The Weekly Brief: Mexico


April 23, 2018 edition—CRE’s sanctions; Pemex’s partnership; and 80% NAFTA.




Last Week in a Minute or Less


Renewables & Electricity. The CRE gets ready for more sanctions; a wind park in Queretaro is waiting on environmental permits; and Iberdrola wants to speed up power investments.



Natural Gas & Liquid Fuels. Pemex partnered up with Linde in the Madero refinery; Gulf is interested in jet fuel; and Pemex is looking for a long-term solution for ethylene.


Oil & Gas Upstream. How much would it cost to end the energy reform?


Money & Power. NAFTA is almost completed; the IMF forecasts 2.3% growth in 2018; and Mexico’s leading presidential candidate was questioned over his plan for refineries.


Déjà vu all over again. Last week’s readers were particularly interested in the delays in IGSA’s solar parks (El Financiero – Spanish); TransCanada’s pipeline (El Financiero – Spanish); and the presidential campaigns’ energy plans (Pulso Energético – Spanish).



NAFTA Negotiation


Four NAFTA chapters closed. Mexico’s Economy Minister met his US and Canadian counterparts to announce the agreement of four chapters (El Economista – Spanish). Guajardo said Canada, Mexico, and the US have finished between 70-80% of the new NAFTA (El Economista – Spanish), but the most complex topics are still under discussion.


The NAFTA negotiations didn’t scare US investors away from Mexico. US direct investment in Mexico grew 33% last year (Bloomberg – English), even after 11 months of NAFTA negotiations. The NAFTA negotiations have entered a “permanent round” in Washington, with talks being stymied by differences over make-or-break issues (Bloomberg – English).


The NAFTA agreement may come soon. US Vice President Mike Pence and Canada’s Prime Minister Justin Trudeau said the NAFTA trade agreement could be renegotiated in the next weeks (Bloomberg – English). The goal is to avoid political opposition during the Mexican elections.


AMLO supports NAFTA. Mexico’s leading presidential candidate, Andrés Manuel López Obrador, pledged “absolute support” for NAFTA (Bloomberg – English), according to his finance minister. The candidate would also remain in the Trans-Pacific Partnership.


Canadians would rather protect the environment and labor than investor disputes. Canadians urged their negotiating team to concede on investor disputes, while defending more environmental and labor protection (Bloomberg – English). The most frequent suggestion was to eliminate Chapter 11, the part that deals with investor-state dispute settlements.



The Road to Reform


Pemex is looking for a long-term solution for ethylene. Pemex issued a tender for ethane imports (Platts – English) to cover demand over the next three years in order to address feedstock issues at two Mexican steam crackers. The tender will call for the delivery of 240,000mt of refrigerated ethane with 94% purity in 2018.


The CRE gets ready for more sanctions. The Energy Regulatory Commission (CRE) is preparing to issue economic sanctions for breaching capacity obligations (paywall – Reforma – Spanish) for Wholesale Electricity Market participants.


Pemex partnered up with Linde in Madero refinery. The state-owned company formed a long-term alliance with Linde to deliver hydrogen (Pemex – English), at the Francisco I. Madero refinery in Ciudad Madero. Linde will invest close to US$40m (El Economista – Spanish) to operate the hydrogen plant with a capacity to produce 42 million cubic feet per day.


Mexico’s gas storage policy is too moderate for some. Natural gas companies believe that the five days of strategic inventory are moderate compared with other countries (Reforma – Spanish). The Mexican Natural Gas Association explained that certain countries have from 60 to 100 days of storage (Zocalo – Spanish).



Political Economy


Energy Minister criticized Obrador’s gasoline price plans. The Energy Minister Pedro Joaquin Coldwell said the presidential candidate’s plan to freeze energy prices would be a mistake (Platts – English). López Obrador pledged to freeze gasoline prices during the first three years of his presidency and Coldwell noted that it is difficult to unfreeze prices.


