The Weekly Brief: Mexico


August 27, 2018 edition—Ten power projects okayed; Pemex refineries halted; and NAFTA imminent.




Last Week in a Minute or Less


Renewables & Electricity. The CRE approved 10 power generation projects; AMLO plans to convert CFE plants; and Macquarie Group bought 90% of a solar energy generation portfolio.


Natural Gas & Liquid Fuels. Pemex’s Madero and Minatitlán refineries are on a break; the CRE approved fuel storage in Tamaulipas; and South Korea’s refinery will be upgraded to receive Mexican Maya crude.


Oil & Gas Upstream. Fluvio Ruiz will be the head of Pemex Exploración y Producción; and a natural gas well was closed after manatees died.


Money & Power. A NAFTA agreement is “very, very close”; Perry applauds Mexico’s energy plans; and the IMF recommended AMLO reduce the public debt.


Déjà vu all over again. Last week’s readers were particularly interested in CRE’s requirements for pipelines (El Financiero – Spanish);  ExxonMobil’s use of Kinder Morgan’s pipeline (El Financiero – Spanish); and AMLO’s budget for the refineries (Reuters – English).



NAFTA Negotiation


US and Mexico agreed on NAFTA farm goods. The US and Mexico solved their differences on agricultural products covered under NAFTA after the US dropped some of its demands (Bloomberg – English). The US negotiators withdrew their demand to erect barriers against seasonal imports of certain Mexican farm goods.


The White House said a trade deal with Mexico is “very, very close.” A top White House economic adviser said the US is “very, very close” to clinching a trade deal with Mexico (Reuters – English). Mexico’s economy minister Ildefonso Guajardo said he had hoped to conclude bilateral issues with the US by this past week (Reuters – English).


Foreign automakers oppose the US NAFTA plan. A group representing companies with plants in the US (including Toyota Motor Corp., Volkswagen AG, and Hyundai Motor Co.) do not support Trump administration rules (Reuters – English) to increase the amount of local content in vehicles.


AMLO is renegotiating energy in the NAFTA renegotiation. President-elect López Obrador opposes the energy rules negotiated over the past year (Bloomberg – English). The administration proposed changes to manage the privatization of energy resources in Mexico (El Economista – Spanish).


The US and Mexico are close to an agreement, but obstacles remain. Although US and Mexican officials postponed ministerial talks for a day (Reuters – English), the US and Mexico are closer to a consensus although obstacles remain in the discussion of rules for cars (Bloomberg – English).



The Road to Reform


The CRE okayed fuel storage in Tamaulipas… The Energy Regulatory Commission (CRE) approved the first permit to store fuels in Altamira’s port in Tamaulipas for Cooper/T. Smith of Mexico. The project will represent an investment of approximately MXN1.34bn (El Economista – Spanish).


…and 10 power generation projects. The Energy Regulatory Commission (CRE) handed out permits to 10 companies to develop 10 projects in Aguascalientes, Coahuila, Guanajuato, Hidalgo, Jalisco, León, Yucatán, and Veracruz (El Financiero – Spanish). The projects include combined cycle, cogeneration, solar power, and natural gas plants that will require a combined investment of US$2bn.


AMLO plans to convert CFE plants. President-elect López Obrador plans to avoid the retirement of almost 16,000MW of capacity in thermoelectric plants and to convert the plants to use gas and fuel (Zocalo – Spanish). AMLO expects a progressive investment of US$246m between 2019 and 2022.


The COFECE fined Pemex on a late report. The Federal Commission for Economic Competition (COFECE) fined Pemex’s Industrial Transformation unit MXN418.3m for presenting an annual compliance report on antimonopoly measures in the fuel market, a year after it was due (Reuters – English) (El Universal – Spanish).



Political Economy


Perry applauds Mexico’s plans to stop buying US fuels. US Energy Secretary Rick Perry congratulated president-elect López Obrador’s plan to end refined products imports by 2022 (Platts – English) (Reforma – Spanish). Perry met with Mexican Energy Secretary Rocio Nahle and agreed that Mexico’s energy independence is very important.


