA (Mondaq – English). The large number of players involved in administering environmental issues produces a time-consuming and often confusing process.


Engage Construction will build a Mexico-Canada rail link project. Caxxor Group chose Engage Construction to construct a CAN$1bn infrastructure project connecting Mazatlán, on Mexico’s Pacific Coast, to Winnipeg, Canada (Freight Waves – English). Engage Construction has mainly operated in the oil and gas sector.


Mexico’s new labeling caused trouble for the ABA. The American Bakers Association (ABA) warned that Mexico’s new labeling laws in its fight against obesity are causing difficulties for US manufacturers trying to export food and beverages. ABA argued that the new labeling laws may contravene some provisions contained in the USMCA (Wolf Street – English).



Political Economy


Banxico is concerned with heterogeneous economic recovery. Mexico’s central bank governor said the country faces a “new challenge” as the economy will recover at varying paces, with export-dependent industries expected to lead the way (Reuters – English). The recovery will be powered by vaccinations and fiscal spending.


Mexico’s inflation hit 4.67% in March. Inflation increased to 4.67% for the year through March due to an increase in fuel prices, above Banxico’s target range (Reuters – English). Banxico maintained the interest rate unchanged at 4% as expected.


IMEF has higher hopes for Mexico’s recovery. The Mexican Institute of Finance Executives (IMEF) revised its growth forecast for Mexico’s economy from 4% to 4.5% for 2021 (El Financiero – Spanish). The institute increased its inflation prediction from 3.9% to 4% for 2021.


Fitch warned that the new laws may hit Mexico’s rating. The international rating agency warned that the weakening of macroeconomic policy in Mexico and “unorthodox interventions” in energy policies could cause a review of Mexico’s sovereign rating (El Economista – Spanish).


Lawmakers believe the new Hydrocarbons Law will not impact the budget. The Budget Commission and Public Account of the Chamber of Deputies said the Hydrocarbons Law will not affect the budget and the reform could generate additional income (El Economista – Spanish).



Legal & Regulatory


The COFECE warned the Hydrocarbons Law could hit competition. The anti-trust watchdog, COFECE, said some terms included in the Hydrocarbons Law proposal could affect competition in the oil industry and increase prices for consumers (Reuters – English) (El Economista – Spanish).


Gas stations asked for legal certainty… The National Organization of Oil Sellers (Onexpo) asked for legal certainty considering the Hydrocarbons Law proposal sent to Congress by the López Obrador administration (Forbes – Spanish). The Onexpo is considering legal action against the Hydrocarbons Law (El Economista – Spanish).


…and lawmakers okayed the Hydrocarbons Law. The Chamber of Deputies approved the reform to the Hydrocarbons Law and started with the discussion of articles (El Economista – Spanish). The goal is to overcome energy dependency and the importation of 70% of fuels.


The Supreme Court received an unconstitutional regulation change request to the power law. The Supreme Court received an unconstitutional demand, promoted by senators, to the new power law (El Economista – Spanish) (WSJ – English). The argument is that the reform violates the right of free competition.



Market Trends


AMLO said he kept the promise of no higher fuel or power prices… President López Obrador assured that the promise to not increase gasoline prices or power tariffs was kept (El Financiero – Spanish). AMLO said the only fuel pending adjustment is LP gas.


…and CFE warned power tariffs will go up in April. The state-owned company warned power tariffs for Mexican homes will increase in April by 3.3% (Forbes – Spanish). The reason is the overrun of power generation for CFE during the Texas winter storm.


Pemex plans to boost natural gas production in 2021. The state-owned company forecasted an increase in natural gas production from 3.64 Bcf/d in 2020 to 4.19 Bcf/d in 2021. For 2022, Pemex sees production reaching 4.39 Bcf/d (Natural Gas Intel – English).


Prud’homme expects changes in the natural gas market. Prud’homme said that domestic production will not rise anytime soon without new oil and gas rounds, and the new hydrocarbons bill may make new smaller-scale transporters’ activities difficult without storage capacity (Natural Gas Intel – English).



Strategy & Operations


The Lázaro Cárdenas refinery will be out until April 30. The state-owned company said the Lázaro Cárdenas oil refinery is out of service after last week’s fire, which injured seven people (Reuters – English). Pemex expects production to resume this month, although it could take up to 90 days to repair the damage.


IMCO estimated CFE’s costs of killing independent generators. According to the Mexican Institute for Competitiveness (IMCO), the state-owned company will increase its costs between MXN141bn and MXN382bn in 2020 (PV Magazine – Spanish). Private producers represent 36% of the total electricity produced in Mexico.


Automakers are happy with their solar power. Morenergy and Llantas y Servicios del Noroeste worked together on a solar system installation designed to reduce the power bill and take care of the environment (PV Magazine – Spanish). A year after the operation started, the client is very happy with the result.


Mexico may get into the hydrogen rush. As Latin American nations announce hydrogen projects, local initiatives in Mexico are considering the field, including the launch of the Mexican Association of Hydrogen (AMH) (Natural Gas Intel – English). The goal of the association is to work with authorities to develop a national hydrogen plan.



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!)


XXIX La Jolla Energy Virtual Conference will be held May 18-22.


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


Mexican COVID-19 vaccine will be ready in 2021. The head of the National Council of Science and Technology (Conacyt) said that the vaccine under development could be approved in November or December. Clinical trials with volunteers could begin this month (Reuters – English).



Quote of the Week


“Yo con el pasado no cuento. Siempre vienen cosas nuevas.”


“I do not count on the past. There are always new things coming.”


– María Félix (1914-2002), Mexican film actress and singer.



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