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August 19, 2019 edition—Pemex’s last chance; ASEA’s okay for Dos Bocas; and solar energy’s growth.
Last Week in a Minute or Less
Renewables & Electricity. The Energy Ministry cut the ribbon on a solar park; Engie and Tokyo Gas teamed up to boost renewables; and Nuevo León trusts its sun.
Natural Gas & Liquid Fuels. ASEA okayed the Dos Bocas refinery with conditions; next year’s oil hedges may be expensive and complicated; and the CRE changed Naturgy Mexico’s permit.
Oil & Gas Upstream. The CNH gave Pemex another chance on its development plans; and the CNH noticed a rise in oil contract income.
Money & Power. The new NAFTA is making progress; Mexico’s domestic policy concerns rating agencies and investors; and Banxico held interest rates steady.
Déjà vu all over again. Last week’s readers were particularly interested in TC Energy’s projects (Platts – English); Texas’ governor’s recommendation (Argus Media – English); and Fitch’s concerns (El Economista – Spanish).
NAFTA Negotiation
Canadian ambassador to the US said good-bye. The Canadian ambassador to the US, who was key in the renegotiation of the new NAFTA, will leave his position by the end of the month for a job in the private sector (Reuters – English) (Bloomberg – English).
Natural gas exports may increase US natural gas producer risks. The increase in exports of natural gas have added new risks for US producers as delivery and infrastructure issues are a problem in certain parts of Mexico and the world (Platts – English). Exports via pipeline have increased risk for US producers.
The US is losing a piece of Mexico’s fuel market to Asia. Mexico’s gasoline imports from the US in June dropped while imports from Asia increased (Hellenics Shipping News – English) (Platts – Spanish). The Energy Ministry’s data showed that Mexico imported 1,342,000 barrels of gasoline from China and 896,000 barrels from South Korea.
The new NAFTA is making progress. After weeks of discussions between US Trade Representative Robert Lighthizer and Democratic lawmakers, negotiations are progressing towards a resolution on items the Democrats want changed (Bloomberg – English).
The Road to Reform
The CNH gave Pemex another chance on its development plans. The National Hydrocarbons Commission (CNH) approved the plan for Pemex to maintain 64 oil fields awarded in Round 0 (El Financiero – Spanish). The CNH okayed the Energy Ministry’s request to consider an exception to the norm.
ASEA okayed the Dos Bocas refinery with conditions. Mexico’s environmental regulator approved the construction of the Dos Bocas refinery, but with conditions to mitigate the project’s environmental impact (Reuters – English) (El Economista – Spanish). Pemex would have to check local water quality, rescue and relocate affected animals, and protect a mangrove forest.
The CNH noticed a rise in oil contracts’ income. The National Hydrocarbons Commission (CNH) said income from 111 oil contracts has registered a 69% increase in the first half of 2019, reaching MXN5.6bn (El Economista – Spanish). The main increase comes from the income for the government’s participation.
Morena lawmakers urge private companies to invest in gas and power. The head of the Energy commission of the Senate and Congress asked businesses to invest in natural gas and power infrastructure and generation (El Financiero – Spanish). The goal is to support the federal government to achieve the aims established in the national development plan.
Political Economy
Fitch is concerned with Mexico’s weak growth… Fitch said weak economic growth and lower oil income could pressure Mexico’s budget (El Economista – Spanish). The rating agency said the oil budget could compensate the low income to reach the surplus goal.
…and Moody’s is concerned with domestic policies. Moody’s said the lack of coherence in the administration’s public policies impacts the economic outlook (El Economista – Spanish). Moody’s also warned the fiscal deficit could increase more than expected due to the drop in oil income (El Financiero – Spanish).
Inflation hit the brakes in July. Inflation went down again in July, reaching 3.78% from 3.95% in the previous month, the lowest level since 2016 (El Economista – Spanish). The drop is explained by the fall in fuel and vegetable prices (El Financiero – Spanish).
