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April 20, 2020 edition—Pemex’s production timing; AMLO’s reconsideration of renewables; and EDP’s support plan.
Last Week in a Minute or Less
Electric Power & Renewables. Iberdrola makes progress in its solar project in Puebla; EDP will help communities close to its projects during the pandemic; and AMLO is now considering renewables in Mexico’s future.
Natural Gas Mid-Downstream & LNG. The Cuxtal pipeline will change its function.
Liquid Fuels Mid-Downstream. Pemex’s refining fell almost 23% in the last year; China may be copying Mexico’s oil hedges; and Pemex expects MXN7.5bn from oil hedges in 2020.
Oil & Gas Upstream. COVID-19 reached Pemex’s platforms; Pemex’s production goal has some bad timing; and Pulso Energético analyzed how COVID-19 hit the energy sector.
Government & NGO. Mexico got a “special deal” at the OPEC+ meeting; Fitch cut Mexico’s rating to BBB-; and the Finance Ministry is working on other economic measures.
Déjà vu all over again. Last week’s readers were particularly interested in Canada’s preparation for the USMCA (El Financiero – Spanish); the cancellation of 156 LPG permits (DOF – Spanish); and CFE’s generation capacity (PV Magazine – Spanish).
Geopolitics & Trade
Mexico got a “special deal” at the OPEC+ meeting. After an intervention from President Donald Trump, Mexico reached an oil production cut agreement with OPEC+ (Reuters – English) (Rigzone – English). Mexico will cut its oil production by 100,000 barrels per day from May (Reuters – English).
China may be copying Mexico’s oil hedges. A researcher at China National Petroleum Corp. said Chinese oil companies should copy Mexico’s oil hedge strategies (Bloomberg – English). Most of China’s oil production is unhedged, leaving the sector exposed to global market fluctuations.
The USMCA is expected to be working by September. After a meeting of the special commission of USMCA follow-up, Senator Patricia Mercado said the new NAFTA could be in operation on September 1st. The COVID-19 pandemic has delayed meetings of different chambers in Congress to make decisions (El Financiero – Spanish).
Trump limits PPE exports, but not to Canada or Mexico. The Trump administration will exempt Canada and Mexico from its ban on exports of personal protective equipment (Bloomberg – English). The US medical system is facing shortages of protective gear for healthcare professionals.
Political Economy
UBS forecasts a 7.6% contraction of Mexico’s economy… UBS said the Mexican economy will shrink 7.6% due to the coronavirus policy response (Reuters – English) (El Economista – Spanish). UBS revised the forecast from a 3.5% decline.
…and the World Bank forecasts a 6% contraction. According to the World Bank, the COVID-19 pandemic will drop Mexico’s GDP growth from a previous estimation of 1.2% growth to a contraction of 6% (Forbes – Spanish). For 2021 and 2022, the World Bank forecasts a 2.6% recovery of the region’s economy.
Ducker Frontier is even more negative: expects a 9.5% drop. Ducker Frontier expects that the fall in the US GDP will affect Mexico’s GDP with a 9.5% contraction (El Economista – Spanish). The contraction is also explained by the effect of the COVID-19 pandemic in the country and the economic shutdown to fight it.
Fitch cut Mexico’s rating to BBB-. Following Standard & Poor’s decision, the international rating agency cut Mexico’s rating from BBB+ to BBB- and maintained the outlook as negative due to the economic impact of the COVID-19 pandemic (El Economista – Spanish).
The Finance Ministry is working on other economic measures. The Finance Ministry is working on new economic measures considering different scenarios if they are required (El Economista – Spanish). Barclays described the previous measures taken by President López Obrador to face the COVID-19 economic crisis as “very risky” (Forbes – Spanish).
Legal & Regulatory
AMLO is now considering renewables in Mexico’s future. Although President López Obrador assured that oil extraction will continue, the President said that the country should “also look for options to generate with alternative energies, not bet everything on oil” (Renewables Now – English) (El Financiero – Spanish).
