The Weekly Brief: Mexico


April 29, 2019 edition—The Empalme plant is a go; Dos Bocas extended; and the ITC studied NAFTA.




Last Week in a Minute or Less


Renewables & Electricity. The Sener, CFE, and OHL signed the temporary acceptance certificate for the combined cycle plant Empalme; Enel put the first solar panel in Tlaxcala; and Rengen wants to power up Yucatán with turbines.


Natural Gas & Liquid Fuels. The Dos Bocas refinery’s competitors asked for an extension; Pemex will update the Cangrejera complex; and LNG exports also cross the border on wheels.


Oil & Gas Upstream. Talos celebrated another discovery offshore Mexico; BHP Petroleum has great expectations for Mexico; and Mexico loses out on natural gas.


Money & Power. Inflation breaks with Banxico’s goal in April; the USTR expects the USMCA to hit auto trade; and the ITC expects the new NAFTA to strengthen Mexico’s unions and raise salaries.


Déjà vu all over again. Last week’s readers were particularly interested in the CRE’s extension (DOF – Spanish); Iberdrola’s investment (El Financiero – Spanish); and the meeting between Mexican and US business leaders (Reuters – English).



NAFTA Negotiation


The USTR expects the USMCA to hit auto trade. A senior official with the Office of the US Trade Representative (USTR) said the ITC underestimated the impact of the new deal on automobile production. The USTR forecasts USMCA would bring US$34bn in new automotive investment (Bloomberg – English).


The ITC has an opinion on the new NAFTA… The International Trade Commission (ITC) forecasted that the new NAFTA will boost the US economy by 0.35% (Reuters – English) (El Economista – Spanish). US imports from Canada would increase by US$19.1bn and from Mexico, by US$12.4bn (Bloomberg – English).


…and expects it to strengthen Mexico’s unions and raise salaries. According to the ITC, the USMCA will increase unionized workers’ salaries and increase the number of unionized workers in Mexico (El Economista – Spanish). The workers’ salaries could increase by 17.2%.


Mexico discussed the USMCA ratification with Lighthizer. Economy Minister Gabriela Márquez Colín discussed the ratification of the USMCA in the US Congress with US Trade representative Robert Lighthizer (El Economista – Spanish). They also discussed the report from the ITC on the economic impact of the USMCA.


The new NAFTA is key for Mexico’s stability. NAFTA was conceived to obtain guarantees from the US government that an open trading regime would be maintained (Americas Quarterly – English). With USMCA, Mexico did not develop internal sources of certainty to decrease its dependence on the new agreement to maintain stability.



The Road to Reform


Mexico loses out on natural gas. According to the Mexican Association of Oil Services Companies, the Mexican Board of Energy, and the Mexican Lawyers School, 53% of Mexico’s hydrocarbon resources are natural gas and 47% crude oil. Mexico could be self-sufficient, and the report recommended the reactivation of Round 3.3 and farmouts for Pemex’s Round 0 fields (Reforma – Spanish).


The Dos Bocas refinery’s competitors asked for an extension. The Bechtel-Techint, the Worley Parons-Jacobs consortia, and the Technip and KBR companies requested an extension to submit project proposals (Forbes – Spanish). The Energy Ministry expects their proposals by the end of April.


The Sener, CFE, and OHL signed for the combined cycle plant Empalme. The state-owned company and the Energy Ministry-OHL consortium signed the temporary acceptance certificate for the combined cycle Empalme I, located in Empalme, Sonora (Reforma – Spanish). The project will produce 770MW and includes a refrigeration process for the plants.


Mexico has to face seven oil and gas problems: Mexico suffers a drop in oil production to below 2 million barrels per day, the cost of the refineries President López Obrador wants to build or improve, the increase in domestic demand, a lack of resources to exploit deepwater crude reserves, fuel robbery, the need for more natural gas, and a broader pipeline system (Forbes – Spanish).



Political Economy


Pemex will update the Cangrejera complex. The state-owned company will carry out maintenance at the Cangrejera petrochemical complex in the third quarter of 2019 (Platts – English). To avoid supply disruptions, Pemex imported a spot cargo of around 2,000 mt of xylene from the US.


Border delays are hitting Mexico and the US. Mexico’s Foreign Minister insisted that speeding up the flow of goods at the border is urgent, as the delays are detrimental to both economies (Reuters – English). The Foreign Ministry will present to the US a report detailing the economic costs produced by delays at the border (El Economista – Spanish).


A US recession could hurt Mexico’s GDP. The Mexican Institute of Finance Executives (IMEF) warned that the economic recession in the US and the uncertainty surrounding Pemex’s finances could slow GDP growth in Mexico (El Economista – Spanish). Analysts expect a recession as the performance curve has turned.