Investors are concerned with Mexico’s domestic policy. In a survey developed by Bank of America Merrill Lynch, 61% of the 41 investors said government decisions are a greater risk for Mexico’s economy than the trade war or the risk of recession (El Economista – Spanish).
State governments and private companies will work on the south-southeast region. Businessmen and governors of nine states signed the Oaxaca Pact, an agenda to economically develop the south-southeast region (El Financiero – Spanish). The goal is to end the differences between the north and south of the country.
Market Trends
Mexico receives most of US orthoxylene. Among the 4,620mt of orthoxylene exports from the US in June, Mexico took 4,613mt, remaining the top destination for shipments (Platts – English). June exports were down by 6,339mt, or 58%, for the month.
Banxico surprised cutting key interest rate by 25 points. Mexico’s central bank reduced its key interest rate by 25 basis points to 8% due to slowing inflation (Reuters – English). BBVA expected Banxico to cut interest rates in this quarter (El Economista – Spanish) and Citibanamex expected the drop in September (El Economista – Spanish).
Next year’s oil hedges may be expensive and complicated. Experts estimate oil hedges for 2020 could be the most expensive in Mexico’s history and the most complicated for the Finance Ministry (El Economista – Spanish). Besides the complicated geopolitical context, the price coverage must respect the income forecasts estimated in next year’s economic package.
Fitch thinks Pemex’s business plan is detrimental for its credit rating. The rating agency said Pemex’s business plan could weaken the credit outlook for the state-owned company (America Economía – Spanish). The rating agency warned that the goal of 2.7m barrels per day of annual production by 2024 is hard to reach.
HR Ratings said austerity hit the GDP. The rating agency accused the AMLO administration’s austerity of impacting Mexico’s economic growth and the GDP in the first half of the year (El Economista – Spanish). The goal is to avoid a vicious circle of spending cuts weakening the economy.
Strategy & Operations
Nuevo León trusts its sun. According to the Mexican Association of Solar Energy, Nuevo León’s solar generation grew by 117% in the first half of the year (El Financiero – Spanish). Nuevo León has 11,045 homes powered by solar panels, following Jalisco with 17,097 homes.
The CRE changed Naturgy Mexico’s permit. The Energy Regulatory Commission (CRE) modified the permit awarded to Gas Natural Naturgy México, as it allowed the company to make arbitrary charges to its customers (El Financiero – Spanish). The consumer protection agency said it received hundreds of complaints, mainly in Monterrey and Saltillo.
The Energy Ministry cut the ribbon on a solar park. Energy Minister Rocío Nahle cut the ribbon at La Orejana solar park in Hermosillo, Sonora. The park will generate energy to power up 220,000 homes and required an investment of US$131m (El Financiero – Spanish).
Engie and Tokyo Gas teamed up to boost renewables. The French company and Tokyo Gas partnered up to develop renewable energy in Mexico. Both are investing in Heolios, a 50/50 joint-venture company that will develop, finance, construct, operate, and maintain six renewable energy projects (Smart-Energy – English).
Old School Social
Events in the world beyond your screen—go see and be seen!
The SIEC 2019 will be held August 21–22 at the Centro Citibanamex, in Mexico City.
The Green Expo is scheduled for September 3–5 at the World Trade Center in Mexico City.
Lateral Thinking
A family looked for water and found oil. A family in Tabasco drilled a well for water inside their home in Belén and they struck oil instead (Mexico News Daily – English). Civil Protection personnel and soldiers cordoned the house while Pemex technicians investigate the find.
Quote of the Week
“Matamos lo que amamos. Lo demás no ha estado vivo nunca.”
“We kill what we love. The rest has never been alive.”
– Rosario Castellanos (1925-1974), Mexican poet and author.
We hope you have a productive week. Please send any news, comments, or accidental oil wells to MexicoWeekly@energynarrative.com.
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