The Weekly Brief: Mexico


February 24, 2020 edition—Shell’s well; energy permits delayed; and cheaper natural gas.




Last Week in a Minute or Less


Electric Power & Renewables. CFE’s fight against power theft had its ups and downs; and Mexico’s energy permit delays are no joke.


Natural Gas Mid-Downstream & LNG. The EIA had good news for Mexico: more natural gas at lower prices.


Liquid Fuels Mid-Downstream. Enermex plans to service Mexico City; Pemex is producing more fuel oil than needed; and the Dos Bocas refinery was not okayed by the indigenous community.


Oil & Gas Upstream. Mexico is thinking of 2021 oil hedges and exploration taxes; the CNH okayed Shell’s exploratory well; and Pemex signed new exploration and production projects.


Government & NGO. Canada is still working on the USMCA ratification; BofA is worried about Mexico’s economy; and companies ask for certainty on USMCA rules.


Déjà vu all over again. Last week’s readers were particularly interested in US plans to export coal (Reuters – English); Baja California’s energy outlook (Institute of the Americas – English); and Sener’s new clean fuels strategy (DOF – Spanish).



Geopolitics & Trade


The US ambassador in Mexico will work on security, migration, and trade. Christopher Landau, US ambassador to Mexico, said that both nations will have to work on security, migration, and trade to generate more certainty for Mexican investments (Forbes – Spanish). Landau said that both countries are working to fight organized crime and to reduce the flow of drugs and weapons across the border.


There are some issues pending before the USMCA starts. The deputy minister of North America Jesús Seade said that the choice of panelists for the controversy resolution and uniform rules on auto parts origin are still pending (El Financiero – Spanish).


Companies ask for certainty on USMCA rules. The private sector is asking the government to specify the USMCA operational rules, as investment could be lost if uncertainty regarding permits, rules, and processes continues (El Economista – Spanish). The Economy Ministry has not informed businessmen on how the change of origin rules would work.


Analysts expect USMCA to bring DFI. According to Banxico’s survey of 38 analyst groups, Mexico improved its outlook to attract direct foreign investment in 2020 with the USMCA ratification (El Economista – Spanish). Analysts forecast US$29.3bn in investment.


Canada is still working on the USMCA ratification. Bloc Quebecois and other relatively small opposition groups have slowed the deal’s ratification, criticizing the agreement for not favoring Canadian aluminum (Washington Examiner – English). The main opposition party has neither opposed the deal nor backed the Liberal Party to help in its passage.



Political Economy


Mexico is thinking of 2021 oil hedges and exploration taxes. The Finance Minister said that the government plans to continue the oil hedge program in 2021. The government is considering adjusting the tax levels for new exploration and production contracts to make them more interesting to companies (El Financiero – Spanish).


Banxico will change Mexico’s growth outlook. Mexico’s central bank governor said that Mexico’s GDP would grow less than Banxico previously forecast (El Financiero – Spanish). The reason is the latest information on Mexico’s economic activity.


AMLO’s cuts paid off with MXN5.9bn in savings. Although the savings did not reach the MXN500bn promised during the campaign, the austerity policy left MXN5.9bn in savings in 2019 (El Financiero – Spanish). The amount meant a 43% increase compared to 2018.


BofA is worried about Mexico’s economy. Bank of America’s chief economist Carlos Capistrán said that the fall in investment spending does not offer signs of improvement (El Economista – Spanish). Capistrán warned that Pemex is at risk of losing its investment rating from a second rating agency (Forbes – Spanish).




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Legal & Regulatory


The CRE fights self-supply. The Energy Regulatory Commission (CRE) plans to limit self-supply from power generators to new clients (El Economista – Spanish). The National Commission to Improve Regulation rejected the changes (El Financiero – Spanish). Sempra said the changes would have “high regulatory impact” and violate policy that’s already in place (Bloomberg – English).


The CNH fired 18 employees. The National Hydrocarbons Commission (CNH) fired 18 employees from the unit that supervises 100 exploration and production contracts won at rounds by private companies (Reuters – English) (El Financiero – Spanish). The reason given for the layoffs was “lack of respect” for supervisors and not “adhering to the rules.”


The CNH okayed Shell’s exploratory well. The National Hydrocarbons Commission (CNH) approved Shell’s plans to drill the Max-1Exp exploratory well in ultra-deep waters (El Financiero – Spanish). The project represents an investment of US$91.8m and the well could contain resources worth US$291m.


Mexico’s energy permit delays are no joke. All energy industries are being affected by delays in project permits, to the benefit of CFE and Pemex (Platts – English). According to lawyers and associations, there are hundreds of projects on hold, ranging from renewable energy to downstream oil and gas.


The Dos Bocas refinery was not okayed by the indigenous community. Chontal indigenous people said that there was no social consultation in their communities to start the construction of the new refinery. The community fears an increase in environmental damage on their land (El Economista – Spanish).



Market Trends


Pemex is producing more fuel oil than needed. The state-owned company is producing high amounts of fuel oil (150,000 barrels per day in its six refineries in 2019), and the demand is dropping due to its high level of pollution and the new International Maritime Organization’s norm against high sulfur fuels (El Financiero – Spanish).


Goldman Sachs warned of the coronavirus effect in Mexico’s finances. Goldman Sachs said that Mexico will be the Latin American country least affected by the coronavirus, but Mexico’s public income will be affected by a fall in the price of oil exports (El Economista – Spanish).


The EIA had good news for Mexico: more natural gas at lower prices. The US Energy Information Administration expects natural gas production in the US to continue increasing until 2050 to support US exports (EIA – English). The EIA said natural gas prices have fallen to their lowest levels in 20 years (EIA – English).


CFE won some and lost some against power thieves. The state-owned company lost MXN25.9bn in 2019 due to robberies from organized crime, civil resistance, and irregular housing (El Financiero – Spanish). CFE recovered MXN48m from companies that tried to steal power from the state-owned company (El Financiero – Spanish).



Strategy & Operations


ENI discovered black gold offshore. Eni SPA and its joint venture partners at Block 10 can celebrate an oil discovery in the Saasken exploration prospect of the Cuenca Salina with a preliminary estimate of between 200 and 300 million barrels of oil (OGJ – English) (El Economista – Spanish).


The fertilizer plants that exposed corruption are working. President López Obrador said that the production of fertilizers has started in the Coatzacoalcos and Pajaritos plants that brought the report against former Pemex CEO Lozoya (El Financiero – Spanish). The fertilizers produced in those plants will be handed to farmers and indigenous peasants in the country.


Pemex signed new exploration and production projects. The state-owned company began to sign contracts with oil companies invited to present offers to develop a new group of priority exploration and production projects (Forbes – Spanish). Before the end of the first quarter, around 20 contracts should be signed to increase hydrocarbons production.


Enermex plans to service Mexico City. The fuel importer will increase its capacity in the capital’s region by the end of 2020, starting the operation of a new storage terminal (Platts – English). Enermex plans to start operations in 2021 in Guadalajara, Tuxpan, and Tabasco.



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


Wastewater could power Mexico up. A new study by the UN Institute for Water says that wastewater could be a source of energy. Energy stored in this water could power every single household in the US and Mexico and replace 13% of fertilizer requirements (The Naked Scientists – English).



Quote of the Week


“La buena educación es la mitad del camino en cualquier negocio.”


“Good education is half of the path to any endeavor.”



– Ignacio Manuel Altamirano (1834-1893), Mexican radical liberal writer.




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