August 12, 2019 edition—Tamaulipas’ wind; TC Energy’s delays; and the surplus goal.
Last Week in a Minute or Less
Renewables & Electricity. Tamaulipas will blow up its wind energy.
Natural Gas & Liquid Fuels. TC Energy’s Mexican projects are in trouble; Texas’ governor urged Mexico to hit the gas on the pipeline talks; and CFE’s tender signals further delays for the Sur de Texas pipeline.
Oil & Gas Upstream. The CNH published the rules to deliver information; and investment in exploration is growing.
Money & Power. The US-China trade war helped Mexico; the Finance Ministry maintained its surplus goal; and Barclays does not expect much from Mexico’s GDP.
Déjà vu all over again. Last week’s readers were particularly interested in Baja California’s power system (El Financiero – Spanish); Transcanada partners’ lawsuit (El Economista – Spanish); and IEnova’s profits (El Financiero – Spanish).
The US-China trade war helped Mexico out… As a consequence of the US-China trade war, Mexico became the leading trade partner of the US in the first quarter of 2019 (El Economista – Spanish) (Benzinga – English). Imports and exports between Mexico and the US totaled US$308.8bn, surpassing Canada’s US$306.6bn.
…but Mexico’s dependence could be trouble down the road. While exports to the US have helped the economy, domestic demand has been “modest” and foreign direct investment has fallen. President López Obrador has emphasized the importance of self-sufficiency, but a slowdown in US industrial sectors could affect Mexico’s in the second half of the year (Reuters – English).
Pence pushed for USMCA. Vice President Mike Pence visited a crane company in south central Pennsylvania to promote the new NAFTA in the swing state (PApost – English). Pence defended USMCA as it pushes manufacturing back to the US through provisions like mandatory higher wages for autoworkers.
The USMCA may not end working people’s worries. President Donald Trump may have to choose between negotiating clear labor standards and workers’ rights monitoring provisions or lying to his voters, as the new NAFTA does not modify the problems of the old one (The Hill – English).
The Road to Reform
The CNH published the rules to deliver information. The National Hydrocarbon Commission published the rules to use and deliver information to the National Hydrocarbons Information Center (DOF – Spanish). The rules include the media’s use of the information, its confidentiality, and access to it.
Texas’ governor urged Mexico to wrap up the pipeline talks. Texas governor Greg Abbott wrote to President López Obrador to quickly conclude the negotiations to begin transporting natural gas across the border (Argus Media – English). The governor said that uncertainty surrounding Mexico-US-Canada projects and delays could impact the countries’ economies.
Investment in exploration has multiplied. Since 2016, investment has multiplied by 3.5, from US$65m to US$286m in the first five months of 2019 (Pulso Energético – Spanish). If the trend continues, the year could close with US$700m.
Mexico may tap the oil fund. According to the chief economist at the Mexican Finance Ministry, Mexico could use US$6.3bn of the oil fund’s US$15bn to cover the gap in its budget revenues (Oil Price – English). Mexico maintained the goal of a primary budget surplus of 1% of its GDP.
IIF is concerned with Pemex’s business plan. In its strategies for Latin America, the Institute of International Finance (IIF) warned that if the government does not stop the economy’s deceleration, Pemex’s business plan could generate a major fiscal impact (El Economista – Spanish).
Pemex agreed to a salary increase for its union. The state-owned company announced an agreement with the oil workers union to increase salaries by 3.37% while saving on travel allowances to help Pemex’s finances (Reuters – English) (Pemex – Spanish). Both parties agreed to “remain within the austerity framework” of the administration.
The Finance Ministry maintained the surplus goal… The chief economist at the Finance Ministry, Alejandro Gaytán, kept the goal of a primary budget surplus of 1% despite the fact that Mexico’s economic performance is below government expectations (El Economista – Spanish). Gaytán expects an increase in economic activity “for various reasons” (Reuters – English).
…and Fitch does not believe a 1% surplus can be reached. The rating agency said the economic deceleration that Mexico’s economy is experiencing will make it difficult to achieve the 1% surplus goal (El Economista – Spanish). Fitch said the Finance Ministry’s stimulus package could boost mortgage credit but not a laxity in the fiscal stance.
The Finance Minister pointed to stability as the challenge. The new Finance Minister Arturo Herrera said the main challenge he faces is to redirect expenses while maintaining stability. The ministry is working on improving the fiscal administration, making collection and spending more effective (El Economista – Spanish).
Economists lowered Mexico’s growth outlook. According to Citibanamex’s survey, economists from financial institutions reduced the growth forecast for Mexico’s economy to 0.6% from 0.9%, as certain institutions, such as Citibanamex and Finamex Casa de Bolsa, predict growth below 0.5% (El Financiero – Spanish).
Premium gasoline was left without subsidy. The Finance Ministry reduced the subsidy for the special tax on gasoline (IEPS) for regular and premium gasoline and diesel (El Economista – Spanish). The Industry Chamber proposed a 3.5% cut on the diesel IEPS for the railroad industry to make it more competitive (El Financiero – Spanish).
AMLO will respect Banxico’s decisions. President López Obrador said he will respect the central bank’s decisions on monetary policy (Reuters – English), although he would prefer for Banxico to lower interest rates (Forbes – Spanish). Banxico will meet on August 15.
Barclays does not expect much from Mexico’s GDP. The investment bank maintained its growth forecast of 0.5% for 2019, as it expects the Mexican economy to experience just a slight increase by the end of the year (El Economista – Spanish). Barclay’s analyst expects the Finance Ministry’s stimulus package to improve investors’ mood.
Goldman Sachs trusts Mexico after meeting with AMLO. President López Obrador met with Goldman Sachs’ operations director John E. Waldron after Goldman Sachs cut Mexico’s growth outlook from 1.4 to 1.0 (El Financiero – Spanish). AMLO said the firm showed its trust in Mexico.
Strategy & Operations
Tamaulipas will blow up its wind energy. Thermion will start the construction of two wind parks in Tamaulipas in 2019 and 2020. The Delaro park will have a capacity of 117MW and Los Molinos will provide 171MW (El Financiero – Spanish).
An LPG leak forced 2,000 to evacuate until it was under control. Approximately 2,000 people were evacuated due to a leak caused by an illegal tap in the LP gas pipeline Cactus-Guadalajara (Reuters – English). After 12 hours, the leak was controlled, but work to avoid any risk continued (El Economista – Spanish).
TC Energy’s Mexican projects are having troubles. The company formerly known as TransCanada said the central segment of the Tula project is delayed due to the Mexican officials’ lack of progress in indigenous consultations regarding the project, pushing completion to the end of 2021 (Platts – English).
The Sur de Texas pipeline will be further delayed. The CFE announced an LNG supply tender, calling for four cargoes to be delivered at Altamira in August (Platts – English). The continued LNG supply tenders could mean further delays with the arbitration proceedings between CFE and the Sur de Texas-Tuxpan pipeline developers.
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.
Mexico will study how stars are born. A new instrument, the Collaborative Heterodyne Astronomical Receiver for Mexico (CHARM), will be integrated into the Large Millimetre Telescope to study how molecules make up interstellar clouds of dust and their role through the lifecycle of stars (Irish News – English). The instrument, which was in the UK, is the first to operate using wavelengths of light less than a millimeter in length.
Quote of the Week
“Luciérnagas en un árbol… ¿Navidad en verano?”
“Fireflies in a tree… Christmas in the summer?”
– José Juan Tablada (1871-1945), Mexican poet and art critic.
We hope you have a productive week. Please send any news, comments, or a sprinkle of stardust to MexicoWeekly@energynarrative.com.
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