The Weekly Brief: Mexico


April 30, 2018 edition—IEnova’s expansion; Hokchi Energy’s development; and NAFTA is close.




Last Week in a Minute or Less


Renewables & Electricity. Enerray will power up Torreón with solar; Siemens and Cemex Energía have an understanding on new power ruling; and Anaya wants 40% of the energy matrix to be clean by 2024.


Natural Gas & Liquid Fuels. Interconnection projects for pipelines are being considered; the CNH, CRE, and Cenagas are working on natural gas storage; and IEnova will expand the Veracruz marine project’s capacity.


Oil & Gas Upstream. Pemex looks for partners in 14 blocks; and Hokchi Energy starts developing its deepwater field.


Money & Power. NAFTA ministers are meeting non-stop; Mexico ratified the TPP; and inflation dropped under 5%.


Déjà vu all over again. Last week’s readers were particularly interested in CRE’s sanctions (Reforma – Spanish); the criticism towards Obrador’s gasoline price plans (Platts – English); and Pemex’s solution for ethylene feedstock (Platts – English).



NAFTA Negotiation


The Telecom chapter is done and salaries are out of rules of origin. NAFTA negotiators closed the telecommunications chapter, the seventh completed out of 30 under consideration (Bloomberg – English). The US eased its stance on rules of origin for cars, taking equal pay in the industry to determine regional content (El Economista – Spanish) out of discussion.


NAFTA ministers met again and again. Senior trade officials from Canada, Mexico, and the US met in Washington (Bloomberg – English) in a push to reach a final agreement on NAFTA soon. Senior officials are under pressure from impending elections (Bloomberg – English) to reach a deal.


Trump and Peña Nieto pointed to a quick NAFTA resolution. President Trump said NAFTA negotiations are “doing very nicely” (Bloomberg – English), while ministers are redoubling efforts to push for a deal. President Peña Nieto said that we are weeks away from a NAFTA agreement (El Financiero – Spanish).


What will AMLO’s win mean for NAFTA? A Latin American research analyst for Nomura said “the market is not appropriately pricing in the risk of NAFTA termination” (Forbes – English). If the agreement is not reached by May, negotiators will probably have to meet with Lopez Obrador, the leading presidential candidate.



The Road to Reform


The CNH, CRE, and Cenagas work on natural gas storage. The CNH and the CRE have located four possible fields to use for natural gas storage in Tamaulipas, Tabasco, and Veracruz (El Economista – Spanish). Cenagas is working with the CNH to open a data room with the field information (El Norte – Spanish).


ANES and Alpek accused CFE of limiting progress. Alpek could not close the sale of two cogeneration plants due to mistakes in the implementation of the regulatory changes (Reforma – Spanish) in power tariffs published by CFE. The National Association of Solar Energy accused CFE of limiting the installation of photovoltaic equipment with an amparo (El Financiero – Spanish).


Pemex looks for partners in 14 blocks. Before the current administration ends, Pemex plans to launch a tender for partners in 14 exploration onshore blocks, awarded in Round 0 (Reforma – Spanish). The areas were already approved by the Administrative Board and are awaiting the Sener’s authorization (Onexpo – Spanish) for the National Hydrocarbons Commission to tender.


NL negotiates adding ethanol to gasoline. Nuevo León could start using ethanol in gasoline in 2019 (El Financiero – Spanish). Together with Guadalajara, the state administration has met with the Energy Regulatory Commission to back the change in the norm (El Economista – Spanish).


Pipeline interconnection projects are on their way. Five projects to interconnect pipelines (El Norte – Spanish) are expected to be developed, according to David Madero, the director of the National Center of Natural Gas Control (Cenagas).



Political Economy


New special economic zones block AMLO’s refineries. The new special economic zones in Campeche and Tabasco announced on April 18 explicitly ban hydrocarbon refining and processing activities (El Financiero – Spanish). The zones stand in the way of López Obrador’s proposal to build two refineries, the core of his energy proposal.


Anaya plans to drive renewable energies. Ricardo Anaya, presidential candidate, announced four proposals (El Financiero – Spanish) to propel the development of clean energies. The goal is to produce 40% of the energy matrix from clean sources in 2024.


