The Weekly Brief: Mexico

August 14, 2017 edition— NAFTA may increase Mexico’s wages; the CNH okayed one more migration; and Parque Solar Coahuila opened.





Last Week in a Minute or Less


Renewables & Electricity. Macquarie opened Parque Solar Coahuila; CFE cut infrastructure investments; and Mexico’s development banks will finance renewable energy.


Natural Gas & Liquid Fuels. Cenagas expects a busy border pipeline auction; Grupo México believes in oil-by-rail; and Jalisco and Veracruz will invest in fuel storage.


Oil & Gas Upstream. CNH authorized the migration of three allocations; Pemex started looking for an offshore infrastructure maintenance partner; and PEP will receive MXN249bn for exploration and production.


Money & Power. The North American energy industry met to discuss NAFTA; inflation is up again; and Fitch changed Mexico’s credit outlook to stable.


Déjà vu all over again. Last week’s readers were particularly interested in the lack of information on Pemex’s farmouts (Spanish); Mexico’s goals during the NAFTA renegotiation (English); and the halt of pipeline construction in Yaqui lands (Spanish).



NAFTA negotiations


The North American energy industry is rallying to support NAFTA talks. The Mexican Association of Hydrocarbon Companies (AMEXHI), the American Petroleum Institute, and the Canadian Association of Petroleum Producers back the NAFTA renegotiation and favor promoting growth of trade and investment in the sector (English) (Spanish). The associations support trilateral collaboration on the NAFTA renegotiation.


The NAFTA negotiation might help Mexican workers. A Trump goal would be to stop Mexican workers from crossing the border by closing the wage gap between Mexico and the US in the NAFTA negotiations (English). Mexico has the lowest wages among the world’s more developed nations.


Mexico will fight for energy and agriculture in the NAFTA negotiation. The Economy Ministry said top goals for the NAFTA renegotiation will be to include energy for the first time and assure a free flow of agricultural products (Spanish). Mexico depends on the US for energy, importing US$1.9bn per month in fuel and natural gas (Spanish).


Mexico enters talks with a historic trade surplus with the US. Mexico’s trade surplus with Washington increased by 13.7%  compared to the first semester in 2016, rising from US$32.4bn to US$36.9bn (Spanish). Mexico is the second biggest importer of US export goods, just behind Canada.



The Road to Reform


Pemex is looking for new friends in deep waters. Pemex’s board approved a search for a leading infrastructure maintenance company to maintain a Tabasco offshore supply center (Spanish). Pemex will look for partners to help improve production and company finances.


The CNH okayed the migration of three allocations. The National Hydrocarbons Commission (CNH) approved Pemex’s request to migrate three deep-water allocations to a contract, likely a license, in the northern area of Cinturón Plegado Perdido (Spanish). A partner could invest close to US$10.7bn during the life of the fields.


PEP will count on MXN249bn for exploration and production. The Board of Pemex Exploración y Producción (PEP) approved the draft 2018 Budget, considering two development scenarios (Spanish). The first posits extraction of 1,811,000 barrels per day and the second relies on an aggressive farmout program to allow an additional 195,000 barrels per day.


Pipelines are on everyone’s minds. Mexico’s National Gas Control Center (Cenagas) expects a great turn-out in the repeat auction for CFE’s cross-border natural gas pipeline capacity (English). Sener’s goal is build 7,372km of pipelines by 2018, but from 2013 to 2016 only 2,386km have been built (Spanish).



Political Economy


Pemex and CFE tight their belts and cut investment. The state-owned companies dropped their spending on maintenance, construction, and capital goods acquisitions by MXN57.3bn in the first semester (Spanish). The cost-cutting represents a 31.8% decrease in Pemex investments and 49.3% in CFE’s, compared to the January-June period in 2016.


Blame the tomatoes for another spike in inflation. Mexico’s Finance Minister pointed to tomato prices as the cause of the rise in annual inflation, propelling prices to 6.44% for the year, climbing at the fastest pace in more than eight years (English) (Spanish). Fruit and vegetable prices spiked 21.86%, annualized, in July.


