The Weekly Brief: Mexico


December 2, 2019 edition—CEL changes paused; Veracruz-Yucatán pipeline will be bid soon; and Pemex’s farmouts recommended.





Last Week in a Minute or Less


Renewables & Electricity. The Sener okayed CFE’s plant reassignation; Alpek sold two cogeneration plants; and a judge stopped the CEL changes.


Natural Gas & Liquid Fuels. AMLO said the Veracruz-Yucatán pipeline will be bid soon; Shell will import fuel by ship next year; and the Sur de Texas pipeline is reaching its highest flow.


Oil & Gas Upstream. BBVA warns about the dangers of stopping Pemex’s farmouts; Semarnat will try to ban fracking; and Pemex production dropped by 3% in October.


Money & Power. Mexico increased pressure on the US Congress to ratify the USMCA; Inegi lowered Mexico’s growth in the third quarter; and private companies will bet on the new infrastructure plan…in three months.


Déjà vu all over again. Last week’s readers were particularly interested in bilateral transactions (Platts – English); the cost of wind energy (El Financiero – Spanish); and Meade’s promotion of Fibra E (El Economista – Spanish).



NAFTA Negotiation


Pelosi and the White House made progress with the USMCA negotiations… US House Speaker Nancy Pelosi said that progress was made on the new NAFTA negotiation with US Trade Representative Robert Lighthizer and Richard Neal, the chairman of the House Ways and Means Committee (Reuters – English) (El Financiero – Spanish).


…but the USMCA ratification may wait until 2020. Despite the progress, Nancy Pelosi said that even if they reached an agreement on the new NAFTA, there may not be enough time to vote before 2020 (El Financiero – Spanish). Any verbal agreement would have to be written in the legislation and its budgetary impact considered.


Mexico increased pressure on the US Congress to ratify the USMCA. President López Obrador said he will write again to Nancy Pelosi pressing for the USMCA ratification (Reuters – English). Meanwhile, President Trump said that the new NAFTA is “dead in the water,” as Democratic lawmakers have no intention to vote for it (Forbes – Spanish).


The Economy Minister said if there is no USMCA, trade will continue with NAFTA. Economy Minister Graciela Márquez said that trade between the US and Mexico will continue through NAFTA (Forbes – Spanish). Chancellor Marcelo Ebrard said the USMCA ratification depends on a political decision from Democratic lawmakers.


US lawmakers asked for details on Mexico’s labor reform. US lawmakers requested information from Mexico regarding labor reform and budget resources devoted to it to guarantee its implementation (El Financiero – Spanish). Mexico approved in general the changes agreed with the Democratic lawmakers (El Economista – Spanish).



The Road to Reform


BBVA warns about the dangers of stopping Pemex’s farmouts. According to BBVA, Pemex’s financial situation could threaten Mexico’s sovereign rating in the short term if private sector participation in the oil projects does not restart in the next four years (El Financiero – Spanish).


A judge stopped the planned CEL changes. A judge granted a generation company the suspension of the changes in the CEL’s rules (El Financiero – Spanish). According to the Mexican Association of Solar Energy, there have been more than 20 writs of amparos admitted in administrative courts (El Economista – Spanish).


The Sener okayed CFE’s reassignation of plants. The Energy Ministry gave approval for the reassignation of plants and generation contracts to its subsidiaries (DOF – Spanish). The reassignations were based on “the elimination of artificial inefficiencies between subsidiaries that increased the operation costs,” the “increase of efficient use of CFE resources,” and current demand.


Semarnat will try to ban fracking. The Environmental and Natural Resources Ministry will support law proposals to ban fracking in Mexico in 2020 (Forbes – Spanish). Today, there are three proposals in the Mexican Congress to ban hydraulic fracture.


AMLO said the Veracruz-Yucatán pipeline will be bid soon. President López Obrador said that a bid for the pipeline connecting the state of Veracruz to the Yucatán peninsula will be announced soon. The pipeline will end blackouts and will support the development of the region (El Economista – Spanish).



Political Economy


Inegi lowered Mexico’s growth in the third quarter. The National Institute of Statistics and Geography (Inegi) said that Mexico’s GDP growth in the third quarter was reviewed and lowered to 0.01% (El Financiero – Spanish) (Reuters – English). The change was due to revising service sector growth from 0.1% to 0.0%.


