The Weekly Brief: Mexico


August 6, 2018 edition—Dzilam wind park in September; Pemex sanctioned; and NAFTA in a month.




Last Week in a Minute or Less


Renewables & Electricity. Queries may delay the Oaxaca-Mexico line; the Dzilam wind park will be working in September; and AMLO may have a hard time with hydropower.


Natural Gas & Liquid Fuels. The CRE sanctioned Pemex over its open season; an underwater pipeline is underway; and Reynosa may have new natural gas projects.


Oil & Gas Upstream. Interest increased in the postponed rounds; AMLO plans to increase crude production; and ENI will invest US$7.4bn in its Round 1.2 contract.


Money & Power. A NAFTA deal may be reached in a month; many oppose Manuel Bartlett’s nomination to lead CFE; and Moody’s would rather focus on Pemex’s production than refining.


Déjà vu all over again. Last week’s readers were particularly interested in CRE’s rules on lithium batteries (El Financiero – Spanish); the lands for the new refinery (El Financiero – Spanish); and Alpek’s sale of power plants (El Financiero – Spanish).



NAFTA Negotiation


Mexico and the US may close NAFTA in a month… US Trade Representative Robert Lighthizer said an agreement may be reached in a month (Bloomberg – English) (El Financiero – Spanish). The US and Mexico held ministerial-level NAFTA trade talks as efforts have increased to seal a deal (Reuters – English).


…and that includes a car deal. The US and Mexico are in the final stages of the negotiation on car rules (Bloomberg – English), according to five people familiar with the negotiations. The agreement could calm Canada, as the auto sector accounted for about a fifth of Canada’s bilateral trade in 2017 (Bloomberg – English).


Progress was made on 12 chapters. Mexico and the US closed the chapters regarding clothes, energy, environment, customs, trade, financing, investment (Excelsior – Spanish), across-the-border trade, digital trade, and cosmetics. The White House Council of Economic Advisers Chairman qualified the progress as “absolutely amazing” (Bloomberg – English).


Canada has been excluded from the talks. Canada was turned down in the recent attempts to engage on NAFTA with the US and Mexico. US Trade Representative Robert Lighthizer is focusing on negotiations with Mexico and is not inclined to engage with Canada at the moment (Bloomberg – English).



The Road to Reform


More are after the postponed rounds. Seven days after the National Hydrocarbons Commission (CNH) postponed the three rounds until February 2019, more companies have shown interest. For Round 3.2, 23 firms are after 37 areas in Burgos, Tampico-Misantla-Veracruz and the Southeast basin (El Financiero – Spanish).


Refineries would require funds from other Pemex branches. The new administration would have to cut expenses in other Pemex branches, including a cut in personal services or investment in certain plants, to finance the MXN38bn refinery (El Economista – Spanish). The budget for personal services in 2018 was MXN41bn.


The CRE published the LP gas sale registries. The Energy Regulatory Commission (CRE) published the general dispositions to develop the statistical registry of commercial legal LP gas sales (DOF – Spanish). Free, optional training would be offered.


AMLO may have a hard time with hydropower. President-elect López Obrador plans to increase hydropower generation by 12 TWh/year by the end of his term, building and rehabilitating facilities (Platts – English). However, the director for renewable energy with Mexico’s Energy Ministry thinks that hydropower generation can’t compete under the current market structure.


The CRE sanctioned Pemex over its not-so-open season. The Energy Regulatory Commission sanctioned Pemex Logística for negotiating special conditions for Tesoro México Supply & Marketing, Andeavor, and Pemex Transformación Industrial in Pemex’s open season for storage and pipeline transportation. The fine amounts to MXN12m (El Financiero – Spanish).



Political Economy


Pemex killed Pemex Cogeneración y Servicios. The Pemex subsidiary, Pemex Cogeneración y Servicios, was eliminated due to its low profitability, and Pemex Transformación Industrial will take charge (El Financiero – Spanish). Pemex will focus on developing projects in areas with existing infrastructure (Platts – English).


Moving Sener and Pemex could increase costs and reduce productivity. Experts said the decentralization of Pemex and the Energy Ministry could bring low productivity and inflation to Campeche and Tabasco (El Financiero – Spanish). Before the move, a growth plan that allows local supply to be able to meet demand should be developed.


Manuel Bartlett and Octavio Romero will lead CFE and Pemex and all hell broke loose. AMLO named Manuel Bartlett as the next general director of CFE and Octavio Romero for Pemex (El Financiero – Spanish). Legislators criticized the picks because they do not have technical profiles or the experience required (Reforma – Spanish).


