The Weekly Brief: Mexico


February 18, 2019 edition—The gas pipelines conflict; farmouts postponed; and an inflation surprise.




Last Week in a Minute or Less


Renewables & Electricity. Mexico could end 2019 with 700MW of new distributed solar; CELs are still on; and AMLO will ask about a thermoelectric plant.


Natural Gas & Liquid Fuels. AMLO and Carso, IEnova, and TransCanada fought over pipelines; the Sener plans 68 new storage terminals; and the CFE is considering transferring natural gas pipelines to Cenagas.


Oil & Gas Upstream. The CNH canceled Rounds 3.2 and 3.3; Ku Maloob is underused; and Maersk Drilling will get busy in Mexico.


Money & Power. Banxico maintained interest rates; a US vs. Mexico tomato fight; and inflation surprised in January.


Déjà vu all over again. Last week’s readers were particularly interested in the cancellation of the fourth power auction (Renewables Now – English); the situation of signed contracts (El Economista – Spanish); and private companies’ insistence on energy auctions (El Economista – Spanish).



NAFTA Negotiation


The US menaced Mexico with duties. US trade representative Robert Lighthizer warned Mexico that if the country does not comply with the environmental and labor dispositions of the new NAFTA (aka USMCA), the US will impose duties, as was done with China (El Economista – Spanish).


Ford asked Congress to okay the USMCA. A Ford Motor Co. executive sent a message to Congress: Pass the USMCA to replace NAFTA so the auto industry has certainty and a competitive trade agreement working in North America (Bloomberg – English). The executive asked the US and China to continue negotiating trade.


The US and Mexico fight over tomatoes. The US will withdraw from a 2013 trade deal with Mexico over tomatoes (Reuters – English). The decision could bring new duties on Mexican tomatoes, higher consumer prices, and retaliations.


Canada will not meddle in the USMCA ratification in the US. After years lobbying US state and federal politicians, business leaders, and unions, Andrew Leslie, the parliamentary secretary to Foreign Affairs Minister Chrystia Freeland, said Canada will not interfere with the ratification process in the US and Mexico (CTV News – English).



The Road to Reform


CEL requirements were not canceled, even if the auction was. The cancellation of the fourth power auction will not stop the clean energy certificate market, as there are other mechanisms to comply with clean generation in the country, such as bilateral exchanges (El Economista – Spanish). Private companies can also sell power in the spot market.


AMLO will ask about a thermoelectric plant. President López Obrador will ask the Mexican people on February 23 and 24 if a thermoelectric plant should be opened in Morelos (El Financiero – Spanish). The plant will only work if it is approved by the people and certified by an international organization (El Financiero – Spanish).


Nahle stands up for purchasing US oil tanker trucks. The Energy Minister Rocío Nahle defended the purchase of 671 tanker trucks in the US as the opposition questioned the lack of a proper tender. Nahle said the procurement was “excellent” and a fast, transparent, and clear job (Reforma – Spanish).


CFE is considering transferring natural gas pipelines to Cenagas. The state-owned company is discussing transferring its control of capacity on several new natural gas pipelines to cut its financial exposure (Platts – English). CFE plans to renegotiate the fixed pipeline capacity contracts signed for 25 years (Platts – English).


The CNH cancelled Rounds 3.2 and 3.3. The National Hydrocarbons Commission (CNH) said Rounds 3.2 and 3.3 were canceled, with the exclusion of contractual areas 37 and 9. The CNH also postponed the bidding for the Pemex CNH-A6-7 farmout for six months (El Financiero – Spanish).


AMLO sent the shortlist for CRE. President López Obrador sent four shortlists to designate four new advisors to the Energy Regulatory Commission to the Senate (El Economista – Spanish). Currently there are only three commissioners.



Political Economy


Inflation surprised in January. Mexican consumer prices increased at a slower pace than anticipated in January, reaching 4.37% (Reuters – English). The low prices for farm products and energy helped inflation in the first month of the year (El Economista – Spanish).