Pemex’s Madero and Minatitlán refineries are on a break. The Mexican refinery in Ciudad Madero is halted due to technical and operational problems, processing crude at 40% of its total capacity (El Financiero – Spanish). The Minatitlán refinery, with a 285,000 barrels per day capacity, is not working due to technical problems.


Fluvio Ruiz will be the head of Pemex Exploración y Producción. Fluvio Ruiz Alarcón will direct Pemex Exploración y Producción (PEP), the subsidiary that receives 56% of Pemex’s budget (El Economista – Spanish). Ruiz said that Pemex’s priority would be to stabilize production and increase exploration (La Jornada – Spanish).


AHMSA was dragged into the Odebrecht case. Altos Hornos de México sold Pemex a scrap plant in 2014 and, allegedly, transferred US$3.7m to an offshore company linked to Odebrecht and Emilio Lozoya (Reforma – Spanish). Lozoya denied receiving money from AHMSA (Aristegui – Spanish).


Fuel spills are up from last year. The state-owned company detected 223 events related to leaks and spills, 16% more than the 192 located in 2017 (Spanish).



Market Trends


Banxico wants details from AMLO. Mexico’s central bank is concerned over uncertainty due to the lack of details on the new administration’s strategies and policies (El Financiero – Spanish). Banxico is also uncertain about the budget AMLO is going to present by the end of the year.


The IMF recommended AMLO cut public debt. The International Monetary Fund suggested clarity to López Obrador’s government in its commitment to fiscal responsibility (El Economista – Spanish). The commitment should extend to reduce public debt on which macroeconomic and financial stability will be based.


Mexico uses a new inflation methodology. The inflation information of the first two weeks of August will be more accurate with the methodological change. The methodology includes an update on Mexican consumer patterns (El Economista – Spanish). Analysts forecast 4.73% inflation (El Economist – Spanish).


Mexico’s FDI skyrocketed. Mexico attracted US$17.8bn of foreign direct investment in the first half of the year, a 14% increase compared to the same period in 2017 (El Economista – Spanish). San Luis Potosí and Guanajuato experienced the biggest drop, a 30.6% and 20.5% decrease in investment, respectively, compared to the previous year (El Financiero – Spanish).



Strategy & Operations


Walmart goes into Mexico’s fuel market. Walmart will open six gas stations in the parking lots of its stores. The gas stations will be located in the states of Estado de México, Nuevo León, Tabasco, and Veracruz (Excelsior – Spanish).


Pemcorp plans a power plant in Nuevo León. Pemcorp is projecting the construction of a power plant to generate power with natural gas in Pesquería. The plant would have a capacity of more than 129MW (El Financiero – Spanish) and the project would include the operation and maintenance of the power plant.


A South Korean refinery will be upgraded to receive Mexican Maya crude. Hyundai Oilbank plans to expand and upgrade some of its cracking facilities to process heavy density crude grades (Platts – English). Hyundai Oilbank said it would purchase more heavy crude grades, especially Mexican Maya, as soon as the expanded facilities become operational.


Macquarie went into the solar business. The investment fund Macquarie Group bought 90% of a 322MW solar energy generation portfolio in the north of Mexico (El Economista – Spanish). The deal includes two operational plants with 67MW, one under construction, and two that will begin construction by the end of 2018.


A natural gas well was closed after manatees died. After 28 manatees in Centla died, the Energy and Environmental Security Agency closed a Pemex natural gas production well in Tabasco (El Financiero – Spanish). The Usamacinta 12 well had been inadequately maintained.



Old School Social


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


The Congreso Internacional de Recursos Naturales will be held August 25-28 at the Centro de Convenciones Tabasco 2000.


The Mexico Summit 2018 is scheduled for September 6 at the St. Regis Mexico City.



Lateral Thinking


Mexico won a gold and silver medal at the Robotics First Global. Romania was the biggest winner at the Robotic First Global 2018. Mexico won the silver medal for the best performance of a robot in the competition. At the conclusion of the event, AMLO pledged to back the development of innovation devoted to renewable energies during his term (El Economista – Spanish).



Quote of the Week


“Fácilmente disipan su riqueza quienes la han adquirido sin fatiga.”


“People who acquire wealth without effort easily squander it.”



-Francisco Javier Clavijero (1731-1787), Mexican Jesuit teacher, scholar, and historian.



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