February 11, 2019 edition—Power auction cancellation’s effect; PC Carigali’s stake; and lower GDP growth.
Last Week in a Minute or Less
Renewables & Electricity. The power auction cancellation brought uncertainty; and 222 clean energy plants are expected.
Natural Gas & Liquid Fuels. Valley Crossing plans to connect with Mexico’s pipelines; the special tax on gasoline fell and hit the budget; and Mexico cannot fill Venezuela’s shoes.
Oil & Gas Upstream. Fieldwood and Petrobal published their development plan; PC Carigali got a stake in CNOOC’s block; and AMLO says fracking has no place in Mexico.
Money & Power. Mexico will win the US-China trade war; Pemex’s downgrade may not hit Mexico’s rating; and AMLO pledges to cut Pemex’s fiscal burden.
Déjà vu all over again. Last week’s readers were particularly interested in the cancellation of the Baja California and Oaxaca lines (El Economista – Spanish); the CRE’s request for replacements (El Financiero – Spanish); and Fitch’s downgrade of Pemex’s bonds (El Economista – Spanish).
The US Senate finance chair expects tariffs to be lifted. US Senator Chuck Grassley recommended that the Trump administration lift tariffs on steel and aluminum imports from Canada and Mexico before Congress debates on legislation to implement the USMCA deal (Reuters – English).
Trump described NAFTA as an “historic blunder.” In the State of the Union, President Trump called NAFTA an “historic blunder” (Global News – English) and pledged the USMCA will “bring back our manufacturing jobs” and “expand American agriculture” (Bloomberg – English).
The tariffs remain “unfinished business.” The CEO of the Canadian Chamber of Commerce said the Trump administration assured that tariffs would be eliminated with the new NAFTA agreement and, considering the agreement was signed, the tariffs remain a piece of unfinished business and should be removed (BNN Bloomberg – English).
Mexico will win the US-China trade war. According to the UNCTAD, if the US and China trade war gets worse in March, Mexico will be the country collecting more benefits (El Economista – Spanish). Mexico’s foreign sales would increase by 5.9%.
The Road to Reform
The power auction cancellation brought uncertainty… The Business Coordinator Board (CCE) asked the government to reinstate the fourth power auction (El Economista – Spanish). President López Obrador said the cancellation of the fourth auction (Renewables Now – English) and the two lines is a strategic change, but signed contracts will not be cancelled (El Economista – Spanish).
…to the future of Mexico’s clean energy. The fourth power auction’s cancellation could put the implementation of the clean energy certificate market at risk (El Economista – Spanish). Companies and investors are concerned with the power sector outlook (El Financiero – Spanish) after the cancellation of the fourth power auction and the CRE restructuring.
The CRE got a makeover. The Energy Regulatory Commission approved changes in the internal rules restructuring its organization and operation (El Economista – Spanish). The goal was to comply with the commitment of the new government to frugality and a reduced budget for 2019.
AMLO wants no fracking in Mexico. President López Obrador assured that under his administration, fracking would not be allowed to extract hydrocarbons (El Financiero – Spanish). The Energy Minister said the technique and its environmental impact would be analyzed.
Pemex’s downgrade may not hit Mexico’s rating. Fitch said the Mexican government may not experience a downgrade if Pemex’s rating is cut again (El Financiero – Spanish) (Reuters – English). Pemex’s downgrade weakened the peso and increased the fear of higher costs for Pemex’s funding.
Analysts expect 1.80% GDP growth. According to a survey of specialists made by Mexico’s central bank, GDP growth of 1.80% is expected in 2019 and 1.96% in 2020 (El Economista – Spanish), below the prediction made by President López Obrador of more than 2%. Analysts expect AMLO’s outlook to be reached by 2021.
The IMEF blames uncertainty for the economic deceleration. The Mexican Institute of Finance Executives said the Mexican economy is slowing down due to uncertainty (El Economista – Spanish). The manufacturing index of the IMEF increased by 0.7 points in January, reaching 49.8 units.