CFE will not forget debts during the COVID-19 pandemic. The head of the state-owned company, Manuel Bartlett, said that power payment reductions will not be condoned during the COVID-19 pandemic (Forbes – Spanish). Bartlett argued CFE also has expenses and payments that cannot be delayed.
The Cuxtal pipeline will change its function. The Energy Regulatory Commission (CRE) approved a change in the transportation permit given to the Cuxtal pipeline that would allow interconnection with the Mayakan pipeline (El Norte – Spanish).
The CENACE suspended all deadlines. The National Center of Energy Control (CENACE) canceled deadlines and procedures managed by its administrative units, moving the deadline to April 30 (DOF – Spanish).
Market Trends
Bank of America doubts Mexico will maintain its investment rating. In Bank of America’s survey, 60% of the analysts expect Mexico to lose its investment rating by 2021, while 23% believe it will happen in 2020 (El Financiero – Spanish).
Pemex’s production goal has some bad timing. Analysts concluded that the state-owned company is increasing production while profit margins are getting smaller, refineries need to be reconfigured (and there is no money for it), and there is not enough storage and pipelines (El Financiero – Spanish).
Pemex expects MXN7.5bn from oil hedges in 2020. The head of the state-owned company said that Pemex expects to obtain approximately MXN7.5bn this year from oil hedges (El Financiero – Spanish). Pemex receives a monthly payment when oil prices are under the amount agreed upon in the hedge.
Pemex’s refining volumes fell almost 23% in the last year. According to the System of Energy Information of the Energy Ministry, in the last year, the amount of crude processed in the state-owned company’s six refineries fell by 22.8% (Reforma – Spanish).
COVID-19 hit gasoline sales. The slowdown in activities due to the COVID-19 lockdown hit gasoline demand by 13.5% year-on-year. According to the national organization of oil retailers (Onexpo), sales in March fell by 40% and may fall 60% in April (El Financiero – Spanish).
Strategy & Operations
COVID-19 reached Pemex’s platforms. At least one worker at Pemex’s Abkatun-A processing center has been diagnosed with the coronavirus, and at least 21 workers have shown feverish symptoms (Reuters – English) (Forbes – Spanish) (Pemex – Spanish). Pemex did not respond whether the facility’s operations would be affected.
Iberdrola makes progress on its solar project in Puebla. During the COVID-19 crisis and using strict safety and health protection measures, Iberdrola continues working on its 200MW Cuyoaco solar project in Puebla (Renewable Now – English). Today, workers are installing more than 730,000 solar panels.
EDP will help communities close to its projects during the pandemic. EDP Renewables North America will commit US$300,000 to help communities in Mexico, US, and Canada near the company’s wind farms and solar parks deal with the COVID-19 pandemic (Globe News Wire – English).
Pulso Energético analyzed how COVID-19 hit the energy sector. Pulso Energético published a report on the impact of COVID-19 in the energy sector and recommended domestic cooperation between production companies, regulators, and governments and economic stimuli for micro, small, and medium companies (Pulso Energético – 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 the 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 rescheduled for November 17-18 in Mexico City.
The Mexican Petroleum Congress is scheduled for June 24-27 in Monterrey and may be postponed until September.
Lateral Thinking
Oil from the Deepwater Horizon spill was found in Mexican fish. Scientists found oil from the Deepwater Horizon spill in fish and sediments in the Gulf of Mexico, including waters off the US, Mexico, and Cuba. Scientists sampled over 15,000 fish and over 2,500 sediment cores (Nation of Change – English).
Quote of the Week
“Los enemigos son grandes según el miedo que nos producen.”
“Enemies are as big as the fear they produce.”
-Francisco González Bocanegra (1824-1861) Mexican poet.
We hope you have a productive week. Please send any news, comments, or late effects of oil spills to MexicoWeekly@energynarrative.com.
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