The Weekly Brief: Mexico

August 28, 2017 edition— The power grid is getting smarter; the CNH approved three new farmouts; the NAFTA inaugural round ended.





Last Week in a Minute or Less


Renewables & Electricity. Soriana opened La Mesa wind park and Sener will upgrade the grid.


Natural Gas & Liquid Fuels. Gas Natural Fenosa starts building natural gas distribution in Campeche; Tamaulipas called for bids on two new liquids terminals; and the CRE published the first national natural gas price index.


Oil & Gas Upstream. The CNH okayed three new farmouts; Round 2.5 will boost natural gas production; and BHP Billiton will fight for a slice of the Round 2.4 pie.


Money & Power. The end of NAFTA’s inaugural talks; Trump warned NAFTA could be terminated; and Pemex had rotten luck this week.


Déjà vu all over again. Last week’s readers were particularly interested in Pemex’s need for partners (Spanish); Mexico’s representatives in the NAFTA renegotiation (Spanish); and the cross-border power grid (English).



NAFTA negotiations


Inaugural trade talks ended with some conclusions. Canada, Mexico, and the US ended the first round of talks, committing to complete negotiations quickly, achieve an “upgrade” in the agreement, and establish 21st century standards (English). The next round of negotiations is scheduled for September 1-5 in Mexico (English).


Trump threatened to end the NAFTA treaty…again. US President Donald Trump warned he may terminate the NAFTA treaty after the inaugural round of talks ended with no agreements on issues where the parties have deep differences (English) (Spanish). Mexico’s Foreign Relations Minister said Trump’s threat is part of an aggressive negotiation strategy (Spanish).


Energy is postponed in the NAFTA renegotiation. The energy sector was not included in the first round because whether to treat it separately or as a cross-cutting issue is not yet defined (Spanish). The Latin American Oil & Gas Association trusts the NAFTA renegotiation will spark investment in the energy sector (Spanish).


Chapter 19 put negotiations on edge. The US and Canada maintained divergent positions on Chapter 19, the dispute settlement mechanism, with the US seeking its dissolution and Canada aiming to keep it (Spanish). The car industry discussion was postponed when the US delegation did not mention its previous demands on North American content.



The Road to Reform


Sener will modernize its grid. The Energy Ministry will invest MXN11bn in developing smart electricity grids in the coming years (Spanish). With the upgrade, the CFE could know in real time when power is most needed and when demand drops, and users’ bills will show their consumption patterns.


The CRE published the first national natural gas price index. The Energy Regulatory Commission (CRE) published the first National Reference Index for Natural Gas Wholesale Prices (IPGN), based on the average price of shippers’ transactions (English) (Spanish). The natural gas price for July 2017 was US$4.10/MMBtu.


The CNH okayed three new farmouts. The National Hydrocarbons Commission (CNH) issued a favorable opinion for migration of three Pemex allocations to contracts (Spanish). The allocations are located in the deep water Cinturón Plegado areas in the Gulf of Mexico, and include the Supremus, Mirus, Nobilis, and Maximinus discoveries.


Round 2.5 was confirmed. Energy Minister Pedro Joaquín Coldwell announced Round 2.5 will take place before the presidential term ends to boost domestic natural gas production (Spanish). In April 2017, Mexico imported 81% of the natural gas consumed domestically, mostly from the US, and consumption reached 5.8 billion cubic feet per day.



Political Economy


Pemex’s union is the least transparent. The agency devoted to access to information (INAI) evaluated Pemex’s union and ranked it last for its refusal to upload information it is legally obligated to post (Spanish). The union got 0 out of 100 points and will face fines if it does not improve by January 1, 2018.


A Pemex pipeline exploded and killed a man. An explosion occurred in a Pemex pipeline in Veracruz when a group of people was allegedly trying to extract fuel illegally from a 32-inch pipeline (Spanish). One person died and five suffered second degree burns.


Lozoya is under scrutiny. Former Pemex director, Emilio Lozoya, is under investigation by the Comptroller’s Office for suspected irregularities favoring OHL construction company (Spanish). The Federal Audit Office also issued warnings about Pemex’s use of offshore companies, such as PMI Holdings, Kot Insurance Company, and PMI Trading, to avoid taxes (Spanish).


