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December 10, 2018 edition—Fourth power auction postponed; rounds canceled; and sunny Puebla.
Last Week in a Minute or Less
Renewables & Electricity. The fourth power auction was postponed; the new year and Iberdrola will make Puebla shine; and the new administration has to increase transmission capacity.
Natural Gas & Liquid Fuels. Mexico’s gas imports skyrocketed; experts estimate the new refinery will be more expensive; and Pemex blames the CRE for the lack of carbon dioxide.
Oil & Gas Upstream. AMLO lowered his oil output goal and canceled two oil rounds; Nahle is worried about big awarded blocks; and DEA will buy Sierra Oil and Gas to step into Mexico’s market.
Money & Power. Gasoline and LP gas push Banxico’s rates and inflation; the neighbors hate the US steel tariff; and AMLO bans socialization between energy public workers and suppliers.
Déjà vu all over again. Last week’s readers were particularly interested in Siemens’ investment in wind and solar (El Financiero – Spanish); the Altamira thermoelectric plant (El Financiero – Spanish); and Morena’s coal project (El Financiero – Spanish).
NAFTA Negotiation
AMLO and Trudeau will keep fighting the steel tariffs… The chief NAFTA negotiator for Mexico’s new administration hopes the US tariffs on steel will be lifted by the end of 2018 (Bloomberg – English). Trudeau repeated that Canada should not be one of the countries subjected to the US tariff (Platts – English).
…and the tariff hits energy projects. The US tariff on aluminum and steel is affecting cross-border oil and natural gas projects, worrying the energy industry trade associations (Platts – English). The metals are used in the fabrication of pipelines, liquefaction terminals, and the casing in drilling wells.
Trump says he will end NAFTA and Canada believes him. President Trump said he will tell Congress to terminate NAFTA, giving lawmakers six months to ratify the new deal (Bloomberg – English). Canada took his comments seriously and expects the US Congress to start ratification of the USMCA.
Canada, Mexico, and the US are working on an immigration plan. President López Obrador said he is working with the US and Canada to develop a three-way investment plan to manage immigration from Mexico and Central America (Reuters – English).
The Road to Reform
The fourth power auction was postponed and two oil rounds canceled. The fourth long-term auction, scheduled for December 18, was postponed due to the change of administration (El Financiero – Spanish). The new administration canceled February’s oil rounds (El Financiero – Spanish) and with a permanent halt, Mexico’s crude output will only reach 2.46 million b/d by 2027 (Platts – English).
AMLO will respect regulators’ autonomy. The new Energy Minister said the CNH and other regulatory institutions will maintain their independence, while the Energy Ministry will have direct coordination with regulators (Platts – English). The CENACE and the Security, Energy and Environment Agency received their new directors (El Financiero – Spanish).
Pemex blames the CRE for a carbon dioxide shortfall. The state-owned company pointed to the Energy Regulatory Commission (CRE) as the entity responsible for the lack of supply (El Financiero – Spanish). The National Industry Chamber asked Pemex to reactivate the production of carbon dioxide (El Financiero – Spanish).
Nahle is worried about big blocks and small companies. The new Energy Minister, Rocío Nahle, said the new administration is concerned with the 250km2 areas awarded to companies that have no capacity to follow through. The new administration expects to wait two years to decide if this type of round will continue (El Financiero – Spanish).
AMLO bans socialization between energy public workers and suppliers. The new administration will not allow public workers from the Energy, Communication, and Finance Ministries to attend parties, meals, or travel with suppliers, investors, and big contributors (Reforma – Spanish).
Political Economy
The Energy Minister announced her dream team. The new Energy Minister, Rocío Nahle, published the list of new public workers in charge of receiving information, programs, projects, commitments, and resources (Oil and Gas Magazine – Spanish). The deputy minister will be Dr. Alberto Montoya Martin del Campo.
AMLO lowered his oil output goal. President López Obrador expects oil output to fall to 1.5 million barrels per day in 2019, and he expects to increase production to 2.4 million b/d by 2024 (Reuters – English). The previous plan was to reach 2.6 million b/d by the end of his term.
