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February 17, 2020 edition—Pemex’s Ixachi impasse; Braskem Idesa’s ethane; and Puebla’s renewables.
Last Week in a Minute or Less
Electric Power & Renewables. Mexico will lose US$8bn from stopping the power auctions; Puebla will have five new renewable projects; and Mexico counts on more than 130 solar and wind plants.
Natural Gas Mid-Downstream & LNG. US ethane arrived at Braskem Idesa’s Mexican complex; and Naturgy keeps its Mexican investment plans.
Liquid Fuels Mid-Downstream. The transportation sector asked to postpone the low-sulfur diesel rule; Mexico imported US gasoline like it’s 1993; and the Energy Ministry published a new strategy to promote clean fuels and technologies.
Oil & Gas Upstream. Pemex put Ixachi on the back burner; AMLO sent his nominees for the CRE; and Mexico does not take advantage of its natural gas.
Government & NGO. BofA lowered Mexico’s growth outlook; Mexico’s inflation went beyond Banxico’s target; and Pemex bonds are a hit.
Déjà vu all over again. Last week’s readers were particularly interested in Mexico City’s waste-to-energy plant (El Economista – Spanish); Pemex’s finances (El Economista – Spanish); and the investment needs of the power sector (El Economista – Spanish).
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- the Weekly Brief: Mexico team
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Geopolitics & Trade
The US wants Mexico and Canada to help export coal. The US Energy Secretary said Mexico and Canada could help the US export coal to Asia, avoiding the West Coast blockade of shipments over concern about the impact of coal on climate change (Reuters – English).
The Mexican auto parts industry plans to surpass Germany. The auto parts companies in Mexico are preparing investments of US$11bn for this year and 2021 to surpass Germany’s production (Forbes – Spanish). The plans depend on federal government support in public policies.
Trump will boost the US Trade Representative’s Office budget. President Trump proposed a US$4m increase in the fiscal year 2021 budget for the US Trade Representative’s Office to monitor completed deals like the one signed with Mexico (Washington Examiner – English). The Trump administration said the USMCA deal will require monitoring and enforcement.
Political Economy
As expected, Banxico cut interest rate… Mexico’s central bank lowered its benchmark interest rate to 7.0%(Reuters – English) (El Financiero – Spanish). By the end of 2020, analysts expect interest rates to reach 6.5% (El Financiero – Spanish).
…and Mexico’s high interest rates affect its growth. Although Banxico is expected to cut interest rates to 6.5% throughout the year, it will still be high and above a neutral level, and it could keep affecting Mexico’s economic growth (El Financiero – Spanish). According to analysts, the neutral interest level is 5.6%.
Pemex’s former head was arrested. Spanish police arrested Emilio Lozoya, the former chief executive of Mexico’s state-owned oil company (Reuters – English). Lozoya is accused of corruption related to a bribery and money laundering case involving Odebrecht.
BofA lowered Mexico’s growth outlook. Bank of America cut Mexico’s growth outlook in 2020 from 0.9% to 0.5% (El Financiero – Spanish). The bank expects a slow recovery of investment and strong exports to boost growth.
Mexico’s inflation went beyond Banxico’s target. The national statistics agency (INEGI) said that Mexican consumer prices rose 3.24% in January, slightly above Mexico’s central bank’s target (Reuters – English) (El Financiero – Spanish). Inflation increased from 2.83% in December due to food, beverage, and tobacco prices.
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Legal & Regulatory
The transportation sector asked to postpone the low-sulfur diesel rule. Industry organizations related to transportation in Mexico asked for NOM 044 to be postponed due to the lack of availability of the fuel (El Economista – Spanish). Pemex obtained a writ of amparo against NOM 016 that gave it until 2024 to supply the ultra-low-sulfur diesel.
Mexico will lose US$8bn from stopping the power auctions. According to Plataforma México Clima y Energía and Fresh Energy, by 2024, Mexico would have lost US$8.2bn in private investments due to the halt in power auctions (El Financiero – Spanish). The organizations based the estimate on solar and wind investment from the first long-term auction.
AMLO sent in his nominees for the CRE. President López Obrador sent the Senate his list of candidates to be part of the Energy Regulatory Commission’s (CRE) plenary session: Hermilo Ceja Lucas, Rogelio de Jesús García Castañeda, and Enrique Meingüer Velásquez. The CRE plenary session has only five out of seven commissioners (El Financiero – Spanish).
