April 3, 2017 edition— Amoca-2 hits black gold; the third electricity auction is ready; and Iberdrola and IEnova will supply private companies.
Last Week in a Minute or Less
Renewables & Electricity. The third electricity auction is ready; Iberdrola will supply power to Grupo Modelo; and IEnova, to Deacero.
Natural Gas & Liquid Fuels. Actis will finance natural gas combined-cycle plants; private natural gas production stepped up.
Oil & Gas Upstream. Private oil production fell; Eni’s bet pays off in Amoca-2, but Mexico’s government will get 83.7% of its profit.
Money & Power. S&P advises Mexico to invest in infrastructure; inflation will remain high; and CFE cuts capital investments.
Déjà vu all over again. Last week’s readers were particularly interested in natural gas in Rounds 2.2 and 2.3 (Spanish); the drop in natural gas production (Spanish); and the effect of the CRE’s methodological mistake (Spanish).
The Road to Reform
The third long-term auction is ready, set, go! CFE says the National Center of Energy Control (Cenace) will soon publish the third auction to acquire energy for basic supply (Spanish). As in the first two, the auction will be focused on renewable technologies, with long-term contracts for energy and clean energy certificates.
Eni makes history with the first private well drilled in 70 years. The Italian oil company announced its first exploratory success in Mexico: the Amoca-2 well found heavy crude (English) (Spanish). The 3,500-meter-deep well is 200 kilometers west of Ciudad del Carmen and discovered 110 meters of net oil trapped in Pliocene sandstones.
…and will award Mexico with 83.7% of Amoca-2’s profits. The Mexican government will receive 83.75% of the profit generated by the Amoca-2 well if it enters into commercial production (Spanish). Eni found “meaningful” reserves off the coast of Mexico holding more than the expected 800 million barrels, including light oil (English).
The gasoline price liberalization starts in northern states. On March 30, gasoline prices were liberalized in Sonora and Baja California. This is going forward even though the Energy Regulatory Commission (CRE) explained that storage capacity for Pemex Logística fuels has not been assigned to private companies (Spanish).
Zapatistas may menace the next oil tender. A group of people in Tecpatan, Chiapas, protested the government’s decision to set July 12 as the date for auctioning land close to their farming community for private drilling (English) (Spanish). When the date was disclosed, the angry crowd torched the town hall.
Political Economy
The Trump Administration will just add little tweaks to NAFTA. According to the Wall Street Journal, the Trump administration will look for “limited changes” to NAFTA (English). Changes include allowing the three countries to reinstate tariffs when facing serious threats of a flood of imports.
Mexico will hedge oil prices for 2018. Mexico’s Deputy Finance Minister Vanessa Rubio asserted that Mexico will protect public finances against low crude prices for 2018 (English) (Spanish). The amount of oil hedges has not yet been determined and all possible options to reduce the peso’s volatility are being considered.
Carstens said inflation will remain high. Central bank chief Agustín Carstens reported that inflation will remain above the target ceiling of 4 percent in 2017 and converge towards the 3 percent target in 2018 (English) (Spanish). Now, inflation is at 4.86%, above Banxico’s target.
S&P suggests an infrastructure make-over. Citing the credit-worthiness of many Mexican infrastructure companies, the rating agency advised increased investment in infrastructure to boost competitiveness and economic growth (Spanish). The NAFTA renegotiation could affect Mexico’s transport and energy industries in coming years, weakening the GDP and cash flow to projects.
Pemex paid more for foreign gasoline. The value of the state-owned company’s gasoline imports increased 50% in February year-on-year, reaching US$993m, while diesel imports rose by 230%, hitting US$525m (Spanish). The increases in imports are caused by a drop in domestic production.
Market Trends
Actis bets big on power generation. The British fund will invest US$500m in power generation projects using natural gas combined-cycle plants (Spanish). Actis invested US$300m in the last two electricity auctions planned by CFE with wind and solar generation projects and formed Actis Energy 4, a fourth fund, totaling US$2.75bn.
OPEC considers continuing oil production cuts. OPEC and non-OPEC members are considering whether to extend the oil output reduction for another six months to year-end (English) (Spanish). OPEC compliance with the cuts increased in March and crude prices rose by 2% following rumors that the agreement would be extended (Spanish) (English).
Manufactures drove exports up in February. The value of exports increased in February by US$31bn, an 8% increase compared to February 2016. Manufacturing exports grew 5.5%, while oil sales abroad improved by 69%, thanks to the increase in international oil prices (Spanish).
CFE will cut back on capital investments. The state-owned company will cut its own capital expenditures until 2021 and will use other financing instruments such as Fibras E and Investment Projects Certificates (CerPI) (Spanish). In its new business plan, CFE foresees adjustments that will limit its CAPEX to MXN50-60bn per year.
Strategy & Operations
IEnova and Deacero partnered up. The Mexican subsidiary of Sempra Energy signed a 20-year US$115m contract to supply renewable energy to the Deacero steel company (English) (Spanish). IEnova will provide power from Caborca, a 110MW plant in a municipality in Sonora, by the fourth quarter of 2018.
Ports will get an upgrade courtesy of the energy reform. The energy reform will bring investments worth between US$4bn and US$7bn in port infrastructure during the next 10 years (Spanish). The goal is to avoid bottlenecks in the ports and further the development of specialized ports for the energy sector.
Iberdrola bets US$300m on a wind park. The Spanish company will invest US$300m to expand its wind park in Puebla to supply electricity to Grupo Modelo for fifteen years beginning in the first semester of 2019 (Spanish). Iberdrola plans to have a generation capacity of 10,000MW by 2020.
Private oil production fell, while gas thrived. Private oil production in Mexico decreased to 1,263 million barrels per day in February (Spanish). Nonetheless, gas production by private companies amounted a total of 35.7 million cubic feet per day in February. All Round 1.3 contracts are undergoing evaluation to determine the best production strategy.
Old School Social
Events in the world beyond your screen – go see and be seen!
The Border Energy Forum XXIII is April 4 in Monterrey, Nuevo León.
The 2017 Mexico Energy Assembly is April 8-9 in Mexico City.
Lateral Thinking
A royal palace in the valley of Oaxaca tells us about a 2,300-year-old centralized government. In 2014, excavations of the royal palace were completed, dating the palace around 2,300 and 2,100 years old (English). The palace can be considered evidence of one of the earliest and biggest centralized governments in the Americas.
Quote of the Week
“Sólo tienes una vida, haz de ella una pequeña gran obra maestra.”
“You only have one life, make of it a small grand masterpiece.”
-Emma Godoy (1918-1989), Mexican writer
We hope you have a productive week. Please send any news, comments, or new evidences of 2,000-year-old governments to MexicoWeekly@energynarrative.com.
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