The Weekly Brief: Mexico


April 22, 2019 edition—Iberdrola’s power plans; Texas-Tuxpan pipeline in June; and border delays discussed.




Last Week in a Minute or Less


Renewables & Electricity. Iberdrola plans to invest US$5bn in power projects; Engie defends renewables before the administration; and Ener AB wants to double its power generation.


Natural Gas & Liquid Fuels. The Texas-Tuxpan pipeline will be up and running by June; four private companies will boost natural gas imports; and Moody’s is concerned with Pemex’s refineries.


Oil & Gas Upstream. The CRE published regulations on exploration plans; Mexico’s oil reserves dropped by 7% in January; and tenders for 66% of oil and gas resources are pending.


Money & Power. Mexico pushes to be exempt from Section 232; Banxico is concerned about Pemex’s threat to stability; and the IDB expects low GDP growth.


Déjà vu all over again. Last week’s readers were particularly interested in Kinder Morgan’s pipeline (Platts – English); IMF’s growth outlook (Reuters – English); and Braskem Idesa’s interest in imports (El Financiero – Spanish).



NAFTA Negotiation


Mexico and the US will discuss border delays. Mexican and US government officials and business leaders met to speed up the new NAFTA ratification, to solve border delays that are affecting exporters, and to discuss metals tariffs (Reuters – English).


Farmers are suffering from Trump’s tariffs. The trade fight with China and the tariffs imposed on Canada and Mexico are affecting American agricultural exporters due to retaliations (Bloomberg – English). Even Chuck Grassley, Iowa Republican leading the Senate Finance Committee, asked for Canadian and Mexican steel duties to be lifted before the USMCA ratification.


Bernie Sanders asks Trump to kill the new NAFTA agreement. The front-running Democratic presidential candidate wants President Trump to abandon the USMCA. Sanders challenged the President to send the new deal only if it includes strong mechanisms to increase workers’ wages and prevent the outsourcing of American jobs to Mexico (Bloomberg – English).


Mexico pushes to be exempt from Section 232. The Economy Minister Graciela Márquez Colín asked US Secretary of Commerce Wilbur Ross for an exemption from the steel and aluminum tariffs, as Mexico does not pose a threat to US national security (Platts – English). No response was officially given by Ross.



The Road to Reform


Tenders for 66% of oil and gas resources are pending. The CNH explained the federal government has 66% of the tenders for gas and oil areas pending to be explored (El Financiero – Spanish). The areas should be considered to increase national production as the administration intends.


The CNH worked on regulating exploration plans…The National Hydrocarbons Commission (CNH) published the rules that regulate the exploration and development plans to extract hydrocarbons (DOF – Spanish). The CNH also published the format and instructions to present company’s information to the authorities (DOF – Spanish).


… and the CRE explained the justification to extend contracts. The Energy Regulatory Commission (CRE) presented the justified causes to extend until the end of the year total capacity in interconnection contracts (DOF – Spanish). The CRE published the rules to sanction breaches in power acquisition (DOF – Spanish).


Mexico’s oil reserves dropped by 7% in January. Proven oil reserves in the country fell by 7% to 7.9 billion barrels of crude oil equivalent at the beginning of 2019 (Reuters – English) (El Financiero – Spanish). The National Hydrocarbons Commission (CNH) assured Mexico has reserves to produce oil for the next eight years (El Financiero – Spanish).


The power auction cancellation hit wind projects. The cancellation of the fourth power auction brought uncertainty to the market and stopped the development of wind energy projects. Vestas said the cancellation has stopped the generation of new projects (El Financiero – Spanish).


New limits on radioactive pollution and control were published. The National Committee of Nuclear Security and Safety published the limits for radioactive pollution and the rules to control it (DOF – Spanish). The goal is to set controls to minimize personnel exposure to radioactive material.


Guillermo Zúñiga Martínez left the CRE. Guillermo García Alcocer, the president of the Energy Regulatory Commission (CRE), confirmed Guillermo Zúñiga’s resignation as a CRE commissioner (El Economista – Spanish). Zúñiga did not disclose the reasons for leaving the position.


Political Economy


Banxico is concerned about Pemex’s threat to stability. Banxico pointed to Pemex’s financial challenges as a risk for Mexico’s macroeconomic stability (Reuters – English). Mexico’s Central Bank Governor said prudent monetary and macroeconomic policies to promote investor confidence are necessary (Reuters – English).


