February 22, 2020 edition—Natural gas storage; the new power law’s opposition; and illegal fuel imports.
Last Week in a Minute or Less
Electric Power & Renewables.
The power law proposal could hit new and ongoing projects; experts suggest energy diversification; and RedGirasol will fund home solar installations.
Natural Gas Mid-Downstream & LNG. Natural gas transport tariffs for Sistrangas are out; Texas’ natural gas shortage left Mexico in the dark; and Mexico is considering gas storage development.
Liquid Fuels Mid-Downstream. Illegal fuel imports reached 40,000 barrels per day in 2020; Pemex is helping out CFE with cheap fuel; and Trudeau does not plan a NAFTA challenge to Keystone XL.
Oil & Gas Upstream. Mexico will help out Pemex again.
Government & NGO. Mexico’s trade with the US and Canada fell 4% under USMCA; FocusEconomics forecasts 4% growth; and Pemex and CFE’s income took a hit in 2020.
Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s US natural gas imports (Natural Gas Intel – English); the Coromuel plant’s storage (PV Magazine – Spanish); and AMLO’s opinion on the new power law and the USMCA (El Economista – Spanish).
Geopolitics & Trade
Canada is worried about the new power reform. The Canadian government is concerned about the investment climate in Mexico with the new power law proposed by President López Obrador (El Financiero – Spanish) (El Economista – Spanish). The Canadian government is working with its Mexican counterpart on the implementation of the new NAFTA.
Mexico’s trade with the US and Canada fell 4% under USMCA. The COVID-19 pandemic affected the USMCA’s results six months after its signing (El Financiero – Spanish). According to Banxico, trade exchange between the two partners reached US$291.4bn during the second half of 2020.
Trudeau does not plan a NAFTA challenge to Keystone XL. Prime Minister Justin Trudeau rejected a combative response to US protectionism, focusing on mutual US-Canada interests despite early policy hiccups (World Oil – English). President Biden canceled permits for the Keystone XL pipeline.
FPAA challenges USMCA. The US International Trade Commission found that imported blueberries are not affecting domestic growers, a result applauded by the Fresh Produce Association of the Americas (Produce BlueBook – English). Mexican tomato imports already face US trade sanctions, and the ITC has initiated investigations on bell peppers, strawberries, squash, cucumbers, and raspberries.
Experts trust Mexico’s interest rate. Wall Street analysts assured that Mexico will continue offering a positive and attractive yield if the cuts on rates continue (El Economista – Spanish). The real rate offered by Mexico is 0.45%, better than Peru, Chile, or Brazil, which are negative.
Pemex and CFE’s income took a hit in 2020. Pemex and CFE’s own income dropped by 18.2% in 2020, compared with the previous year (El Economista – Spanish). The income represented 15% of the public sector’s total budgetary income.
FocusEconomics forecasts a 4% growth. According to FocusEconomics, the market predicts a 4% recovery of the GDP in 2020, above the previous forecast of 3.9% (El Economista – Spanish). Economic activity is expected to recover in 2021 thanks to foreign demand.
Public debt could reach 69% in 2030. According to CIEP, public debt in Mexico could reach 69% of GDP in 2030 under the current fiscal, social, and economic public policies (El Economista – Spanish). Fiscal sustainability may be severely affected.
Mexico will help out Pemex again. According to the Finance Ministry, an important reduction in the state-owned company’s tax burden will be announced soon (El Financiero – Spanish). Last year, Pemex received MXN46bn in tax benefits thanks to the legal changes to the hydrocarbons income law.
Legal & Regulatory
CFE said the Energy Reform took MXN412m away… The head of the state-owned company said the changes generated by the energy reform caused MXN412bn in damage to Mexico considering subsidies, growing tariffs, exchange risk, and inflation (El Financiero – Spanish). Subsidies to private companies represent MXN249.6bn.
