August 17, 2020 edition—Sempra’s hopes; Yucatán’s wind; and Talos’ optimism.
Last Week in a Minute or Less
Electric Power & Renewables. Yucatán has a new wind park; the Finance Ministry invests 61% more in power tariffs; and the Maya train will be 40% powered by electricity.
Natural Gas Mid-Downstream & LNG. Sempra trusts regasification disputes will not affect its LNG project; US natural gas exports to Mexico increased 10%; and AMLO is considering what to do with so much natural gas.
Liquid Fuels Mid-Downstream. Industry and businesses boost fuel demand; and fuel inventories are recovering with the new storage rule.
Oil & Gas Upstream. Talos remains optimistic about Mexico’s E&P; and Pemex will bet big on exploration.
Government & NGO. Inflation reached 3.62% in July; Fitch keeps CFE’s rating at BBB- and stable; and Coparmex warned about the need to respect energy investments.
Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s energy reform risk (Natural Gas Intel – English) (Bloomberg – English); AMLO’s dialogue with the Supreme Court (El Financiero – Spanish); and Montoya’s job at the Conamer (El Financiero – Spanish).
Geopolitics & Trade
AmCham asked for certainty to make the most of the USMCA. The American Chamber of Commerce (AmCham) ratified Jorge Torres Aguilar as the head of the chamber. Torres asked for the USMCA ratification to be followed by public policy that provides certainty (El Economista – Spanish).
Trump’s aluminum tariffs threaten the USMCA… Although the USMCA has been in effect for just five weeks, the US has hit Canada with the re-imposition of 10% tariffs on aluminum after August 16 (The Hill – English). Although the US has the authority to impose tariffs concerning national security threats, in this instance the decision is questionable.
…and Canada plans a response. Canada’s vice minister Chrystia Freeland announced the imposition of duties for CAN$3.6bn to US imports, an answer to the US aluminum tax (El Financiero – Spanish). The duties could affect dozens of products such as washing machines, refrigerators, bicycles, tripods, or baseball bats.
Texas suspects the USMCA will not help fight the COVID-19 crisis. Despite the approval of the USMCA, the president and CEO of the Rio Grande Valley Partnership said the uncertainty behind the rising cases of COVID along both sides of the border make it a challenge to forecast additional investment (Texas Tribune – English).
Inflation reached 3.62% in July. The national index in July registered a 3.62% variation in the annual rate, the highest level since February (El Financiero – Spanish). Inflation remains in the target range set by Mexico’s central bank.
FocusEconomics forecast a 9.3% GDP contraction. According to the information collected by FocusEconomics from different institutions, Mexico’s economic contraction could be between 8.5% and 9.3% due to COVID-19 impacts in the country (El Economista – Spanish). Among the 41 institutions surveyed, 13 forecast a GDP contraction of up to double digits.
HR Ratings warns that debt will reach 56.6% of the GDP. According to HR Ratings, Mexico’s debt as a share of GDP could increase by 10 points in 2020, considering the hit on economic activity due to the COVID-19 crisis and the impact of the peso depreciation (El Economista – Spanish).
Mexico’s industrial production fell 17.5%. Industrial production in Mexico recovered slightly in June with the economic opening, but analysts expect production to take time to reach pre-COVID-19 levels (El Financiero – Spanish).
Legal & Regulatory
AMLO is considering what to do with so much natural gas. President López Obrador is considering how to solve the issue of excessive natural gas in the country. Sempra’s offer to export gas to Asia and send gas to Central America are considered options (El Financiero – Spanish).
AMLO may not be able to fulfill his energy promises. According to Lourdes Melgar, former hydrocarbons deputy ministry, President López Obrador could make the same mistake made in the previous administration: promising things that cannot be achieved (El Financiero – Spanish). Among the measures are the halt in fuel price increases and the improvement in Pemex’s financial situation.