Banco Base expects 1.3% economic growth in 2019. The director of financial-economic analysis at Banco Base forecasted 1.3% growth in 2019 and 1.9% in 2020 (El Economista – Spanish). The financial institution expects the ratification of the USMCA to boost the Mexican economy.


Inflation breaks with Banxico’s goal in April. Inflation registered a 4.38% annual rate in the first two weeks of April (El Financiero – Spanish) (Reuters – English). Since January 2017, inflation has passed the Mexican central bank’s 3% goal.



Congressmen will focus on pension funds, impeachments, and the secret budget elimination. The Board of the Political Coordination of the House of Representatives will prioritize the retirement savings system reform, the end of the privilege for the president and legislators, and the end of “secret budgets” of the presidency (El Financiero – Spanish).



Market Trends


India is considering Mexico among others as an alternative to Iran. Indian Oil Corp. said it has built in optional volumes in its term contracts with other countries, including Mexico (Bloomberg – English), and Indian refiners increased their purchases from OPEC countries, Mexico, and the US (Reuters – English). Experts do not expect Mexico to replace Venezuelan and Iranian oil (Platts – English) (Forbes – Spanish).


The EIA studied US-Mexico energy trade. The US Energy Information Administration (EIA) found that the energy trade represented 12% of the value of all US exports to Mexico and 5% of all US imports from Mexico in 2018 (EIA – English). In 2018, the value of US exports tripled to US$30.5bn.


Investments in the energy sector fade away. The impact of the cancellation of oil rounds and power auctions could reach more than US$5bn in Nuevo León alone (El Financiero – Spanish). Tamaulipas lost US$2.3bn with the cancellation of Rounds 3.2 and 3.3 (El Financiero – Spanish).


Pemex holds its oil production drop. In recent months, the state-owned company contained the continuous fall of crude production and should increase production by 153,000 daily barrels, or 9% more, in the next months (El Financiero – Spanish).


LNG exports also cross the border on wheels. Although the US LNG industry has focused on coastal export terminals, Stabilies Energy, a Houston company, and a Mexico City company, Enestas, deliver LNG to industrial and agricultural customers through tanker trucks (Houston Chronicle – English). Stabilis Energy produces 120,000 gallons of LNG per day in its Houston plant.



Strategy & Operations


Enel put the first solar panel in Tlaxcala. The Italian company installed the first solar panel in the state in the Magdalena II solar park (Renewables Now – English) in Tlaxco. Enel invested US$165m to build the Magdalena II park (Forbes – Spanish), and it will be working by the end of 2019.


Talos celebrated another discovery offshore Mexico. According to Talos, the Zama-2 ST1 well was the second of three wells designed to determine the resource potential of the Zama discovery (Offshore Energy Today – English). The goal of the well was to test the reservoir’s northern limits.


AMLO points to Chevron and Shell as the most expensive gas stations. According to the Bureau of Consumer Protection, Chevron and Shell were the two most expensive gas stations in the country this week (El Economista – Spanish). The government pledged to offer detailed information on the location of the most expensive gas stations.


Rengen wants to power up Yucatán with turbines. After the recent blackouts, Rengen will offer power generation solutions for businesses, industries, and homes with Mobilepac technology (El Financiero – Spanish). The mobile packages of gas turbines could help the population and protect the environment using two fuels.


BHP Petroleum has great expectations for Mexico. BHP Petroleum plans more appraisal drilling on the Trion block offshore Mexico during the second half of 2019 (OGJ – English). In Mexico, BHP found oil in 2018 and was followed by a downdip sidetrack encountering oil and water.


The solar panel industry is growing strong. Solar generation development boosted the solar panel production industry, with 12 manufacturers with more than 930MW capacity (Reforma – Spanish). Local solar panels are used in power distribution projects and small consumers.


Nuevo León is asking for power more than others. The Northern state has the third highest number of generation permit requests to the Energy Regulatory Commission (CRE), behind only Tamaulipas and Veracruz. Nuevo León registered 68 power generation projects for 9,099 MW (El Financiero – 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


Earthquakes shake the US-Mexico border constantly. Using a template matching technique, researchers found that Southern California experienced 1.8 million hidden quakes from 2008 to 2017. The 2010 Baja California’s El Mayor-Cucapah earthquake triggered hundreds of aftershocks across Southern California (Science News – English).



Quote of the Week


“La soberbia es el vicio de los poderosos.”


“Arrogance is the vice of powerful people.”



– Octavio Paz (1914-1998), Mexican poet, diplomat, and the 1990 Nobel Prize winner in Literature.



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