…but the new law may hit CFE the most. According to data published by the Energy Regulatory Commission, CFE could be the most affected by the new power law as its plants’ generation cost 70% more than the power purchased through auctions (El Economista – Spanish).
Cofece asked lawmakers to say no to the power reform. The Mexican antitrust watchdog asked the Mexican congress to vote against the new power law proposed by President López Obrador (El Economista – Spanish). The Cofece argued the changes could endanger transparency and competition, and lower power tariffs.
Mexico will not reach the clean energy goal in 2024. According to the Energy Ministry, Mexico will not reach the clean energy generation goals for 2024 (Forbes – Spanish). The Sener estimates the goal would be reached a year later.
Illegal fuel imports reached 40,000 barrels per day in 2020. According to OPIS, Mexico lost MXN12bn in taxes due to fuel contraband in 2020 (El Financiero – Spanish). Diesel demand fell 20% on average in 2020, and gasoline demand 15%.
Natural gas transport tariffs for Sistrangas are out. The Energy Regulatory Commission (CRE) published the transportation tariffs for Sistrangas from January 1 to December 31, 2021 (DOF – Spanish). The period for all charges is per day.
Private sector complained over high power tariffs. In Mexico, power prices for industry and commerce are 32% above those offered in the US, Canada, China, Thailand, Vietnam, and India (El Financiero – Spanish). Power tariffs for the industrial sector in Mexico are between 40% and 80% higher than in the US.
Foreign investment has an eye on Mexico’s renewables. Foreign direct investment in renewable energy sources could boost Mexico’s change toward sustainable productivity (El Financiero – Spanish). Foreign direct investment in the sector was 4% of the total in September 2020.
Strategy & Operations
RedGirasol will fund home solar projects. The crowd funding platform RedGirasol connects people and companies that want to install solar panels with others that want to invest in green projects (Forbes – Spanish). The new strategy allows small businesses and homes to save almost MXN14m in power tariffs.
The power law proposal could hit new and ongoing projects. The new power law could affect 71 projects in operation and 105 projects that are waiting to be approved (Forbes – Spanish). The proposal could cause the renegotiation or early termination of contracts.
Mexico is considering gas storage development. The state-owned company is considering the construction of natural gas storage infrastructure after the supply interruptions from Texas (Platts – English) (El Financiero – Spanish). The lack of gas storage infrastructure in the country had been identified before and projects were discussed in the previous administration.
Nuevo León’s Energy Cluster said no to the new power law. The president of the Nuevo León Energy Cluster asked lawmakers to reject the reform and apply the current law (El Financiero – Spanish). The cluster does not believe the new law favors increased quality of life or reduced tariff costs.
Experts suggest energy diversification. Energy experts warned about the need to diversify power generation and fuel storage, after the power contingency was impacted due to the lack of natural gas supply (El Economista – Spanish). Allowing more than 60% of power generation to depend on natural gas creates a high risk.
Pemex is helping out CFE with cheap fuel. The state-owned company (Pemex) is selling fuel to CFE to quickly resolve the programmed power cuts in Mexico (El Financiero – Spanish). The decision was taken one week prior, and the agreement included lower prices.
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!)
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.
Texas’ natural gas shortage left Mexico in the dark. As Texas lowered the amount of natural gas available for export, over 2.5 million homes in seven Mexican states were left without power (Platts – English) (Forbes – Spanish). President López Obrador assured the power outage could be fixed by February 17 (Reuters – English), but asked the population to limit power demand (El Financiero – Spanish).
Quote of the Week
“OYES? Ya baja á nuestro espacio umbrío
De las etéreas salas
El viento de la noche rudo y frío
Rasgando nubes con sus negras alas.”
“Do you hear? It goes down to our dark space
Of ethereal rooms
The rough and cold wind of the night
Ripping clouds with its black wings”
– José Tomás de Cuéllar (1830-1894), Mexican writer, journalist, and politician.
We hope you have a productive week. Please send any news, comments, or natural gas alternatives to MexicoWeekly@energynarrative.com.
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