The Weekly Brief: Mexico

December 4, 2017 edition— Nobilis tender postponed; renewables are in; and Meade is the newest contender.




Last Week in a Minute or Less


Renewables & Electricity. Enel will invest US$700m in four wind plants, Acciona won 52.4MW in the third power auction, and Power Group opened the La Bufa wind park.


Natural Gas & Liquid Fuels. LP gas prices skyrocketed and Mexico’s fuel production increased in October.


Oil & Gas Upstream. The CNH expanded the period to bet on Nobilis and Diavaz started drilling Mexico’s first private onshore well.


Money & Power. Meade wants to be President; inflation reached 6.59%; and Díaz de León was named Banxico’s governor.


Déjà vu all over again. Last week’s readers were particularly interested in development banks financing solar projects (Spanish); the delay in the biggest transmission project (Spanish); and the Finance Ministry’s values for deep-water fields (Spanish).



NAFTA negotiation


Auto chiefs met with the US Vice President to discuss NAFTA. Executives from Fiat Chrysler, Ford, and GM met with Mike Pence to discuss their concerns about the Trump administration proposals in the NAFTA negotiation (English) (Spanish). The group asked to add a provision to guard against currency manipulation by Mexico and Canada.


A US proposal held back the telecoms chapter. The US proposal to integrate Mexico’s telecommunications reform into NAFTA delayed the chapter’s closure (Spanish). The US aim is to incorporate the Mexican reform into NAFTA, including a measure that prevents América Móvil from charging its rivals, such as AT&T, for connections.


The US-Mexico wage gap is widening under NAFTA. The average Mexican worker earns less today than before NAFTA, relative to US and Canadian peers (English). NAFTA aimed to promote wage convergence, but failed. Mexico’s economic growth has averaged 2.5% a year since 1994, less than half the developing world average.


The end of NAFTA would lower US and Canadian growth. According to the Bank of Montreal, ending NAFTA would reduce US and Canadian economic competitiveness (English). A failure to complete the renegotiation will cut US gross domestic product by 0.2% over the next five years and Canada’s by 1%.



The Road to Reform


Diavaz started drilling Mexico’s first private onshore well. The Mexican company, Diavaz Offshore, began drilling the Barcodón-21DES well onshore (Spanish). The well is 1,000 meters deep and the Evaluation Plan approved by the National Hydrocarbons Commission foresees a horizontal well and a deviated well.


The CRE published new power tariffs. The Energy Regulatory Commission (CRE) approved the new methodology to estimate the tariffs for most households and businesses (Spanish). The rate-setting methodology aims to recover all of CFE’s efficient costs and to reflect seasonal variations in the cost of electricity service.


CNH named a commissioner. The National Hydrocarbons Commission (CNH) announced that Néstor Martínez Romero was named for a second term as commissioner (Spanish). The period starts December 1, 2017, and will end in 2023.


CNH expanded the Nobilis tender period and Pemex’s share was cut. The National Hydrocarbons Commission (CNH) approved the extension of the Nobilis-Maximino tender to January 31, 2018 (Spanish). Pemex’s stake in Nobilis-Maximino ultradeep water field will be cut to 40% from 49% (English) (Spanish).



Political Economy


Meade goes for the presidency. José Antonio Meade resigned as Finance Minister to compete to become the Institutional Revolutionary Party’s candidate in the 2018 presidential elections (English) (Spanish). Pemex’s CEO, José Antonio González Anaya, will be the new Finance Minister and Carlos Alberto Treviño Medina will replace him to lead the state-owned company (Spanish).


The Finance Ministry didn’t change its economic growth projection… The Finance Ministry maintained the growth forecast for 2017 between 2 and 2.6% (Spanish). The National Institute of Statistics and Geography (INEGI) reported that the Mexican economy contracted by 0.3% in the third quarter of 2017 (Spanish).


…and the OECD also trusts in Mexico’s growth. The OECD increased Mexico’s economic growth projection to 2.4% for this year and to 2.2% in 2018, up from 1.9% and 2%, respectively (Spanish). During 2019, the OECD forecasts a partial recovery and growth of 2.3%.


