The Weekly Brief: Mexico


December 3, 2018 edition—USMCA signed; Cenagas for the southeast; and Siemens’ investment.




Last Week in a Minute or Less


Renewables & Electricity. Siemens will bet on Mexico’s sun and wind; Pollux will light up Galeana; and Altamira will power up with thermoelectricity.


Natural Gas & Liquid Fuels. Cenagas helps the southeast with natural gas supply; people voted yes to a new refinery; and Magna gasoline lost its subsidy.


Oil & Gas Upstream. Pemex doubles hopes on Ixachi reserves; the CNH published the technical rules for secondary and improved recovery; and the Miquetla migration was signed.


Money & Power. The USMCA was signed; the 2019 budget will be under scrutiny; and Banxico lowered Mexico’s growth outlook for 2019.


Déjà vu all over again. Last week’s readers were particularly interested in the new public consultation (Reuters – English); the effect of the possible modification of the Mining Law (El Financiero – Spanish); and Pemex’s estimation of LNG demand (Platts – English).



NAFTA Negotiation


Top negotiators signed the USMCA. Mexico’s Economy Minister, Ildefonso Guajardo, the US Trade Representative, Robert Lighthizer, and Canada’s Foreign Affairs Minister, Chrystia Freeland signed the agreement. The state leaders, President Peña Nieto, President Trump, and Prime Minister Trudeau acted as witnesses (El Economista – Spanish) (Reuters – English).


Canada is fighting Trump with tax incentives. Canada announced billions in economic measures to boost business spending and to counter the risk of lost investment from the Trump administration’s tax reform (WSJ – English). Canadian corporate leaders warned of Canada’s disadvantage against the US corporate tax rate cuts.


The new NAFTA still has some obstacles to beat. After the signing of the United States-Mexico-Canada agreement in Buenos Aires, the new deal has a long way to go before becoming a business reality. The deal must go through a Congress controlled by Democrats, who have described the agreement as not “properly fashioned yet” (Bloomberg – English).



The Road to Reform


The CNH and the CRE were busy. The CRE established the international specifications to perform diagnostics in measuring systems (DOF – Spanish) and revoked the period of validity published in the administrative rules for power plants (DOF – Spanish). The CNH published the technical rules for secondary and improved recovery (DOF – Spanish).


The Miquetla migration was signed. Pemex, the National Hydrocarbons Commission, and DWF signed the contract to migrate the Miquetla field, assigned to Pemex in 2013 (El Financiero – Spanish) (Gob – Spanish). Pemex will have a 49% share and DWF a 51% share.


Cenagas helps the southeast with natural gas supply. The National Center for Control of Natural Gas (CENAGAS) started working on the Cempoala compression station (Bnamericas – English) to boost natural gas supply in the southeast (Economía Hoy – Spanish). The interconnection will provide 500 million cubic feet of natural gas per day.


Morena may rely on coal. The president of the Energy Commission in the Senate will resume CFE’s project of two 700MW coal-fired units (El Financiero – Spanish), with better technology that will pollute less than the plant located in Petacalco, Guerrero.


Coldwell says the show must go on. The Energy Minister, Pedro Joaquín Coldwell, asked the new administration to continue with the oil rounds and power auctions. Coldwell emphasized the importance of Rounds 3.2 and 3.3 and the transmission line between Baja California and the main grid (El Financiero – Spanish).



Political Economy


After a coordinated jump, the migrant caravan may face trouble. Mexico will deport migrants from a group that tried to cross the US border “violently” and “illegally” (Reuters – English). The US border patrol answered with tear gas, and both administrations will continue to cooperate, negotiating the future of the caravan (NYT – English).


People voted yes to a new refinery and the Maya train. The incoming Mexican government announced that the public consultation vote approved 10 important policy proposals, including the Maya train and a new refinery in Tabasco (Reuters – English). The consultation received 925,168 votes in 538 municipalities in the country (La Jornada – Spanish).


The new government backs ZEEs. The new administration plans to continue with the development of the special economic zones (ZEEs) (El Financiero – Spanish), although it may change the approach to the ZEEs to follow the country’s new public policy.


The 2019 budget will be under scrutiny… Investors will review Mexico’s 2019 budget to see the level of debt and the fiscal responsibility (El Economista – Spanish). The next deputy minister of finance said a conservative, macroeconomic perspective will be managed to avoid an overestimation of income (El Financiero – Spanish).


