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February 5, 2018 edition—Shell won Round 2.4; Baja will interconnect; and NAFTA negotiations may continue into 2019.
Last Week in a Minute or Less
Renewables & Electricity. Baja California will connect to the main power system; Puebla and Querétaro will enjoy new solar plants; and CFE will issue the first Fibra E in February.
Natural Gas & Liquid Fuels. Refinery run rates hit rock bottom; regulations delay the Nueva Era pipeline; and Pemex’s BTX production fell and now facing shortages.
Oil & Gas Upstream. Shell and PC Carigali won Round 2.4; Round 3.2 will have fewer requirements; and a shale tender is due by the end of 2018.
Money & Power. Mexico’s economy grew 2.1% in 2017; Fitch expects NAFTA to push the dollar up; and NAFTA negotiations may extend into 2019.
Déjà vu all over again. Last week’s readers were particularly interested in natural gas transport prices (Spanish); Eólica Golfo 1 sale of power (Spanish); and CEL regulations (Spanish).
NAFTA Negotiation
NAFTA negotiations may continue into 2019. According to a report from The Washington Post, the NAFTA negotiations could extend into 2019 due to Mexico’s presidential elections in July (English) (Spanish). Trump may need to ask Congress to extend his “fast track” negotiating authority.
Anticorruption moves strengthened the NAFTA negotiation. Negotiators in Montreal agreed to corruption prevention measures, completing the first chapter since October (English) (Spanish). Corrupt practices among governments and companies regarding NAFTA will be penalized.
The State of the Union did not include a NAFTA withdrawal. President Trump did not announce a formal withdrawal from NAFTA in his first State of the Union, nor did he mention NAFTA in his address (Spanish). In Davos, he said he believes there is a “good chance” of a new deal (English).
Ambassadors met to discuss NAFTA negotiations. The ambassadors of Canada, Mexico, and the US met to analyze the NAFTA negotiation process, illegal migration, and the Venezuelan crisis (Spanish). During the meeting, they also discussed strategies to strengthen the trilateral relation.
The Road to Reform
Shell and PC Carigali won Round 2.4. Shell picked up four contracts in the Cuenca Salina Area and obtained another five in partnerships with other companies (Spanish). Among the 29 blocks up for bid, 19 were awarded and 10 had no takers.
Competing for Round 3.2 will be easier. The Energy Ministry relaxed requirements to prove bidders’ experience for Round 3.2 (Spanish). The National Hydrocarbons Commission (CNH) published the second bid of Round 3 with a prospective 260MMboe, with the data room accessible until May 9 (English).
Baja’s power will get connected. The Energy Ministry launched the call to build and operate the transmission grid to connect Baja California with the rest of Mexico’s system (Spanish). The project will require an investment of US$1.1bn and 45 companies are interested (Spanish).
A shale tender is expected by the end of the year. The National Hydrocarbons Commission (CNH) expects to auction shale areas in Mexico’s Burgos and Tampico-Misantla basins by the end of 2018 (Spanish). The tender will include shale oil and gas.
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Political Economy
The south’s economic activity suffered from the quake and cuts in fuel production. Mexico’s south/southeast region’s economy contracted an annual 2.2% last year due to the September 7 earthquake and the decrease in fuel production (Spanish). Oaxaca and Chiapas were the states most affected.
Mexico looks to Asia to diversify trade. ProMéxico manages 13 offices in Asia to promote small and medium-sized Mexican companies looking to export. Foreign trade with China and Japan has grown by 180% and 100%, respectively (Spanish).
Expensive power may scare businesses. Power tariff increases could raise annual operational costs by MXN600m to MXN700m for Mexico’s main employers, according to Mexico’s Business Confederation (Coparmex) (Spanish). Coparmex is concerned about the 160% increase in the cost of electricity.
Mexico’s economy grew 2.1% in 2017. The Finance Ministry is hopeful Mexico’s 2.1% economic growth during 2017 will improve 2018 forecasts, despite the NAFTA negotiation uncertainty (Spanish). The Finance Ministry predicts growth between 2% and 3% in 2018.