The Finance Ministry invests 61% more in power tariffs. The Finance Ministry increased by 61% the amount of resources devoted to CFE’s power tariffs subsidies (El Financiero – Spanish). In the first half of the year, CFE received MXN42bn from the government; in 2019, it was MXN26.4bn.
Coparmex warned about the need to respect energy investments. The Business Confederation of the Mexican Republic (Coparmex) warned that energy investments are protected by the USMCA and if the government tries to change the rules on US or Canadian companies, they could sue (El Economista – Spanish).
The CRE published its advisory board’s operating rules. The Energy Regulatory Commission (CRE) published the modifications to the operating rules of its advisory board (DOF – Spanish). The rules involved the team groups, the integration of the board, and its function.
Industry and businesses boosted fuel demand… Diesel and gasoline demand recovered in Mexico after industry and business resumed activities (Platts – English). Although the figure is still 12% below the 772,000 b/d registered the same week in 2019, it was up 6.6% from the previous week, and up 58% from April.
…and fuel inventories are recovering with the new storage rule. Inventories of hydrocarbons in storage in Mexico are recovering to the levels before the COVID-19 crisis hit the country (BN Americas – English). Liquid hydrocarbons storage projects have increased with the surge in private gasoline stations and expected storage needs (BN Americas – English).
US natural gas exports to Mexico increased 10%. According to the US Department of Energy, pipeline natural gas exports from the US to Mexico averaged 5.3Bcf/d during the first quarter, a 10% increase from 4.8Bcf/d in the same period a year ago (Natural Gas Intel – English).
Fitch keeps CFE’s rating at BBB- and stable. The international rating agency maintained the state-owned company’s rating at BBB- with a stable perspective (El Financiero – Spanish). Fitch said the COVID-19 crisis will not affect the CFE and the government will back it up.
Strategy & Operations
Sempra trusts regasification disputes will not affect the LNG project. Sempra Energy does not expect the disagreements involving reservation fees at its regasification facility in Baja California to interfere with plans to convert the terminal to process LNG exports (Platts – English).
The Maya train will be 40% powered by electricity. The section connecting Mérida, Cancún, and Chetumal, 690 km of the route, will be electrified (El Financiero – Spanish). Power will be provided by CFE and the trains would be hybrid diesel and electricity powered.
Yucatán has a new wind park. Energía Renovable cut the ribbon on its Wind Park Progreso with an installed capacity of 90MW and an investment of US$155m (El Financiero – Spanish). The project would allow the region to get 50% of its power from clean energy.
Pemex will bet big on exploration. The state-owned company will invest US$6.9bn in exploration between 2020 and 2023 (El Economista – Spanish). Pemex will drill 325 wells to find new resources. The CNH approved 46 of Pemex’s 64 exploratory assignments.
Talos remains optimistic about Mexico’s E&P. The Houston-based company maintains a good outlook for private sector exploration and production in Mexico (Natural Gas Intel – English). Talos found comfort in President Lopez Obrador’s assurance that the awarded contracts will be respected.
Uncertainty hits wind projects. The new federal laws regarding renewable energy have halted three wind energy projects in the General Bravo municipality (El Financiero – Spanish). Together they represent an investment of US$650m and a capacity generation of 650MW.
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.
Research centers suffered funding cuts on top of the COVID-19 crisis. As the COVID-19 pandemic reached Mexico, President López Obrador terminated the public trust funds, which pay for special and long-term projects at certain research centers (Science Mag – English). He also announced a 75% cut for some federal institutions’ budgets.
Quote of the Week
“El que se va se lleva su memoria, su modo de ser río, de ser aire, de ser adiós y nunca.”
“The one that leaves takes away his memory, his way to be river, to be air, to be goodbye and never.”
– Rosario Castellanos (1925-1974), Mexican poet and author.
We hope you have a productive week. Please send any news, comments, or COVID-19 consequences to MexicoWeekly@energynarrative.com.
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