Fuels propelled inflation to 6.59%. Annual inflation accelerated in the first two weeks of November to 6.59%. The increase in fuel prices, particularly of LP gas, drove the hike (Spanish). Carstens warned the trend to lower inflation will be slower throughout the rest of the year (Spanish).



Market Trends


Peña Nieto named Díaz de León as Banxico’s governor. Pres. Peña Nieto designated Alejandro Díaz de León as Mexico’s central bank governor to replace Agustín Carstens (English) (Spanish). Díaz de León took up the position on December 1 and his term will conclude on December 31, 2021.


Foreign portfolio investment grew by 18% in 2017. Mexico captured US$19.7bn in foreign portfolio investment between January and September, 18% above the amount reported in the same period of 2016 (Spanish). Foreign investment in government securities fell by 43%, to the lowest amount since 2009.


LP gas prices skyrocketed. From December 2016 to November 2017, LP gas prices have increased between 34% and 53.5% (Spanish). Prices of propane – the main component of this fuel – had been low for two years, owing to the US boom in shale gas, but prices have increased since June.


Mexico’s fuel production rose in October. The state-owned company registered the highest monthly increase since 2012, boosting output from 1.730 million barrels in September to 1.902 million barrels in October (Spanish). Compared to November 2016, Pemex’s production has fallen by 9.5% year-on-year.



Strategy & Operations


Acciona won 52.4MW in the third power auction. The Spanish company won 52.4MW in the third power auction of the Wholesale Electricity Market (Spanish). The El Cortijo wind park, which will be operational in the third trimester of 2018 in Tamaulipas, will guarantee the capacity awarded (English).


Enel inflates its plants in Mexico… The Italian company plans to invest US$700m in four wind plants in Mexico that will start operations during the first quarter of 2020 (Spanish). The company was awarded a series of contracts to offer power and CELs with a combined capacity of 593MW (English).


…and Zuma Energía will build two solar farms. Actis, the investment firm focused on emerging markets, announced that Zuma energy – its renewable energy platform – to build two solar farms in Mexico (English) (Spanish). The Orejana and Santa María projects will be in Sonora and Chihuahua.


Bajío goes for renewables… The federal government handed out environmental permits to two new renewable energy projects in the Bajío area, with a combined investment of MXN5.4bn (Spanish). The Tepezalá solar park is located in Aguascalientes and the Santiago Wind Central in Guanajuato.


…and Power Group cut the ribbon on Zacatecas’ wind park. Power Group opened the La Bufa wind park in the Zacatecas state capital, with an investment of US$350m (Spanish). The project will power up the Volkswagen plant, allowing a savings of more than MXN45m per year.



Old School Social


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


The 3rd Mexico Infrastructure Projects Forum is January 17-18 at Hotel Camino Real, in Monterrey.


Energy Mexico 2018 is January 30-February 1 at Centro Citibanamex, in Mexico City. For the third consecutive year, ENERGY MEXICO OIL GAS POWER EXPO & CONGRESS will be the main energy event in Mexico, where all the sectors of the industry will come together: oil, gas, power and renewables.



Lateral Thinking


Mexico creates an enormous marine preserve. A marine park the size of Greece was created around the Revillagigedo Islands, the largest protected area in North American waters (English). At least 366 species of fish live in the protected area, of which 26 species are found nowhere else in the world.



Quote of the Week


“Lo que vale es el valor de pensar en voz alta, de decir las cosas tal como se sienten en el momento en que se dicen. Ser lo suficientemente temerario para proclamar lo que uno cree que es la verdad sin importar las consecuencias y caiga quien cayere. Si fuera uno a esperar a tener la verdad absoluta en la mano o sería uno un necio o se volvería uno mudo para siempre.”


“What is valuable is the bravery of thinking aloud, saying things just as they are felt in the moment when they are spoken. To be reckless enough to proclaim what one believes is truth without regard for the consequences. If one waits to have the absolute truth in hand, one would either be stubborn or would become silent forever.”


-José Clemente Orozco (1883-1949), Mexican painter, specialized in murals.



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