February 8, 2020 edition—Supreme Court’s decision; oil hedges; and Pemex’s investments.
Last Week in a Minute or Less
Electric Power & Renewables. The Supreme Court decided on the Sener rules; AMLO sent the new power reform; and Mexico needs transmission lines.
Natural Gas Mid-Downstream & LNG. US natural gas exports to Mexico increased in February; and Air Products will be in Mexico’s LNG project.
Liquid Fuels Mid-Downstream. Mexico cashed US$2.38bn in oil hedges; and, despite delays, fuel investments continue.
Oil & Gas Upstream. Pemex has no interest in Hokchi Energy’s shared field; and Protexa finished the Yaxché 44 well.
Government & NGO. Analysts expect 3.74% growth; the USMCA bans energy monopolies; and the Finance Ministry forecasts 4.6% growth.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s investments (El Financiero – Spanish); CFE’s decision to stop renewable investment (Forbes – Spanish); and Mexico’s defense of its energy counter reform (Reuters – English).
Geopolitics & Trade
The US and Canada plan to bring the Paris agreement into the USMCA. US lawmakers and the Canadian government are in favor of including the Paris Agreement as part of the new NAFTA commitments (El Economista – Spanish). The decision could show how to use trade agreements to promote climate goals.
The USMCA bans energy monopolies. The US and Canada established locks to prevent Mexico from developing a counterreform through the USMCA article that refers to the CPTPP (El Economista – Spanish). Mexico could face reprisals and would have to compensate for damages.
IMCO said the power reform goes against the USMCA. The Mexican Institute for Competitiveness (IMCO) said the power reform proposed by President López Obrador breaks the USMCA’s regulations and makes investments in the sector impracticable (El Economista – Spanish). The reform could produce an increase in power tariffs.
Mexico is walking away from its climate change agreements. While the US and China are focused on reaching neutral emissions, experts said Mexico stopped fulfilling its climate change commitments (El Economista – Spanish). In Mexico, 75% of power generation depends on fossil fuels.
The Finance Ministry forecasts 4.6% growth. After an 8.3% contraction, the Finance Ministry expects 4.6% growth by the end of 2021, considering public finances and the economy (Forbes – Spanish). The pace of growth will depend on the vaccination plans.
The Economy Ministry plans to boost investments with tax incentives. Economy Minister Tatiana Clouthier said she favored offering tax incentives to boost investment as the government seeks to spur the economic recovery (Reuters – English). Investment made to modernize or innovate should be deductible.
Analysts expect 3.74% growth. According to Mexico’s central bank survey, analysts expect growth of 3.74% for 2021 and 2.61% for 2022 (El Financiero – Spanish). Analysts expect inflation to reach 3.65% this year and the exchange rate to close the year at 20.18 pesos per dollar.
Herrera and Yellen talked about COVID-19. Mexico’s Finance Minister Arturo Herrera and US Treasury Secretary Janet Yellen talked over the phone and discussed both nations’ priorities, especially the COVID-19 vaccination strategy to boost economic reactivation (El Economista – Spanish).
Legal & Regulatory
AMLO sent the new power reform… President López Obrador sent the Chamber of Representatives a reform for a Law of the Power Industry that benefits the state-owned company CFE and changes conditions for private generators (Forbes – Spanish).
…and the consequences could be harsh. The Business Coordinator Board (CCE) said the reform proposal could be seen as an indirect expropriation of private plants (El Financiero – Spanish). Experts estimate the counterreform would cost US$20bn (El Economista – Spanish).
PRI will fight the power reform. The PRI political party will impugn before the Supreme Court the power reform proposed by President López Obrador if it is approved by Congress (Reforma – Spanish).
Morena will fast track new power law. The Morena Parliamentary group coordinator said the reform of the Law of the Electric Industry proposed by President López Obrador will be approved via fast track to avoid the “extinction” of the CFE (El Financiero – Spanish).
The Supreme Court decided on the Sener rules. The Supreme Court overruled the main elements of the Sener power rules as it breaks the right of free competition and benefits the state-owned company CFE (El Financiero – Spanish). The decision was supported by four votes, with one against.
Mexico cashed US$2.38bn in oil hedges. Mexico received US$2.38bn from its oil hedging program, compensating for the 80% loss in oil revenues due to the COVID-19 pandemic (Reuters – English) (El Financiero – Spanish). In previous years, Mexico spent about US$1bn on the insurance policy.
Mexico had a great export year in 2020. Mexico’s exports increased in 2020, reaching US$43bn in December. While non-oil exports increased 13.1%, oil exports fell 14.2% (El Financiero – Spanish).
The CFE announced its transmission tariffs for 2021. The CFE published the 2021 transmission tariffs (DOF – Spanish) and the final tariffs of basic power supply (DOF – Spanish). The Energy Regulatory Commission (CRE) extended the distribution tariffs for power energy (DOF – Spanish).
US natural gas exports to Mexico increased in February. US natural gas exports to Mexico increased in the last weeks of January (Reuters – English). US natural gas futures jumped 5% to an 11-week high on Tuesday as a major winter snowstorm continued to batter the Northeast.
Strategy & Operations
Pemex has no interest in Hokchi Energy’s shared field. The state-owned company has no interest in developing a shared field with Hokchi Energy (El Economista – Spanish). Pemex will instead invest US$527m and extract more than 30 million barrels of light oil in front of the Dos Bocas port.
Transmission lines are needed in Mexico. The Impact and Environmental Risk General Direction of the Environment and Natural Resources Ministry will analyze the approval of the transmission line for the Xoxocotla (PV Magazine – Spanish) and Colibrí solar plant (PV Magazine – Spanish).
Despite delays, fuel investments continue. According to Onexpo, the Energy Regulatory Commission (CRE) issued 57% fewer fuel and storage permits in 2020 compared with the prior year, from 407 to 175 permits. Another 400 permits are awaiting decisions (Argus Media – English).
Protexa finished the Yaxché 44 well. The Mexican oil services firm announced that it had concluded drilling the Yaxché 44 shallow water well for Pemex after 30 days (BN Americas – English). Protexa will continue working on another four wells corresponding to Cluster 4: Yaxché 111, Yaxché 15, Yaxché 121, and Yaxché 600.
Air Products will be in Mexico’s LNG project. Air Products will provide its LNG technology equipment and related process license and advisory services to the Energía Costa Azul (ECA) LNG export terminal project (LNG Industry – English). The equipment will produce approximately 3 million mtpa at the Ensenada location.
Old School Social Goes Viral
(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)
The lecture “Analysis of the USMCA and its impact in the energy sector” as part of Expogas Virtual is scheduled for February 9, in Mexico City.
2nd Edition of Shallow and Deepwater Mexico was postponed to February 16-18, 2021, at Ciudad del Carmen, Campeche.
The virtual networking roundtable “Natural Gas: Transitioning Mexico from an Oil State to an Industrial Powerhouse” will be held February 17.
Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.
The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.
AMLO and scientists fight again. The government plans a new law that would improve science and technology policymaking and help guarantee sufficient funding for research, but scientists believe the law would increase Conacyt’s power, deprive the scientific community of a say in future science policy, and limit academic freedom (Science Mag – English).
Quote of the Week
“La patria es una flor que hay que alimentar con justicia, libertad, y sobretodo fe en Dios.”
“The nation is a flower that needs to be fed with justice, liberty, and, above all, faith in God.”
– Mariano Matamoros (1770-1814), Mexican liberal priest that fought in the Independence war.
We hope you have a productive week. Please send any news, comments, or scientific agreements to MexicoWeekly@energynarrative.com.
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