Market Trends
CFE will issue the first Fibra E in February. The state-owned company will issue the first energy Fibra E in Mexico’s market on February 7 for MXN17.6bn (Spanish). The offer’s issuing and registry will be done on February 8, and the offer will end February 12.
Banxico will follow IMF guidelines. Mexico’s central bank will change its statistical methodology to have more accurate and improved information and to follow international standards (Spanish). The changes will use the International Monetary Fund’s recently published guidelines as a reference.
Helping with gasoline prices cost the government big. The Finance Ministry’s tax stimulus to soften gasoline and diesel prices cost the government MXN67bn in 2017 (Spanish). It experienced a 26.4% drop in income from the special tax on gasoline.
Fitch thinks a NAFTA collapse will push the dollar up. The international rating agency said the end of NAFTA could devalue the Mexican peso by 20% (Spanish). The dollar could surpass 22 pesos and Mexico’s growth slow down to 1.4% in 2019.
Strategy & Operations
Puebla and Querétaro will shine. ErgoSolar and Solarnet will build three solar parks, two in Puebla and one in Querétaro, to produce 200MW (Spanish). These projects will have a total investment of US$190m.
Mexico’s refineries are producing like it’s 1992. The value of Pemex’s fuel imports increased by 35% in 2017 while national production fell by 9.5%. The volume of fuel produced in Mexico’s refineries was down 18%, the lowest level in 25 years (Spanish).
Pemex faces falling petrochemical production and aromatics shortages. Pemex concluded 2017 with a 43.6% fall in benzene, toluene, and mixed xylene production while facing feedstock shortages (English). Pemex’s BTX production amounted to a combined 131,267mt, which is 101,403mt less than 2016.
Regulations delay the Nueva Era pipeline. The one-year delay of the Nueva Era pipeline to transport natural gas from southern Texas to Nuevo León is due to the legal framework and the weather (Spanish). The high level of crime is generating uncertainty around the viability of the energy project’s schedule.
Next Energy plans for an excellent year. Next Energy plans to grow by 20% through various wind and solar energy projects. The company plans to develop 1,000MW, of which half would be shared with partners (Spanish). The projects will be located in Yucatán, Quintana Roo, and Sonora.
Old School Social
Events in the world beyond your screen—go see and be seen!
The United States and Mexico in the Trump Era conference will be held February 6 at the Inter-American Dialogue in Washington, DC.
Solar Summit Mexico is scheduled for February 13-14 at the Hyatt Regency Mexico City, Mexico City.
The panel on Political Uncertainty and Mexico’s Energy Reform will be held February 15 at the James A. Baker III Hall, Rice University, in Houston, Texas.
Mexico WindPower is scheduled for February 28-March 1 at Centro Citibanamex in Mexico City. In its seventh edition, Mexico WindPower 2018 consolidates its position as Mexico’s most important congress and exhibition event in the wind power sector. In addition, you can network with key personalities in the industry and meet real buyers face-to-face.
Lateral Thinking
Mexico and Belgium partnered up to promote agave. The University of Aguascalientes, along with Mexican and Belgium researchers, is developing a project to include Aguascalientes in the Mezcal’s Denomination of Origin (Spanish). The agave could also be used to develop other products, such as probiotics and fibers, as well as to diversify gastronomy.
Quote of the Week
“Cada edad tiene sus rasgos característicos y es indispensable conocerlos y respetarlos, como en biología se respeta a la oruga, al capullo y a la mariposa.”
“Each age has its characteristic features and it is essential to know and respect them, just like in biology the caterpillar, the cocoon, and the butterfly are respected.”
– Gregorio Torres Quintero (1866-1934), educator, professor, and expert on new educational systems.
We hope you have a productive week. Please send any news, comments, or agave development projects to MexicoWeekly@energynarrative.com.
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