The CENACE will be more transparent. The National Center of Energy Control (CENACE) modified its rules for the integration and operation of its Transparency Committee (DOF – Spanish). The new rules will be available on the CENACE’s webpage (CENACE – Spanish).
The Energy Ministry published a new strategy to promote clean fuels and technologies. The Energy Ministry authorized and published the update on the transition strategy to promote the use of clean technologies and fuels. The report recommends modernizing the distribution network and developing storage projects (DOF – Spanish).
Market Trends
Pemex bonds are a hit. Pemex’s two-year expired bonds are selling close to a record as the company stabilized its production, and the state-owned company’s bonds to expire in 2027 have seen their price increase by almost 20% (El Financiero – Spanish). Pemex increased its limit on bond exchange from US$1bn to US$1.3bn (El Financiero – Spanish).
Mexico imported US gasoline like it’s 1993. According to the EIA, in November 2019, Mexico reached a record on US gasoline imports, purchasing 713,000 daily barrels of gasoline, the highest amount since 1993, when records started (EIA – English) (El Financiero – Spanish). November’s imports were 47% higher than the previous month.
Fixed investment keeps dropping. Fixed investment fell 2.8% in November 2019 compared to the same period in 2018 (Forbes – Spanish). Fixed investment in Mexico may have closed 2019 with the highest reduction in 10 years (El Economista – Spanish).
The coronavirus hit Pemex’s export income. China’s coronavirus crisis and the economic halt in certain cities is hitting oil prices around the world due to a drop in demand. Mexico could suffer a fall in Pemex’s export income, and it could even affect the profitability of certain projects (Excelsior – Spanish).
Strategy & Operations
Pemex put Ixachi on the back burner. The state-owned company has delayed the plans for the Ixachi field until March, with the operation of only one well (El Financiero – Spanish). Pemex had previously planned to operate five wells in Ixachi by December 2019.
US ethane arrived at Braskem Idesa’s Mexican complex. Braskem Idesa SAPI received imports of ethane from the US at the Nanchital petrochemical complex in Veracruz (OGJ – English). The ethane will be used as feedstock for production of polyethylene at the same complex.
Mexico counts on more than 130 solar and wind plants. Mexico has 133 private solar and wind plants in operation. Of the total amount, 63 are solar power stations while 70 are large-scale wind plants (Forbes – Spanish).
Puebla will have five new renewable projects. According to the National Chamber’s Energy Commission, at least five out of 10 companies intend to invest in solar or wind parks in Puebla in 2020 (El Economista – Spanish). Five companies come from Spain, Italy, and the US, and the rest are national companies.
Naturgy keeps its Mexican investment plans. Naturgy will continue with its investment plans of MXN2bn (as the company has done in the last 10 years in the country) (El Financiero – Spanish). The investment goes to natural gas distribution networks and energy solution projects.
Mexico does not take advantage of its natural gas. Héctor Moreira, commissioner at the National Hydrocarbons Commission, said that Mexico imports 68% of its gas despite having the sixth largest natural gas reserves (Heraldo – Spanish). Moreira emphasized the importance of energy security, market diversification, and a paradigm change towards power.
The Institute of the Americas analyzed Baja California’s energy outlook. The Institute of the Americas found that the state’s need for natural gas is particularly high due to its isolation from the national grid, and further development and integration of renewable energy could meet or exceed the national goal of 35% (Institute of the Americas – English).
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. Join the discussion of Mexico’s future oil production, fuel imports, the role of Pemex and CFE, and other critical issues for Mexico’s energy sector in 2020.
Lateral Thinking
Mexico and Spain are looking for a 17th-century galleon. Archaeologists will restart their search for the ship Nuestra Señora del Juncal, which sailed in 1631 with gold, silver, and jewels (The Guardian – English). Only 39 out of 300 people survived the storm that sank the ship by climbing into a small launch.
Quote of the Week
“El arte es profundamente humano y está cargado de bondades, defectos y errores de hombre.”
“Art is profoundly human, and it is full of goodness, flaws, and man-made mistakes.”
– Juan Soriano (1920-2006), Mexican painter.
We hope you have a productive week. Please send any news, comments, or sunken ships to MexicoWeekly@energynarrative.com.
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