The Weekly Brief: Mexico


August 3, 2020 edition—Siemens and GIZ’s agreement; US LNG export terms; and CNH’s rule explanation.




Last Week in a Minute or Less


Electric Power & Renewables. Siemens and GIZ will boost power projects; CFE changed its mind regarding new plants; and The Cerro Prieto II and III project is in progress.


Natural Gas Mid-Downstream & LNG. Trump extended the LNG export terms to 2050; US natural gas’ future rebounded thanks to Mexican demand; and IEnova expects to get the LNG import permit soon.


Liquid Fuels Mid-Downstream. The COVID-19 pandemic caused pipeline delays and more flaring; and US MTBE exports to Mexico keep increasing.


Oil & Gas Upstream. The CNH explained certain hydrocarbon exploration and extraction rules.


Government & NGO. Banxico expects a GDP recovery in two years; Mexican exports fell 12.8% in June; and the IGAE forecasts a 20% GDP fall.


Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s long-term power market prospects (Platts – English); Mexico’s lost investment opportunities (El Financiero – Spanish); and the effect of the Sener’s new rules on renewables (Forbes – Spanish).



Geopolitics & Trade


COVID-19 hit Mexican auto production and exports. The head of the Mexican Association of the Auto Industry (AMIA) said the industry generates 3.8% of Mexico’s GDP (El Financiero – Spanish). During the COVID-19 pandemic (from March to May), internal sales reflected a fall of 31.9% from its annual rate, while sales fell 7.7% in the same period in 2019.


The USMCA will help out Baja California Sur’s tourism. Thanks to the new NAFTA, Baja California Sur could attract more direct foreign investment (DFI) and more visitors from the US and Canada (El Economista – Spanish). Approximately 82.3% of the DFI from the tourist sector comes from the US.


Mexican exports fell 12.8% in June. Mexican exports in June fell 12.8%, reaching US$33.7bn. Oil exports suffered an 11.6% fall, amounting to US$31.8bn, the third consecutive month of setbacks (El Financiero – Spanish).



Political Economy


Economic recovery would be difficult without fiscal incentives. According to Euler Hermes, the lack of fiscal incentives from the government will complicate the economic recuperation in the country after the COVID-19 pandemic (El Economista – Spanish). The economist expects an economic contraction of 7.5% in 2020.


The IGAE forecasts a 20% GDP fall. The Global Index of Mexico’s Economic Activity (INGAE) said Mexico’s economic activity will register a record fall in the second quarter of almost 20% due to the effect of the COVID-19 crisis (El Financiero – Spanish).


CFE’s gross profit reached 114% in the second quarter… The state-owned company’s profits increased 114% in the second quarter compared with the same period in the previous year (El Financiero – Spanish). The CFE earned MXN25.1bn between April and June compared to MXN11.6bn.


…while Pemex lost big. The state-owned company lost MXN44.3bn in the second quarter due to the drop in sales caused by the COVID-19 pandemic (El Economista – Spanish). Pemex represents 40% of the total speculative grade debt emissions in Latin America (El Financiero – Spanish).


Banxico expects a GDP recovery in two years. Mexico’s central bank forecasts that it will take two years for the Mexican economy to recover to GDP levels seen before the COVID-19 pandemic (El Economista – Spanish). Banxico expects an increase in the level of extreme poverty in the country.



Legal & Regulatory


Mexico may change its constitution affecting the energy sector… President López Obrador may consider a constitutional reform reversing Mexico’s energy opening after 2021 (Bloomberg – English). The goal would be to strengthen the state-owned companies Pemex and CFE (Reuters – English).


…but the government would have to respect the contracts. After the declarations of the former director of the state-owned company, Emilio Lozoya Austin, which included bribes to approve the energy reform in 2013, lawyers expect a counter-reform in the sector (El Financiero – Spanish). The signed contracts would have to be respected.


The CNH explained certain hydrocarbon exploration and extraction rules. The National Hydrocarbons Commission (CNH) explained different rules from the drilling development plan (DOF – Spanish). The explanation describes the number of wells per year and the modification criteria.



Market Trends


US MTBE exports to Mexico keep increasing. Rail shipments of US gasoline additive MTBE to Mexico are increasing due to port delays and other infrastructure issues (Argus Media – English). Mexico is a large consumer of MTBE, taking nearly two out of every three barrels from US makers.


The COVID-19 pandemic caused pipeline delays and more flaring. While a rebound on the Permian Basin’s gas output is expected, the COVID-19 pandemic will postpone approvals for important key pipelines, which may necessitate increased flaring from 2023 onward (World Pipelines – English). In the most optimistic scenario, West Texas-Mexico exports will increase to 1.5 billion ft3/d throughout 2H20-2021.


Trump extended the LNG export terms to 2050. President Trump said export authorizations for liquefied natural gas (LNG) will go through 2050 and signed four permits for pipeline and rail transport of fossil fuels, including two for transporting US-produced oil into Mexico (The Hill – English).


US natural gas future rebounded thanks to Mexican demand. August natural gas futures recovered due to news of increasing exports to Mexico and a possible increase of temperatures (Natural Gas Intel – English). During July 20-24, the United States exported nearly 6.4 Bcf/d to Mexico.



Strategy & Operations


IEnova expects to get the LNG import permit soon. IEnova is confident a key government permit will be secured this year. The goal is to make a final investment decision on its planned Energía Costa Azul LNG liquefaction project on Mexico’s Pacific Coast (Platts – English) (El Financiero – Spanish).


Shell sued IEnova over gas storage. Shell Mexico sent a request for arbitration to IEnova due to a contract for storage services with the Energía Costa Azul (ECA) project (El Financiero – Spanish). ECA believes Shell’s allegations are inadmissible and have no basis.


Siemens and GIZ will boost power projects. The German company signed a cooperation agreement with GIZ to update and develop power projects in Mexico (El Financiero – Spanish). The goal is to bring electricity to areas of the country out of the grid’s reach.


CFE changed its mind regarding new plants. The state-owned company plans to increase its generation capacity and will build five new plants (El Financiero – Spanish). Las week CFE canceled the tender for the construction of four plants.


The Cerro Prieto II and III project is in progress. The Environmental and Natural Resources Ministry said the Cerro Prieto II and II solar plant project was received for study and possible approval of its environmental impact (PV Magazine – Spanish).



Old School Social Goes Viral


(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)



The 2nd Edition of The Madrid Energy Virtual Conference will be held September 28-October 2.


MIREC Week has been postponed from June 2-4 to October 8-10 at Centro Citibanamex.


Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.


The Mexican Energy Forum is rescheduled for November 17-18 in Mexico City.


2nd Edition of Shallow and Deepwater Mexico was postponed to February 16-18, 2021, at Ciudad del Carmen, Campeche.


Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.


The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.



Lateral Thinking


NASA follows Hanna’s path through Mexico. Imagery of Hurricane Hanna from July 23 to 26 taken from the Visible Infrared Imagining Radiometer Suite (VIIRS) instrument aboard the Suomi NPP satellite was compiled and made into an animation (Eureka Alert – English). The infrared data provided information regarding the size of the storm and its rainfall potential.



Quote of the Week


“Dadme una buena política y os daré mejores finanzas.”


“Give me a good policy and I will give you better finances.”



– Mariano Arista (1802-1855), Mexican president from January 1851 to January 1853.



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