AMLO promised no tax or public debt increases. In his inauguration speech, President López Obrador promised to stop tax increases and not create new ones. López Obrador will also not increase the level of debt that currently surpasses MXN10 trillion pesos (El Economista – Spanish).
The Maya train may face resistance, like solar projects. Mayan indigenous communities have resisted the development of US$1.1bn of renewable energy projects and may oppose the railway (Reuters – English). The communities are concerned that their opinion will not be considered for the Maya train project.
Changes are expected in the energy sector with AMLO. S&P warned that a radical change in the oil sector could push economic growth under 1.5% in 2019 (El Financiero – Spanish). AMLO plans to match power and gasoline prices along the Mexican border cities, creating a free economic zone (Platts – English).
Market Trends
Gasoline and LP gas push Banxico’s rates and inflation. Mexico’s central bank noticed the effects of high prices in gasoline and LP gas (El Economista – Spanish). Banxico said energy prices would affect inflation in the coming months.
The CRE lowered commercial power tariffs by 15%. Power tariffs for the industrial and commercial sectors will decrease by 15% compared to the previous month. The reason is a fall in generation charges and the cost of fuels (El Economista – Spanish).
Mexico’s gas imports skyrocketed last summer. The Energy Information Administration (EIA) said Mexico imported US natural gas at unprecedented levels in August (Natural Gas Intel – English) (El Financiero – Spanish). Pipeline imports averaged 5.1 Bcf/d for the month, up from 4.5 Bcf/d in August 2017, representing 60% of imports.
Mexico offered US$1.8bn for airport bonds. The Mexico City Airport Trust will buy US$1.8bn in debt issued to fund the construction of a new airport for Mexico City, allowing holders to submit their notes for repurchase (Reuters – English) (El Financiero – Spanish).
The Senate and Banxico agreed to work together. The Senate and Mexico’s central bank will work in a coordinated way, respecting Banxico’s autonomy (El Financiero – Spanish). The senate will boost an accessible and just financial system for the entire Mexican population.
Strategy & Operations
The next challenge in the power sector: transmission. The main challenge for the new administration will be to increase the transmission capacity of the country (El Economista – Spanish). The new plans will add 7,000MW of transmission capacity to Mexico’s current 75,000MW.
DEA will buy Sierra Oil and Gas to step into Mexico’s market. The German company agreed to purchase the Mexican company Sierra Oil and Gas. The acquisition of Sierra Oil and Gas would increase DEA’s presence in Mexico (Reuters – English) (El Financiero – Spanish).
Experts estimate the new refinery will be more expensive. The new administration estimated the cost of the Dos Bocas refinery at US$8bn, but experts estimate the cost at US$10bn (El Financiero – Spanish). Analysts say the plans for the refinery are very optimistic in construction time, budget, and capacity.
The new year and Iberdrola will make Puebla shine. The first solar park in Puebla will generate 200MW as of February 2019 (El Economista – Spanish). The project will cost US$235m with investment from the Spanish company and Impulsora Latinoamericana de Energía Renovable.
Funds for solar roofs for small businesses were offered. The Energy Ministry and the National Finance Agency launched funds for MXN100m to help small and medium companies access credits to install solar roofs to produce their own power (El Financiero – Spanish). Small and medium companies consume between 2 and 3 kilowatts, which solar roofs can cover.
Old School Social
Events in the world beyond your screen—go see and be seen!
Energy Mexico 2019 will be held January 29-31 at Centro Cultural Banamex in Mexico City.
Lateral Thinking
The UK and Mexico developed magic beans. The researchers from the University of Sheffield and the National Autonomous University of Mexico who worked on bean varieties to fight drought-related crop losses received a 2018 Newton Prize. The beans could save 3% of Mexico’s agricultural water use (Gov.uk – English).
Quote of the Week
“La educación es la base de la felicidad de las naciones, de las familias y de los individuos.”
“The education is the base of happiness for nations, families, and people.”
– Joaquín Francisco Zarco Mateos (1829-1869), Mexican politician, journalist, and historian.
We hope you have a productive week. Please send any news, comments, or magic and drought-resistant beans to MexicoWeekly@energynarrative.com.
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