August 5, 2019 edition—Baja California’s state of emergency; three returned blocks; and petrochemical sector investments.
Last Week in a Minute or Less
Renewables & Electricity. Enel will increase its renewable capacity with US$865m; CFE recovered 11% of its generation capacity; and Baja California’s power system declared a state of emergency.
Natural Gas & Liquid Fuels. Dos Bocas construction is expected to start in August; private investment will be welcomed in the petrochemical sector; and Transcanada’s partners sued CFE.
Oil & Gas Upstream. If fracking is banned, Pemex would abandon 115 fields; three companies returned half their awarded blocks; and Pemex’s production stabilized.
Money & Power. Mexico escaped recession by a hair; the Cepal and Mexico lowered the GDP outlook; and Pemex reported major losses again.
Déjà vu all over again. Last week’s readers were particularly interested in the Dos Bocas’ winners (El Economista – Spanish); IEnova’s accusation regarding pipeline arbitration (Reuters – English); and Pemex’s donations (Forbes – Spanish).
The chief of the US chamber brandished USMCA against recession. The head of the US Chamber of Commerce, Thomas Donohue, said the USMCA approval and implementation will boost the US economy and help prevent recession (Reuters – English). Approving the new NAFTA will ease the way for trade agreements with other countries.
Democrats ask for “good faith” talks on USCMA. The Democratic head of the US House Ways and Means Committee called for “good faith” negotiations with the administration about the new NAFTA (Reuters – English). The timeline of the ratification will depend on the negotiation.
Republican senator tells Trump to be patient. Senator Charles Grassley, the head of the Senate Finance Committee, advised President Donald Trump to be patient with House Democrats as they work to reach USMCA approval (Reuters – English). The Trump administration is pressuring lawmakers to ratify the agreement.
The Road to Reform
AMLO will not expropriate the pipelines even without agreement. President López Obrador said the pipelines will not be expropriated or confiscated and negotiations will continue (El Financiero – Spanish). If an agreement is not reached, then they will go to court.
Pemex workers were under attack. The state-owned company’s personnel cutting of illegal taps were attacked by a group of people in Tepeaca, Puebla, who threw rocks and set their vehicles on fire (El Financiero – Spanish). The national guard detained 13 civilians involved in the attacks.
If fracking is banned, Pemex would abandon 115 fields. According to the National Hydrocarbons Commission, the state-owned company would have to leave the exploration and production of crude in 115 of its awarded fields if the use of fracking is prohibited (El Financiero – Spanish). The fields are one-quarter of the 413 awarded during Round 0 in 2014.
Three returned half their awarded blocks. Three companies that obtained contracts in the oil rounds have asked to return blocks to the National Hydrocarbons Commission. The reasons presented include lack of profitability or the inclusion of fields in natural, protected areas where drilling activities are impossible (El Economista – Spanish).
Work on Dos Bocas is expected to start in August. Energy Minister Rocío Nahle said the awarded contracts could start work on August 1, with five out of six packages awarded (El Financiero – Spanish). The Sener assured the Dos Bocas project is financially viable, with a profitability rate of 13.46% during its lifecycle (El Economista – Spanish).
Mexico just barely escaped recession. Mexico avoided recession as GDP grew by 0.1% (Reuters – English) (El Financiero – Spanish). President López Obrador said “there is no recession, we are improving very well in the economic sector” (El Economista – Spanish) (Reuters – English).
JP Morgan believes a recession is unavoidable. JP Morgan estimates Mexico’s GDP between April and June dropped by 0.5% (El Economista – Spanish). Certain sectors have been hit the hardest, such as the mining and construction sectors (Forbes – Spanish).
The former Pemex CEO defended himself. Emilio Lozoya, former head of the state-owned company, defended himself against accusations of developing operations with illegal resources and will explain how Pemex was looted by the past administration (Forbes – Spanish) (El Economista – Spanish).
CFE recovered 11% of its generation capacity. The state-owned company explained that 500 maintenance activities in thermoelectric and hydroelectric plants in the first half of the year have allowed CFE to recover 11% of its power capacity, 4,747MW in total (El Financiero – Spanish).