The IMF renewed Mexico’s credit line. The International Monetary Fund approved a US$61bn two-year lending agreement for Mexico, replacing the current flexible credit line of US$74bn (Reuters – English) (Forbes – Spanish). The new agreement will boost market confidence in the country.


Mexico’s inflation rose higher than expected in November. In the first half of November, consumer prices increased 3.10%, just slightly above what economists forecasted (3.07%) (Reuters – English). Mexico’s central bank targets a 3.0% inflation rate with a one percentage point tolerance.


AMLO chose a new director for ASEA. Ángel Carrizales, who was rejected by the Senate five times (El Economista – Spanish), was chosen by President López Obrador to lead the Agency of Industrial Security and Environmental Protection in the Hydrocarbons Sector (ASEA) (Forbes – Spanish).


AMLO met the head of the World Bank. President López Obrador met David Malpass, President of the World Bank, and they agreed to work together on development and well-being projects (Forbes – Spanish). The World Bank trusts Mexico’s policy of not allowing corruption.



Market Trends


Pemex production dropped by 3% in October. The state-owned company produced 3% less crude in October compared to the previous month (Reuters – English), its lowest level in 40 years (Forbes – Spanish).


S&P is concerned that Mexico’s energy plan is obsessed with Pemex. The international rating agency believes the Mexican energy policy gives too much weight to Pemex. As a consequence, S&P said it could cause private sector investment to fall (Reuters – English).


Infrastructure projects will provide certainty. Analysts believe the national agreement on private sector investment in infrastructure will support the economy and end part of the uncertainty that surrounds the government of President López Obrador (El Financiero – Spanish). Analysts believe the plan could reactivate economic activity.


Banxico cut Mexico’s GDP outlook yet again. Mexico’s central bank reduced Mexico’s growth outlook for 2019 to between -0.2% and 0.2% (El Economista – Spanish). The new outlook for 2019 GDP is the lowest forecasted by the central bank since the great recession of 2007-2009.


Mexico’s exports dropped by 1.5% in October. Mexico exported products value at US$40bn in October, a reduction of 1.5% and the second monthly consecutive fall (El Economista – Spanish). Imports amounted to US$, a 6.4% fall.



Strategy & Operations


Shell will import fuel by ship next year. Shell plans to import fuel to Mexico by ship by June 2020 or when the two new private terminals in Tuxpan and Tula come online (Platts – English). The project includes a 265km pipeline between Tuxpan and Tula with a capacity to move 330,000 barrels per day.


Alpek sold two cogeneration plants. Alpek finished the sale of two cogeneration plants to ContourGlobal for US$801m (El Financiero – Spanish). The plants are located in Cosoleacaque and Altamira, and Alpek will continue to use electrical energy and steam from both plants.


Private companies will bet on the new infrastructure plan…in three months. Although energy projects were not included in the first chapter of the National Agreement of Investment in Infrastructure (El Economista – Spanish), the federal government and private investors expect energy projects from the agreement to receive MXN148bn in investments (El Financiero – Spanish).


Pemex delayed paying suppliers to show a surplus. The Mexican government is pressuring Pemex to cut spending, and the state-owned company responded by delaying payments to suppliers to the end of the year to give the government a surplus and avoid a downgrade in Mexico’s sovereign rating (El Financiero – Spanish).


Engie cut the ribbon on a GNV station in Veracruz. The French company opened the first vehicular natural gas station in Veracruz after Engie acquired 70% of the Mexican company Gaseco Golfo (Reforma – Spanish).


The Sur de Texas pipeline is reaching its highest flow. In November, gas flows in the pipeline connecting Texas and Tuxpan averaged 667 MMcf/d and reached a high of 819 MMcf/d on November 14 (Platts – English). The average reached in November meant an 8% increase in the month.



Old School Social


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


Mexico Wind Power will be held March 4-5 at Centro Citibanamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico with nine consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.



Lateral Thinking


NMSU studies sustainable beef production. Researchers at New Mexico State University will research ways to improve the sustainability of beef production in the Southwest. Scientists are evaluating the resilience of the raramuri criollo cattle that evolved in the harsh environments of Mexico’s Northern Chihuahuan desert ( – English).



Quote of the Week


“As an artist, I have always tried to be faithful to my vision of life, and I have frequently been in conflict with those who wanted me to paint not what I saw but what they wished me to see.”


– Diego Rivera (1886-1957), Mexican painter.



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