Pemex is still putting out fires. The state-owned company extinguished a small fire in the catalytic plant in the Tula refinery (Spanish). Pemex stopped operations at almost 1,000 wells in the last year, reducing its activities from 8,932 active wells in 2016 to 8,022 wells in the second quarter of 2017 (Spanish).


Mexico and Cuba rekindle bilateral relations. During the Fifth Meeting of the Permanent Mechanism of Information on Political Consultation Mexico-Cuba, in La Habana, both delegations pointed to opportunities for collaboration in advancing the modernization of the economic and social model of Cuba, begun in 2011 (Spanish).



Market Trends


Fitch changed Mexico’s rating outlook to stable. Two weeks after Standard & Poor’s, the rating agency changed Mexico’s rating outlook from “negative” to “stable”, based on reduced risks and stabilization of the debt (English) (Spanish). Fitch thinks Mexico has shown the ability to meet its fiscal consolidation objectives in the medium term.


Natural gas production is in freefall. Natural gas production from the main basins, including Burgos, Burros-Picacho, Sabinas, and Veracruz, fell 57% compared to the output level ten years ago (Spanish). Production has reached the lowest level in the last 15 years, according to the National Hydrocarbons Commission (CNH).


Mexico’s development banks will back renewable energy. Mexico’s Banco Nacional de Obras y Servicios Públicos (Banobras), the Banco Nacional de Comercio Exterior (Bancomext), and Nacional Financiera (Nafin) will channel US$606m of preferential loans to finance wind parks in Tamaulipas and Nuevo León and solar farms in Aguascalientes, totaling 964MW in capacity (English) (Spanish).


Moody’s says NAFTA is not the answer to all of Mexico’s troubles. The rating agency reported that Mexico’s impediments to growth will not be solved by renegotiating NAFTA. Moody’s questioned the effect of NAFTA to date, citing Mexico’s low growth and productivity, and deepening wage gap which are structural impediments to growth (English) (Spanish).



Strategy & Operations


Macquarie cut the ribbon on Parque Solar Coahuila. Macquarie Mexico opened Parque Solar Coahuila with an investment of MXN758m located in Matamoros (Spanish). The first solar plant in operation in Coahuila cost MXN758m and will have a 22.5MW capacity.


Jalisco and Veracruz will count on fuel storage. Two private storage terminals are being developed in Jalisco, with transfer capacities of 10,000- and 40,000 barrels per day using train cars (Spanish). IEnova signed its first contract to rent fuel storage space to Valero Energy in Veracruz (Spanish).


Gas Natural Fenosa starts supplying in Sonora. The Spanish company obtained a permit from the Energy Regulatory Commission (CRE) to distribute natural gas in Cajeme, Sonora (Spanish). Cajeme will be the first municipality in the region to have natural gas distributed to homes and industries.


Grupo México bets on oil-by-rail. The Mexican mining and infrastructure firm plans to expand its oil-by-rail business building and operating three terminals in Mexico which could be located in  Chihuahua, Mazatlán, Manzanillo, Guadalajara, and Torreón (English). Fuel imports from the US are growing  as Mexico’s demand increases.


Tamaulipas included 50 new suppliers in its energy cluster. The Tamaulipas’ Energy Cluster registry has reached 50 product and service suppliers (Spanish). The registry aims to promote and certify local businesses to meet the region’s energy development needs.



Old School Social


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


The US-Mex Natural Gas Forum is August 14-16 at the Hyatt Regency Riverwalk, San Antonio, Texas.


The Expo Energía is August 15-17 at the Centro de Convenciones Puebla, in Puebla.


The AEM Luncheon “Energy: a connecting sector between Texas and Mexico” is August 21 in San Antonio.



Lateral Thinking


Students light up a Mexico City low-income neighborhood. Engineering students from the University of Toronto were awarded US$20,000 to implement a project to install solar-powered street lighting in Toltenco, a low-income neighborhood in Mexico’s capital (English). Toltenco has 800 residents with an average income of US$135 per month per household.



Quote of the Week


“Matamos lo que amamos. Lo demás no ha estado vivo nunca.”


“We kill what we love. The rest was never alive.”


-Rosario Castellanos (1925-1974), Mexican poet, writer, and diplomat




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