Mexico’s senate ratified the Asia-Pacific trade deal. Mexico was the first of 11 signatory countries to ratify the agreement that the US rejected (Reuters – English) (El Economista – Spanish). The Senate voted 73-24 to approve the pact, which will be in force 60 days after six countries or 50% of the signing parties have ratified it.


Inflation dropped to 4.69%. Mexico’s inflation dropped again in the first two weeks of April, falling below 5% for the first time in 14 months (El Economista – Spanish). The reason is the deceleration in power, LP gas, and farm product prices, including eggs, tomatoes, and beer.



Market Trends


The increase in fuel prices may hit Mexico’s public finance. In March, the Finance Ministry estimated that fuel income would reach MXN926bn in 2018, MXN46bn above the amount approved in this year’s economic package. High prices also affect imported fuel, increasing the gasoline tax stimulus (El Financiero – Spanish).


Banxico trusts Mexico’s peso. According to Mexico’s central bank governor, there is no need for additional intervention despite the peso’s retreat in the past few days due to the lack of liquidity (Bloomberg – English) (El Financiero – Spanish). Banxico renewed the exchange hedges for US$250m (El Economista – Spanish).


Foreign investors and the peso have different views towards AMLO. The optimism surrounding the NAFTA negotiations (Bloomberg – English) overshadow the potential risk from López Obrador, who maintains a lead in polls. Mexico’s peso is the worst performing major currency, as investors assume AMLO will win the presidency (Bloomberg – English).


Natural gas prices fell to new lows in March. Natural gas prices dropped by 14.4% in March compared to February, to US$3.88/MMBtu, the lowest level since July 2017 (Platts – English). The states that experienced the most drastic decrease in prices were Aguascalientes, Colima, Jalisco, and Zacatecas.


Pemex cut fuel production goals for 2019. The state-owned company reduced its oil production goal for 2019, estimating 1.95 million barrels per day (Forbes – Spanish). In its 2017-2021 business plan, Pemex forecasted 2.03 million daily barrels for 2019.



Strategy & Operations


IEnova will expand its Veracruz marine project’s capacity. The Sempra subsidiary increased the capacity of a marine terminal that will be built at the Veracruz port to 2.1m barrels, 700,000 barrels above the original proposal (Platts – English). The terminal will manage diesel, gasoline, and jet fuel, and construction will start before summer.


Hokchi Energy starts developing its deep water field. The National Hydrocarbons Commission (CNH) okayed the marketability of hydrocarbons in the field declared by Argentinian companies Hokchi Energy and E&P Hidrocarburos. The goal is to drill 10 vertical development wells and four horizontals in 20 years (El Economista – Spanish).


Enerray will power up Torreón. In June, the Italian company will start building a solar plant in Torreón, Coahuila, with a 105MW capacity and an investment of US$90m (El Financiero – Spanish). The goal is to provide power for several companies in Nuevo León (El Financiero – Spanish).


Siemens and Cemex Energía signed an alliance. Siemens and Cemex Energía signed a memorandum of understanding to help comply with the new rulings of the national power system in Mexico (El Financiero – Spanish). During the Hannover Messe fair, the agreement was signed and both companies will support high-tension charging centers in following official rules.



Old School Social


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



The NAWTEC 2018 will be held on May 14-16 in Lancaster, Pennsylvania.


The 3rd Annual Mexico Electric Power Market Conference is scheduled for May 16 at the Presidente InterContinental in Mexico City.



Lateral Thinking


A rivalry between two towns could kill a language. The Huave people live in the towns of Santa María and San Mateo del Mar. After Santa María okayed the construction of a wind farm, San Mateo cut off Santa María’s electricity, water supply, and the road. Huave people in both towns can no longer communicate with each other and they are forgetting the language ( – English).



Quote of the Week


“Las revoluciones son las encarnaciones modernas del mito del regreso a la edad de oro.”


“Revolutions are the modern incarnations of the myth of the return to the golden age.”



-Octavio Paz (1914-1998), Mexican poet, diplomat, and Nobel prize winner.



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