AMLO plans to propel crude production. President-elect López Obrador said the administration plans to increase crude oil production to 2.5 million barrels per day, from the current amount of 1.9 million bpd (Reuters – English) (El Financiero – Spanish). AMLO pledged that from the first year, MXN75bn will be invested to explore and drill oil wells.


The Oro Negro conflict lingers. Oro Negro said its refusal to pay bribes cornered the company to seek protection under NAFTA (El Financiero – Spanish). The retirement fund Citibanamex assured retirement savings are protected in different financial instruments (El Economista – Spanish) beyond Oro Negro’s investments that are suffering from Pemex’s non-payment.



Market Trends


Scheduled tanker maintenance will hit Pemex’s production. Pemex will halt the production of 95,000 barrels per day of crude and 28 million cubic feet of gas in the Ku-Maloob-Zaap region. The reason is scheduled maintenance for an oil tanker between July 28 and August 4 (Reuters – English) (El Economista – Spanish).


S&P is worried about CFE and Pemex’s finances. The international rating agency warned that unexpected changes in energy sector policies could increase Pemex’s and CFE’s liabilities (El Universal – Spanish). S&P said Mexico’s current rating (BBB+ with a stable perspective) reflects the expectation that economic policies will be continued.


Pemex is having a tough time. During the first half of the year, oil imports surpassed exports by US$10.2bn, producing an historical deficit (El Financiero – Spanish). In the same period, Pemex reported MXN49.8bn in losses, while CFE lost MXN39.8bn (El Financiero – Spanish).


Moody’s would rather focus on Pemex’s production than refining. The international rating agency is concerned Pemex’s investment could be redirected to refining, drastically reducing investment in exploration and production, the area that produces money for the state-owned company (El Economista – Spanish). Pemex invested US$6bn in 2017.


Oil hedges did some spending…US$740m. The Finance Ministry spent US$740m in the first six months of 2018 to cover 2019 oil hedges (Reforma – Spanish). The amount doubles what was spent last year due to the increase in oil prices (El Financiero – Spanish).



Strategy & Operations


The Dzilam wind park will open by September. The company Viva Energía will cut the ribbon on the Dzilam wind park in September. The park will generate power for Cinepolis, the Valle de Mexico commuter train, Mars Chocolate, and the industrial park of the special economic area of Progreso (El Financiero – Spanish).


Community outreach may delay the Oaxaca-Mexico line. Stakeholder engagement in indigenous communities, a requisite for energy projects, could delay the line connecting Oaxaca to the center of the country, according to experts. If a quick negotiation is not reached, the project could be delayed for a year (Reforma – Spanish).


An underwater pipeline is underway. TransCanada and IEnova’s pipeline connecting Texas with Tuxpan will be ready by the end of 2018, with the onshore pipeline finished and construction progressing (Reforma – Spanish). IEnova has 11 projects under construction that will be finished between 2018 and 2020.


Pemex’s refineries are working at 40%. During the first six months of 2018, four of Pemex’s six refineries worked at minimum levels, as shown in their low production. Minatitlán and Medero processed the lowest level of crude, working at 8.38% and 20.13%, respectively (Excelsior – Spanish), due to maintenance work.


ENI will bet US$7.4bn in its Round 1.2 contract. The National Hydrocarbons Commission (CNH) okayed ENI’s plan to develop the production contract obtained in Round 1.2 in the Miztón, Amoca, and Tecoalli field, investing US$7.4bn in 22 years (El Economista – Spanish). The Italian company plans to extract 90,000 barrels per day once extraction in the three fields starts.


Reynosa may have new natural gas projects. Energy Transfer is considering an expansion of its pipeline in Tamaulipas in the second semester of 2018 (El Economista – Spanish). A new point of natural gas interconnection in Tamaulipas is being considered to avoid the overcrowded points of interconnection, according to the National Center of Natural Gas Control.



Old School Social


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


Expo Energía is scheduled for August 14-16 in Puebla, Mexico.


The 2018 Deloitte Renewable Energy Seminar will be held August 15-17 at the Westin Denver Downtown in Colorado.


Expo Eficiencia Energética is scheduled for August 22-24 at Cintermex in Monterrey.



Lateral Thinking


An earthquake unveiled an ancient temple under a pyramid. After the September 19, 2017 earthquake, multiple structures were damaged, including a pyramid in Teopanzolco, 43 miles south of Mexico City. When evaluating the damage, archeologists found an even older temple inside, built in 1150 by Aztec people, measuring about six meters long and four meters wide (Live Science – English).



Quote of the Week


“En el gallinero de la política, la gallina más alabada no es la que pone el mejor huevo sino la que mejor sabe cacaraquearlo.”


“In the henhouse of politics, the most praised hen is not the one that lays the best egg, but the one that best clucks about it.”



-Plutarco Elías Calles (1877-1945), Mexican politician and general.



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