The Weekly Brief: Mexico


February 10, 2020 edition—Engie’s pipeline; CFE’s need for CELs; and Mexico’s 1% growth outlook.




Last Week in a Minute or Less


Electric Power & Renewables. CFE will need 46 million CELs by 2024; Mexico is in the top six for installed geothermal generation capacity; and the power sector needs US$10bn per year until 2040.


Natural Gas Mid-Downstream & LNG. Engie will invest in Yucatán’s pipeline.


Liquid Fuels Mid-Downstream. Valero sent more fuel by rails; Pemex’s refining averaged 725,000 barrels per day in 2019; and private companies import more gasoline.


Oil & Gas Upstream. Bancomext will finance the Mayacaste development; and the private sector is responsible for 6% of natural gas production.


Government & NGO. The USMCA promises investments if there is legal certainty; Moody’s cut Mexico’s growth outlook to 1%; and the Finance Ministry still expects 2% growth.


Déjà vu all over again. Last week’s readers were particularly interested in bilateral power contracts (Platts – English); power solutions for industrial parks (El Economista – Spanish); and Newpek’s permit (El Financiero – Spanish).



Geopolitics & Trade


The USMCA promises investments if there is legal certainty. US and Canadian business chambers’ representatives expect to invest US$5bn in the country but asked the government for legal certainty (El Economista – Spanish). According to Mexico’s business chamber, the USMCA ratification has brought back investments.


Mexico was the top US trade partner. Mexico’s trade with the US amounted to US$614.5bn in 2019, a 0.48% increase, while Canada was the US no. 2 ranked trade partner for the fifth year (Forbes – English). The gap between the first two trade partners is the smallest in 25 years.


Canada’s trade committee is working on the USMCA ratification. The House of Commons gave the international trade committee the approval to examine Bill C-4 early (iPolitics – English). Debate over the ratification legislation for the new NAFTA continued in the House.


The USMCA will make Canada work harder on trade secret protection. With the possible ratification of the USMCA, Canada would have to legislate stronger protection for trade secrets (Canadian Lawyer Mag – English). Canada lacks a federal statute and trade secrets fall under common-law torts.



Political Economy


Analysts cut Mexico’s growth outlook to 1%... In Banxico’s survey, analysts reduced Mexico’s economic growth forecast from 1.1% to 1% for 2020 (El Financiero – Spanish). For 2021, analysts expect Mexico’s economic growth to reach 1.64%, a fall from the previous estimate of 1.76%.


…and the Finance Ministry still expects 2% growth. The Finance Ministry forecasts 2% growth in 2020 thanks to a series of reforms to be sent to Congress in September, the effect of the USMCA, and infrastructure projects (Excelsior – Spanish).


Moody’s cut Mexico’s growth outlook to 1%… The international rating agency lowered Mexico’s growth outlook for 2020 from 1.3% to 1% (El Financiero – Spanish). The economic reduction in 2019 will pressure Mexico’s sovereign rating, but the USMCA signing may improve business confidence in Mexico (Reuters – English).


…and Fitch is pondering Mexico’s rating. The rating agency warned that Pemex’s financial situation could be a risk for Mexico’s credit rating (El Economista – Spanish). Fitch said that Mexico’s weak economy in 2019 does not justify a cut in the country’s credit rating (El Financiero – Spanish).


AMLO created an Economic Growth Office. President López Obrador created an Office for Economic Growth coordinated by Alfonso Romo, the head of the Presidency Office (Forbes – Spanish). The office will create a new team focused on investment and job creation brought by the USMCA ratification.


BNP Paribás has low expectations for Mexico’s economy. According to BNP Paribás, Mexico will have its lowest growth in 2020 for the second year in a row among the five biggest economies in Latin America (El Economista – Spanish). The institution forecast 0.6% growth for Mexico’s GDP.



Legal & Regulatory


Experts are skeptical of AMLO’s energy plans. Analysts at the Energy Mexico 2020 conference doubted the administration’s intention of bringing back farmouts (Platts – English). According to a survey, 62% of the attendees said that Mexico was “not very attractive” to foreign investment in energy.