The Finance Minister announced a stimulus package. The Finance Minister will reactivate the economy with a stimulus package of MXN485bn to face the economic deceleration (El Economista – Spanish) (Reuters – English). The ministry reported the government has spent 4.5% less than in the previous year (El Financiero – Spanish).
AMLO promises no new taxes for 2020. President López Obrador said the 2020 budget will not include new taxes or increases in fuel prices (Reuters – English). The budget is scheduled to be presented by Sept. 8.
Moody’s believes Pemex will need more help… Moody’s senior vice president Pete Speer said the state-owned company will require more support from the government to stop increasing its net debt (Reuters – English). Speer expects Pemex to generate more “negative cash flow” in 2019.
…and Pemex reported major losses again. The state-owned company announced a MXN52.7bn loss in the second quarter (Reuters – English). The firm faces the risk of a new downgrade from credit agencies (Reuters – English).
Pemex broke its spell of falling oil production. The state-owned company ended a three-month spell of oil production declines with an average crude production of 1.66 million barrels per day (Platts – English), a small increase of 0.48% compared to production in May (Forbes – Spanish).
The Cepal and Mexico lowered the GDP outlook. The Economic Commission for Latin America and the Caribbean (Cepal) lowered its growth forecast for the Mexican economy from 1.7% to 1% in 2019 (El Financiero – Spanish). Mexico’s Finance Ministry has reduced its growth forecast for 2019 to 1.1% (Reuters – English).
Strategy & Operations
Enel will increase its renewable capacity with US$865m. The Italian company, which is the company with the most renewable capacity installed in Mexico, will invest US$865m between 2019 and 2020 to reach an installed capacity of 2,932MW, increasing its current capacity by 38% in two years (El Economista – Spanish).
Transcanada’s partners sued CFE… Infraestructura Marina del Golfo brought a lawsuit against the federal government for the decision to renegotiate the contracts signed with CFE. The companies argue the CFE made a mistake claiming the companies did not fulfill their contract and asking them to pay MXN250m (El Economista – Spanish).
…and IEnova expects big things if the CFE conflict is resolved. IEnova expects to obtain between US$935m and US$980m if the contracts signed with the CFE are followed (El Financiero – Spanish). The goal is to reach a positive and fast result with CFE.
Baja California’s power system declared a state of emergency. The National Center of Energy Control (Cenace) said the power system of Baja California was declared to be in a state of emergency, operating with a reserve margin of less than 4% (El Financiero – Spanish). The head of CFE said the blackouts in the region and in Yucatán are the result of the abandonment of previous administrations (El Economista – Spanish).
Private investment will be welcomed in the petrochemical sector. President López Obrador said the federal government will open the petrochemical sector to private investment, while the government will focus only in the Cangrejera and Pajaritos plants (El Economista – Spanish). Private companies’ representatives and the government will meet regularly to discuss progress.
Renewables get the bitter with the sweet. Fide offered funding to 30,814 small companies to install solar panels (El Financiero – Spanish). Meanwhile, an expert said renewable energies face uncertainty after the cancellation of the construction of transmission lines and of long-term power auctions (El Financiero – Spanish).
Old School Social
Events in the world beyond your screen—go see and be seen!
The Green Expo is scheduled for September 3–5 at the World Trade Center in Mexico City.
Scientists said the Vaquita could go extinct in a year. One of the world’s most endangered animals could face extinction in a year if the use of illegal fishing nets continues (Independent – English). Despite a ban by the Mexican government on the use of the gillnet, the porpoise is killed as a by-catch as fishers target the totoaba fish.
Quote of the Week
“Si quieren la silla presidencial, fórmense.”
“If you want the presidential chair, get in line.”
– Plutarco Elías Calles (1877-1945), Mexican politician and military general.
We hope you have a productive week. Please send any news, comments, or scissors for illegal fishing nets to MexicoWeekly@energynarrative.com.
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