Peña Nieto announced MXN50bn for special economic zones. President Peña Nieto said the development bank has MXN50bn available to support private sector investment in seven special economic zones (El Economista – Spanish) (LAHT – English). The funds will boost the economy of areas more affected by the fall in oil prices.


AMLO was questioned over his refineries plan. According to energy experts, more than US$11bn is required to reconfigure and build new refineries (Reforma – Spanish), and it would take more than the duration of a presidential period. López Obrador’s goal is to stop importing gasoline by producing more of it domestically (The Oil & Gas Year – English).


The IMF forecasts 2.3% growth in 2018. By the end of 2018, the International Monetary Fund predicts 2.3% growth (Turkey Telegraph – English), an increase from the previous 1.9% growth. In 2019, Mexico’s GDP will grow by 3% (El Economista – Spanish), up from the previous forecast of 2.3%.



Market Trends


LP gas prices dropped. After reaching an historic peak, LP gas prices fell in February; in March, they fell a further 6.1% below the previous month’s price (El Economista – Spanish). Still, prices remain 11.6% above the price in the same month of 2017.


Gasoline and diesel prices skyrocketed. In March, fuel prices remained high, increasing by 21 cents per liter, a 1.1% increase compared with February (El Economista – Spanish). Diesel and gasoline prices cost 9.9% more than the year before. Gasoline production is expected to keep dropping (El Financiero – Spanish).


Latin American economies could improve with trust. The Latin American Economic Outlook 2018 explores how institutions can maintain growth and increase well-being by reducing the low trust and society’s disconnection (Latam – English) and dissatisfaction with institutions. The study recommends governments deliver and respond to citizens’ demands.


The end of the energy reform would kill US$50bn in FDI. Although the end of the energy reform is not likely (Razon – Spanish), to abandon it would mean the exit of US$50bn in Foreign Direct Investment. That scenario would mean greater exchange volatility and an economic recession.



Strategy & Operations


Iberdrola trusts Mexico and its future president. The Spanish company will negotiate with the winner of the presidential election (El Economista – Spanish), and recommends speeding up investments (El Economista – Spanish) in power generation plants. Iberdrola plans to capture small and medium clients through the project “Medem,” selling power 7.5% below the CFE price (El Financiero – Spanish).


Gulf is interested in jet fuel. The president of Gulf Mexico announced the company’s interest to supply and sell jet fuel with Hidromex Turbosina (El Economista – Spanish), a Mexican company in the sector. The goal is to supply Mexico’s airports, logistics, and financing.


Querétaro bets on energy… The state of Queretaro is planning to create an agency to develop the energy sector in the Bajío region (El Economista – Spanish). The goal is not only to promote energy generation, but also transmission, distribution, and storage.


…while a local wind park waits on permits. A wind park is under construction in the Huimilpan municipality is waiting for the federal environmental impact permits (El Financiero – Spanish). The project received an investment of US$60m, with an annual production of 115,700 MWh.



Old School Social


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



The 2018 SEPA Utility Conference will be held on April 23-25 in Rancho Mirage, California.


AltFuels Mexico 2018 is scheduled for April 23-26 at the WTC in Mexico City.


The Germany-Mexico Energy Forum will be held on April 23-27 at the Integrated Energy Plaza in Hannover.



Lateral Thinking


DNA revealed Mexico’s forgotten Asian heritage. A graduate student in genetics at the National Laboratory of Genomics for Biodiversity planned to study 19th century Chinese immigrants. Searching a database of 500 Mexican genomes, he found one-third of the Guerrero population had 10% Asian ancestry, specifically from the Philippines and Indonesia (Science Mag – English).



Quote of the Week


“Todos aquellos que se eligen por algún medio para algún fin, se tienen por de menor aprecios que el fin a que se dirigen.”


“Everyone who chooses himself somehow for some end, they appreciate themselves less than the end to which they are directed.”


-Sor Juana Inés de la Cruz (1651-1695), self-taught scholar and poet.



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