CFE plans to update 60 thermoelectric plants. The head of the state-owned company said the strengthening of CFE includes modernizing 60 thermoelectric plants (El Financiero – Spanish). As part of this program, President López Obrador asked private companies not to increase power prices (Reuters – English).


The Sener plans 68 new product storage terminals. The Energy Ministry aims to build 68 new refined product storage terminals in 22 states with an investment of US$4.5bn (El Financiero – Spanish). The Sener said 37 projects have been approved by the Energy Regulatory Commission (CRE).


Mexico needs private power developers for new power plants. Mexico will require private support to build new power plants due to the lack of resources in the federal government to expand the generation portfolio (Platts – English). The CRE estimates US$8.7bn is needed in new generation capacity to maintain the power system long term.



Market Trends


HR Ratings cut Mexico’s growth forecast. HR Ratings changed the economic growth forecast for 2019, from 1.9% to 1.7% (El Economista – Spanish). The drop is explained by the deceleration of national demand and a minimum contribution of fixed investment.


Banxico maintained the interest rate… Mexico’s central bank held its interest rate at 8.25%, its highest level since August 2008 (Reuters – English). The reasons were softer inflation and concerns that economic growth could slow down in 2019.



…and kept inflation in sight. As Mexico’s central bank maintained interest rates at 8.25%, Banxico recommended maintaining prudence and caution (El Financiero – Spanish). The primary auction of governmental debt reflected lower inflation in Mexico (El Financiero – Spanish).



Fitch expects much from the pension funds… The international rating agency said the changes proposed by the Mexican government to the pension system could produce better returns for beneficiaries (Reuters – English).


…and Moody’s is concerned with the power auction cancellation. Moody’s said the cancellation of the power auction adds doubts to the government’s commitment to investment (El Financiero – Spanish). The decision coincided with the new administration’s plan to increase dependence on conventional generation.



Strategy & Operations


Ku Maloob is underused. The Ku Maloob Zaap field is underused according to experts. The new government would have to look for an efficient system for its exploitation that could maintain its capacity of production without affecting its potential (Mural – Spanish).


AMLO and Carso, Ienova, and TransCanada fought over pipelines. President López Obrador asked companies to review the CFE’s pipeline contracts with Carso, Ienova, and TransCanada (El Financiero – Spanish), and dismissed lawsuits against them (El Financiero – Spanish). IEnova answered, emphasizing the transparency and legality of the contracts (El Financiero – Spanish).


Mexico could end 2019 with 700MW more distributed solar. The company SDE México estimated solar power generation for the commercial and residential sectors could double in 2019, reaching 700MW of new installations across the country (El Economista – Spanish). The company has a 7% share in the solar power market in Mexico and plans to double that percentage this year.


The CNH okayed Jaguar’s plans; ASEA not yet. The National Hydrocarbons Commission (CNH) approved the exploration plans and the evaluation program of Jaguar Exploración y Producción for the TM01 Tampico – Misantla area and the A4 block (El Financiero – Spanish). Both projects still require the approval of the Security, Energy, and Environment Agency.


Maersk Drilling will get busy in Mexico. Cairn Energy Group let a contract for 110 days to Maersk Drilling for the Maersk Developer semisubmersible drilling rig, with the option for four additional wells offshore Mexico (OGJ – English). The contract will start in September, according to Maersk Drilling’s fleet update.



Old School Social


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



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-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.



Lateral Thinking


Insecurity threatens Mexican telescopes. Two astronomical observatories in Mexico, the Large Millimeter Telescope (LMT) and the High-Altitude Water Cherenkov Gamma-Ray Observatory (HAWC), reduced operations due to security threats. The road leading to the Sierra Negra volcano in Puebla, where they are located, is a target for robberies (Science – English).



Quote of the Week


“El valor no consiste en la bilis, ni en la sangre; consiste en la dignidad.”


“Courage is based neither on bile nor in blood; it is based on dignity.”


– Ignacio Manuel Altamirano (1834-1893), Mexican liberal writer, journalist, teacher and politician.



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