…and Pemex may have to do the math. Pemex will have to reassign budget funds to finance the new refinery (Reforma – Spanish), due to its debt of US$106bn. ASEA, the Energy and Environment Security Agency, is investigating the work done on the land for the new refinery (El Financiero – Spanish).



Market Trends


Magna gasoline has lost its subsidy. The Finance Ministry eliminated the tax stimulus on Magna gasoline and consumers are paying the full special tax on gasoline (El Financiero – Spanish). The subsidy was already taken from Premium gasoline, but will remain on diesel.


Banxico shocks the new administration with a cut in its growth outlook. Mexico’s central bank cut the growth outlook for 2019, from between 1.8% and 2.8% to 1.7% and 2.7% (El Financiero – Spanish) (Mexico News Daily – English). Morgan Stanley will remain vigilant on the new economic plan to achieve a 0.8% surplus of the GDP (El Economista – Spanish).


Uncertainty is the word of the market until 2019. Analysts studied the uncertainty surrounding the market after the cancellation of Mexico’s airport and the Mexican elections that boosted the exit of US$1.8bn (El Economista – Spanish). Analysts expect uncertainty to remain through the end of 2019, depending on AMLO’s message on December 1 (El Economista – Spanish).


Crude production dropped in October. Crude production in October reached 1,764,000 daily barrels, 7% less compared to the same period in 2017 (El Financiero – Spanish) (Oil Price – English). Pemex increased natural gas production by 3%, from 4,759 million cubic feet per day in October 2017 to 4,895 million cubic feet per day this year.


Power tariffs may hit prices. The increase in power tariffs could affect the final prices of products (El Economista – Spanish), according to the president of the National Chamber of the Transportation Industry. The industry fears a sharp increase in inflation if natural gas supply problems in Mexico’s southeast and the tariffs methodology remain.



Strategy & Operations


Altamira will power up with thermoelectricity. Tecnoedu Bioenergy and an Israeli partner will build a new thermoelectric plant in Altamira, Tamaulipas. The project will be divided in three phases, with the first phase having a generation capacity of 70MW and the last phase a capacity of 200MW (El Financiero – Spanish).


Pollux will light up Galeana. Reden Solar started the construction of Pollux solar farm in the Galeana municipality in Nuevo León. The French company will invest MXN700m in the project and the construction will generate 300 jobs (El Financiero – Spanish).


Pemex doubles hopes on Ixachi reserves. Pemex drilled two new wells at the Ixachi discovery and doubled the onshore proven and probable reserves to 750 million boe (Platts – English) (El Financiero – Spanish). The state-owned company will start drilling the Nobilis-1 well in deep waters with Baker as the drilling contractor (El Financiero – Spanish).


Siemens will bet on Mexico’s sun and wind. The German company will invest US$200m in Mexico in 2019 to develop wind and solar infrastructure (El Financiero – Spanish). Siemens will invest US$20m in research and development in three energy sector centers in Mexico.


Merik plans a bioenergy plant in Tamaulipas. Merik presented the mayor of Tampico the project to build a biopower plant using waste to generate electricity. The southern area of Tamaulipas generates 720,000 tons of waste per day, and the project would receive an investment of US$30m (El Financiero – Spanish).



Old School Social


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


The S&P Global Platts Americas LNG Market Dynamics Webinar will be held December 5.


Energy Mexico 2019 will be held January 29-31 at Centro Cultural Banamex in Mexico City.



Lateral Thinking


Mussels’ DNA is being tested to understand Mayan burials. Researchers at the University of Florida are consulting a curator of environmental zooarchaeology to study mussels found in Mayan dig sites and identify them through DNA analysis (Science Daily – English). Researchers found only certain species were used in burials in the region at one point in time.



Quote of the Week


“Si no hubiera conflicto no habría películas, ni toros, ni periodismo, ni política, ni lucha libre, ni nada. La vida sería muy aburrida. En cuanto alguien diga sí, hay que contestar no.”


“If there were no conflict, there would be no movies, bullfights, journalism, politics, wrestling, or anything. Life would be very dull. As soon as someone says yes, the answer must be no.”



– José Clemente Orozco (1883-1949), Mexican painter who specialized in muralism.



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