The CCE and the government agreed on energy work teams. The Business Coordinator Board (CCE) and the federal government established working teams to define the possibility of specific projects within the infrastructure plan (El Financiero – Spanish). The private sector presented a list of 137 projects that would hopefully be approved by the government.


CFE will need 46 million CELs by 2024. The state-owned company could build up a CEL deficit of 46 million due to the cancellation of the power auctions (El Financiero – Spanish). This year, CFE plans to offer a tender for seven power plants.


The head of CENACE’s Project Planning and Administration Unit has more responsibilities. As long as it takes to name a new Strategy and Standardization Director, the head of the Project Planning and Administration Unit of the National Center of Energy Control (CENACE) will be in charge of the Strategy and Standardization Direction’s authority (DOF – Spanish).



Market Trends


The private sector is responsible for 6% of natural gas production. The contracts from the rounds, farmouts, and migrations produced 220 million cubic feet of natural gas, 6% of the national volume, while Pemex produced 3,693 million cubic feet (Pulso Energético – Spanish). Half of the national production comes from 11 fields.


The power sector needs US$10bn per year until 2040. Experts estimated that Mexico’s power sector requires between US$100bn and US$120bn in the next ten years, accompanied by a legal framework that brings certainty to investors to satisfy the country’s growing power demand (El Economista – Spanish).


Private companies import more gasoline. Private companies imported 1 of every 5 liters of gasoline consumed in the country in December 2019 (El Economista – Spanish). The amount has more than doubled compared to the previous year and in the case of diesel, more than 60%.


Pemex’s refining averaged 725,000 barrels per day in 2019. The six refineries of the state-owned company averaged production of 725,000 barrels per day in 2019, 2% less than the average result in the previous year (El Financiero – Spanish). Pemex’s goal was between 900,000 and a million barrels per day.



Strategy & Operations


Lawmakers from Mexico City want to recover the waste-to-energy project. Lawmakers from Mexico City asked the Mexico City government to reconsider the cancellation of the solid waste treatment plant project (El Economista – Spanish). The plant could power up the underground transportation system.


Engie will invest in Yucatán’s pipeline. With an investment of MXN500m, Engie started the construction of the pipeline Cuxtal I, which will last seven months and connect the Mayakán pipeline with the national system (Forbes – Spanish) (Platts – English). This interconnection will also allow the natural gas swap between CFE and Pemex (Forbes – Spanish).


Yucatán welcomes AMLO’s power plans. The Confederation of the National Chambers of Commerce said the investment of MXN4.3bn in energy projects announced by the federal government for the state of Yucatán would allow the region to grow. The investment would increase the natural gas transportation capacity in the Cuxtal-Mayakán system (El Economista – Spanish).


Bancomext will finance the Mayacaste development. Bancomext awarded a US$7.1m loan to Grupo Diarqco for the development of the Mayacaste field in Tabasco (El Financiero – Spanish). The goal is to produce between 600 and 1,600 barrels per day. The field was awarded to the company in Round 1.3.


Valero sent more fuel by rails. Valero increased the volume of refined products sent by rail to Mexico by 30,000 barrels per day (Argus Media – English). Valero plans to open 15 retail fuel stations in the country in three months.


Mexico is in the top six for installed geothermal generation capacity. Mexico came in at sixth on the list of the top ten geothermal countries based on installed capacity (New Energy Events). Mexico has 962.7MW of installed capacity.



Old School Social


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


The Institute of the Americas’ Mexico Energy Outlook 2020 Roundtable is scheduled for February 25-26 at the Marriott Reforma in Mexico City.


Mexico WindPower will be held March 4-5 at Centro Citibanamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico with nine consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.



Lateral Thinking


A 9,900-year-old skeleton in Tulum offers information on Mexico’s earliest settlers. The analysis of Chan Hol 3 showed that she was likely a 30-year-old woman who lived 9,900 years ago and who had tooth caries (Science Daily – English). The finding suggests the presence of two morphologically different human groups living in Mexico in that period.



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, freedom, and above all, faith in God.”



-Mariano Matamoros (1770-1814), Mexican Roman Catholic priest and revolutionary rebel.




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