The INAI wants Pemex to publish canceled permits. The National Institute of Transparency, Information Access, and Data Protection asked Pemex to publish the names of the companies whose permits to sell fuel were canceled (El Financiero – Spanish). The goal is to use the information as a tool to evaluate actions against fuel robbery.


The Finance Ministry offered a hand to Pemex. The Finance Ministry will use MXN100bn from the budget stabilization fund to help Pemex (Reuters – English). Rating agencies considered the decision a positive step to ease Pemex’s debt (El Financiero – Spanish).


A former CFE director is against gasoline price regulation. Enrique Ochoa Meza, the former head of the state-owned company CFE, described the proposal to give the Energy Regulatory Commission the authority to regulate high gasoline prices as “contradictory and regretful” (El Financiero – Spanish).



Market Trends


The IDB expects low GDP growth. The Inter-American Development Bank (IDB) estimates Mexico’s growth will reach 2.4% by 2021 (El Economista – Spanish), agreeing with the Finance Ministry and below the International Monetary Fund’s projection. The IDB trusts infrastructure investments will boost the GDP (El Economista – Spanish).


Moody’s is concerned with Pemex’s refineries. The rating agency warned that the focus on the refining sector could turn the country away from production and increase its dependency on natural gas and fuel imports from the US (El Financiero – Spanish). If imports increase, Mexico could suffer trade deficits.


Banxico will adapt its policy to the inflation target. According to the minutes, Mexico’s central bank board members discussed how to adjust monetary policy in an “opportune and firm” manner to reach the 3% inflation target (Reuters – English). The reasons given for the possible policy change were economic slack and external risk factors.



Strategy & Operations


Four private companies will boost natural gas imports. Kinder Morgan, SIMSA, IEnova, and TransCanada are developing projects to interconnect pipelines and increase natural gas imports by 32% (El Financiero – Spanish). With the interconnections, import capacity will increase from 11,000 million cubic feet per day to 14,485 million cubic feet per day between 2019 and 2021.


The Texas-Tuxpan pipeline will be up and running by June. After several delays, the underwater pipeline Texas-Tuxpan will start operating by the end of June. The CFE explained the delays are due to technical problems with certain weldings and the closing of the pipeline by local fishers (El Financiero – Spanish).


Iberdrola plans to invest US$5bn in power projects. The Spanish company expects to invest US$5bn in new gas and renewable energy plants during President López Obrador’s administration (El Financiero – Spanish). The goal is to satisfy power demand, which today is growing at 3%.


Ener AB wants to double its power generation. The company plans to double clean energy generation in Tamaulipas thanks to new renewable projects that will add to its wind park Mesa La Paz. The goal is to increase production from 306MW to 600MW (El Financiero – Spanish).


Engie defends renewables before the administration. After the power auctions cancellation, the French company will look for private companies to develop projects together, with an investment of US$1bn (El Financiero – Spanish). Engie is open to discussing how renewables offer competitive costs with the government.


The CFE reinforced Yucatán’s power lines. The state-owned company will invest MXN2bn to reinforce the transmission grid that provides power to the Yucatán Península (El Financiero – Spanish). The CFE has strengthened the security in its transmission lines to avoid blackouts and reduce the risk of sabotage (El Financiero – Spanish).


Private companies believe in Mexico’s solar potential. Chinese, Israeli, and Spanish companies consider Mexico as the country with the highest potential for solar energy investment (El Financiero – Spanish). The US Deputy Secretary of Energy, Dan Brouillette, said renewables investments in Mexico will increase dramatically in the next 15 years (El Economista – Spanish).



Old School Social


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


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


XXVIII La Jolla Energy Conference will be held May 22-23 in La Jolla, California.


The 5th Mexico Gas Summit is scheduled for May 29-30 at the Marriott Riverwalk in San Antonio, Texas.



Lateral Thinking


Mennonites and Mayan beekeepers fight over land uses. Maya people have worked on bee culture for thousands of years and Mennonites deforested large parts of land where the bees feed to grow soy farms (National Geographic – English). The genetically modified soy is killing hives and contaminating honey with pesticides.



Quote of the Week


“Sin claridad no hay voz de sabiduría.”


“Without clarity there is no voice of wisdom.”


– Sor Juana Inés de la Cruz (1648-1695), self-taught scholar, philosopher and poet of the Baroque period.



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