The Weekly Brief: Mexico

April 24, 2017 edition—Shale rules published; two fields okayed; and El Carmen plant under construction.






Last Week in a Minute or Less



Renewables & Electricity. Iberdrola starts construction of the El Carmen plant and sales of green vehicles skyrocketed.


Natural Gas & Liquid Fuels. Sener okayed 688 gasoline import permits; Special Economic Areas are home to pipelines; and Pemex is selling gas stations.


Oil & Gas Upstream. Shale environmental rules were established and the CNH authorized two mature oil fields.


Money & Power. IMF believes in Mexico; Trump menaces NAFTA; and OPEC looks to stabilize the oil market.


Déjà vu all over again. Last week’s readers were particularly interested in the competition for the third electricity auction (Spanish); CFE’s concerns about financial losses (Spanish);  and the need for new oil reserves (Spanish).



The Road to Reform


The shale environmental rules are finally ready. The Energy and Environmental Security Agency (ASEA) published the final environmental regulations for developing shale hydrocarbons extraction in Mexico, including 35 international standards controlling water use and land protection (Spanish). All operators must demonstrate to ASEA action plans and measurements and submit risk assessments before initiating projects.


CNH okayed two mature fields. The National Hydrocarbons Commission (CNH) approved the evaluation and development plans of two mature oil fields auctioned in Round 1.3 which will require US$9.5m in investments in the first stages (Spanish). The 46.32-square-kilometers Moloacán field is located in Veracruz and the 36.7-square-kilometers Dunas field in Nuevo León.


Sener handed out 688 import permits… The Energy Ministry has issued 688 permits to private companies to import diesel, gasoline, LP gas, and jet fuel, that will allow 627.4 billion liters to enter the market (Spanish). At least 32.9% of the permits were for gasoline, authorizing 261 billion liters to be imported.


…but earlier permits weren’t used. The first ten permits approved for importing gasoline expired on April 12 and 15 and were barely used. The cost of imported fuel is too high due to inadequate infrastructure and the costs of transportation, storage, and security for fuel imports in Mexico (Spanish).



Political Economy


Trump threatens NAFTA again. President Donald Trump reiterated his idea of dumping NAFTA altogether if major changes are not negotiated (Spanish). Trump pledged to protect American dairy farmers from Canada’s trade practices (English). Mexico’s Economy Minister said that the lack of a US Trade Representative is delaying the NAFTA renegotiation (English).


Argentina and Mexico ally on trade. As a response to Donald Trump’s America First policy, Mexico and Argentina are negotiating to broaden their shared trade deal (English) (Spanish). Both nations began discussions of trading proposals in 13 sectors including agriculture, cars, regulatory improvements, intellectual property, and access to markets for goods and services.


Pemex is selling more gas stations. The state-owned company will continue selling gas stations in Hidalgo, Jalisco, Mexico City, and Puebla in 2017. Pemex will also sell 10 workers’ homes in Tabasco and Veracruz considered not profitable enough or a financial burden (Spanish).


Duarte was detained in Guatemala. Former governor of Veracruz, Javier Duarte, was detained in Guatemala (Spanish). The police tracked him thanks to a private flight from Mexico City to Guatemala booked for Duarte’s sons. Duarte was governor from 2010 to 2016 and has been accused of misappropriating millions from public funds.



Market Trends


Private capital bets on Mexico’s energy. Private equity funds manage US$8bn to be invested in projects in Mexico’s energy sector (Spanish). Members of the Mexican Association of Private Capital (Amexcap) have already committed US$6bn for the energy sector and US$8bn await profitable long-term projects.


The IMF backed Mexico’s economic growth forecast… The International Monetary Fund (IMF) maintained Mexico’s economic growth projections at 1.7% in 2017 and 2% for 2018, while economic activity is to improve in 2019, reaching 2.7% (Spanish). The forecast could improve if the US recovery strengthens and binational trade remains unperturbed.


…but warns over the effect of rising interest rates on GDP. According to the International Monetary Fund (IMF), Mexico’s rate increase helped to attain stability, but could impact Mexico’s economic performance (Spanish). The Mexican Institute of Finance Executives (IMEF) increased Mexico’s growth forecast to 1.55% from its previous projection of 1.4% (Spanish).


OPEC relies on non-OPEC producers to manage the market. OPEC hopes non-member oil producers will cut production to stabilize the oil market, and on May 25 an extension will be decided (English). Although it took longer than expected, OPEC remains optimistic that oil prices will recover as a result of the agreement (Spanish).



Strategy & Operations


Iberdrola started off its El Carmen plant. The Spanish company initiated construction of a new combined-cycle plant in El Carmen municipality. The plant will require an investment of US$450m and will have a power generation capacity of 866MW, with two combined-cycle units that each contain two natural gas turbines and one steam turbine (Spanish).


Nuevo León will benefit from the flexible gasoline market in May. Next month, the second phase of gasoline and diesel price liberalization will start up in the northern state (Spanish). The goal is to develop a dynamic market, capitalizing on its volume and growth potential, with the arrival of new competitors in the next five years.


Oxxo Gas is on the rise, thanks to the gasoline price liberalization. By year-end 2016, Femsa had opened 75 new Oxxo Gas stations for a total of 382 stations which produce 7% of the company’s income. The total income from the gas stations rose by 54.6%, reaching MXN28.6bn (Spanish).


Green car sales shoot up. In January, the sales of green vehicles increased by 324%, totaling 593 units. The Mexican Automobile Industry Association (AMIA) reported that sales in January included 564 hybrid cars, compared to 131 hybrids sold in January 2016, and 29 electric vehicles, 20 more than last year (Spanish).


Special Economic Areas are big on pipelines. The Special Economic Areas (ZEE) include the main pipeline projects in Acapulco, Oaxaca, and Salina Cruz (Spanish). David Madero, director of the National Center of Gas Control, announced that a new route is under study from Lázaro Cárdenas to Acapulco, passing through Morelos state and Chilpancingo.



Old School Social


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


The Mexican Energy Forum is April 25-26 in Mexico City.


The Renewable Energy Congress Mirec Week is May 8-12 in Mexico City.



Lateral Thinking


Mexico’s history is preserved in the doomsday vault. Mexico placed important documents in the Arctic World Archive Mexico, an old coal mine on a frozen island close to the North Pole. Mexico deposited the constitution, the declaration of independence, and culturally significant documents to protect them from nuclear or electronic attacks (English).



Quote of the Week


“No estudio para saber más, sino por ignorar menos.”


“I do not study to know more, but to be ignorant of less.”


– Sor Juana Inés de la Cruz (1648-1695), poet, scholar, and nun of New Spain


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