The Finance Ministry goes easy on Pemex’s tax framework. The Finance Ministry decided to ease the tax regime for certain Pemex fields, expanding deductible costs to make them profitable (Spanish). The goal is to make the production of 150,000 barrels of oil and 500 million cubic feet of natural gas per day  economically viable.



Market Trends


Mexico’s economic growth slowed slightly. Mexico’s economic growth slowed in the second quarter due to a contraction in the construction and oil and gas sectors (English). Gross domestic product rose 0.6% in the second quarter compared to 0.7% growth in the first quarter.


Foreign investment in hydrocarbons skyrocketed. Foreign direct investment in oil extraction reached a historic high of US$253m in the first semester of 2017, more than doubling the US$92.3m invested in the same period in 2016 (Spanish). Pipeline construction received US$925m in foreign investment in the first semester of 2017.


Natural gas dependency is up again. In the first semester, natural gas imports reached an average 4,75 Bcf, 85% of the total forecast demand for 2017 (Spanish). The volume of natural gas imported increased by 20% compared to the 3,95 Bcf purchased from abroad in the first semester in 2016.


Pemex’s production will perk up. Finance minister José Antonio Meade said Pemex will have the lowest level of oil production in its history in 2017, but output will increase in 2018, surpassing 2 million barrels per day (Spanish). Meade said Mexico’s public finances are improving, allowing some optimism for the 2018 budget.



Strategy & Operations


Gas Natural Fenosa will supply Campeche. The Spanish company will invest MXN800m during the next five years to expand natural gas distribution in Campeche, Ciudad del Carmen, Champotón, and Escárcega (Spanish). In the first phase, MXN100m will be spent to build a 500km network of pipelines.


Tamaulipas is interested in two new terminals. The Altamira port administration called for bids on the construction, outfitting, operation, and use of two liquids terminals (Spanish). One of the terminals will occupy 24.9 hectares with a water front of 300 meters and the other 10.6 hectares with a 191-meters-long water front.


BHP Billiton will compete in Round 2.4. The Australian company is the first to start the pre-qualification process to bid for license contracts for exploration and extraction in 20 deep water areas in the Gulf of Mexico and Yucatán (Spanish). Round 2.4 will take place January 30, 2018.


Nobilis-Maximino will attract US$10bn. The National Hydrocarbons Commission (CNH) estimated Pemex’s new deep water farmout will attract US$10bn during the life of the contract, and recommended that some payments owed to the government be made in kind with oil (Spanish). The Nobilis-Maximino area is located in the Perdido area off Tamaulipas.


Soriana cuts the ribbon on the La Mesa wind park. Operations commenced at the wind park, located in Güémez municipality, Tamaulipas, that was developed at a cost of over US$105m (Spanish). With an installed capacity of 49.5MW, the green energy will power a total of 165 Soriana shops.



Old School Social


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


The CIE Congreso Internacional de Energía is September 4-9 at the Centro de Educación Continua, Instituto Politécnico Nacional, in Mexico City.


The Green Expo is September 5-7 at Mexico World Trade Center, in Mexico City.


The Mexico Summit 2017 is September 7 in Mexico City.


The Simposio Eficiencia Energética en la Industria is September 11 at Hotel Marriott Reforma, Mexico City.



Lateral Thinking


A teacher is helping Otomí women learn IT. Miroslava Silva, a teacher and social scientist, created a technology class for Otomí women at the University of Querétaro (English). Students craft their own curricula, and have learned how to search for information, create websites that promote their businesses, and have built a website to preserve the Otomí language.


Quote of the Week


“Confiese V., Sr. Alamán, que no sólo el amor es el móvil de las acciones de las mujeres: que ellas son capaces de todos los entusiasmos y que los deseos de la gloria y de la libertad de la patria, no les son unos sentimientos extraños.”


“Confess, Sr. Alamán, that love is not the only motive of women’s actions: they are capable of all the enthusiasms, and the desires of glory and liberty of the homeland are not strange feelings for them.”


-María Leona Vicario (1789-1842), letter to Lucas Alamán (a 19th-century politician) published in El Federalista Mexicano on April 2, 1832.





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