AMLO pledges to cut Pemex’s fiscal burden. President López Obrador said that his government will announce extraordinary measures to support Pemex (Reuters – English), with the main goal being to cut the fiscal burden on the state-owned company. The measure will mean fewer resources for the government.
Moody’s will wait for Pemex’s third quarter. The international rating agency will wait for the state-owned company’s second and third quarter report before deciding on its capacity to pay its debt (El Economista – Spanish). Moody’s expects a stabilization of production and more efficient investments.
Mexico cannot fill Venezuela’s void. US refiners cannot expect Mexico to replace Venezuela’s heavy oil imports as 54% of Pemex’s oil is sent under contractual basis to Asia and Europe (Platts – English). US refiners cannot acquire Mexican crude sold abroad unless Pemex and its customers decide to renegotiate their contracts.
Inflation fell in the OECD. The annual inflation in the Organization for Economic Co-operation and Development (OECD) countries slowed to 2.4% in December 2018 (El Economista – Spanish), compared to the 2.7% reached in November. The OECD pointed to the reduction in energy prices to 3.6% in December as the main reason for the cut.
The special tax on gasoline fell and hit the budget. By the end of 2018, the government collected 17% less on the special tax on gasoline than in the same period in 2017 (El Economista – Spanish). With the new administration, fuel prices will be managed with inflation in mind.
Strategy & Operations
PC Carigali got a stake in a CNOOC block. The National Hydrocarbon Commission (CNH) approved PC Carigali’s acquisition of a 30% stake in CNOOC’s Block 4 in the Perdido Fold Belt (Platts – English). CNOOC plans to drill a well in the second quarter and up to three wells in the Perdido region.
Valley Crossing plans to connect with Mexico’s pipelines. Valley Crossing Pipeline requested permission from the Federal Energy Regulatory Commission to open the Border Crossing natural gas facility in February, as the Sur de Texas pipeline in Mexico will be completed by mid-February (Platts – English).
Fieldwood and Petrobal published their development plan. Following Eni and Hokchi, Fieldwood and Petrobal will have a development plan approved for the Ichalkil and Pokoch fields (Pulso Energético – Spanish). Three contracts to develop six fields could total 210,000 barrels per day.
222 clean energy plants expected. To increase clean power generation by 2021, 222 clean energy plants will be built, with an installed capacity of 20,272MW, an investment of US$26bn, and with the Energy Regulatory Commission’s approval (Zocalo – Spanish). Among the 222 permits, 145 are for solar plants and 48 for wind energy.
Old School Social
Events in the world beyond your screen—go see and be seen!
The USMCA and the Future of Mexico’s Trade Policy under AMLO is scheduled for February 15 at the Wilson Center in Washington, D. C.
The Mexico Energy Forum 2019 will be held February 20 at the Sheraton María Isabel in Mexico City.
The XVIII Congressional Border Issues & NAFTA/USMCA Conference is scheduled for February 26 at the Verizon Technology and Policy Center in Washington, D.C.
The Mexico Energy Roundtable: The López Obrador Administration’s Energy Self-Sufficiency Goals will be held February 28 until March 1 at Hotel Marriot Reforma and at ANUIES in Mexico City.
Unlocking Mexico’s Offshore Potential is scheduled for March 6-7 at the Marquis Reforma Hotel & Spa in Mexico City.
Mexico WindPower will be held March 20-21 at Centro Cultural Banamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico, with eight consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.
Mexico’s monarch population recovered. The monarch butterfly population increased by 144% compared to the previous year (US News – English). Mexico’s national commissioner warned that the butterflies are not yet out of danger.
Quote of the Week
“La patria es una flor que hay que alimentar con justiciar, 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 priest that fought in the Independence war.
We hope you have a productive week. Please send any news, comments, or recovered populations in nearby forests to MexicoWeekly@energynarrative.com.
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