The Weekly Brief: Mexico


February 25, 2019 edition—Rounds 1&2 are producing; windy investments; and tariffs threaten USMCA.




Last Week in a Minute or Less


Renewables & Electricity. SDE bets on Mexico’s sun; Amdee expects US$14bn to be spent on wind projects; and the CFE was awarded the “Four Centuries Substation.”


Natural Gas & Liquid Fuels. Braskem Idesa wants to build an ethane import terminal; and Valle de Mexico will enjoy a fuel storage terminal soon.


Oil & Gas Upstream. Rounds 1 and 2 are already producing; BHP will drill another well in Trión; and AMLO will not kill the CRE.


Money & Power. Mexico breathes life into Pemex; Canada needs Pelosi’s help to end metal tariffs; and Mexico fears a new US tariff on cars.


Déjà vu all over again. Last week’s readers were particularly interested in the new storage terminals (El Financiero – Spanish); the private investment needed (Platts – English); and the gas pipeline’s conflict (El Financiero – Spanish).



NAFTA Negotiation


Honda promised investments to follow the USMCA’s rules in Mexico. The Japanese company will start investing to strengthen the supply chain and adapt to the new origin rules for the auto sector agreed upon in the USMCA (El Financiero – Spanish).


Canada needs Pelosi’s help to end metal tariffs. Canada asked Nancy Pelosi, US House speaker, to press the US administration to lift tariffs on steel and aluminum (Bloomberg – English). Canadian Foreign Minister Chrystia Freeland met Pelosi and other Democrats in Munich.


Mexico fears a new US tariff on cars. The US Commerce Department sent a report to the Trump administration that could bring tariffs on imported cars and auto parts (Reuters – English) for Europe and could hit Mexico (El Economista – Spanish).


Canada and Mexico will not ratify the USMCA until Trump ends tariffs. According to Chuck Grassley, who met Canada’s Foreign Affairs Minister and Mexico’s Ambassador to the US, Canada and Mexico will not ratify the new NAFTA deal unless the US ends the tariffs on steel and aluminum imports (Calgary Herald – English).



The Road to Reform


The head of the CRE criticized AMLO’s nominations. Guillermo García Alcocer, the president of the Energy Regulatory Commission, said the profiles of the people nominated by President López Obrador are focused on hydrocarbons (El Financiero – Spanish). García Alcocer found practically no experts in electricity.


Rounds 1 and 2 are already producing. Oil and gas production has increased, with some auctioned fields now producing 10x the volume before the rounds started. Specifically, 24 oil contracts from Rounds 1 and 2 are already contributing to national production (Pulso Energético – Spanish). Oil contracts are also contributing with taxes and royalties (Pulso Energético – Spanish).


The SFP and the Finance Ministry are investigating the CRE’s head. The inquiry is looking into a possible conflict of interest for the Energy Regulatory Commission’s head (El Economista – Spanish). AMLO denied political motivations (El Economista – Spanish).


The CFE was awarded the “Four Centuries Substation.” The state-owned company was awarded the “Four Centuries Substation” with an area of 20,000 square meters located in the Ciudad Juárez municipality in Chihuahua (DOF – Spanish). The CFE can use the building but does not own it.



Political Economy


AMLO will not kill the CRE. President López Obrador will not push a constitutional reform to eliminate regulatory commissions such as the Energy Regulatory Commission (El Financiero – Spanish). The government will instead maintain oversight of the commissions in the name of avoiding corruption.


Mexico breathes life into Pemex… The government will inject US$3.6bn into the state-owned company, including a cut in taxes (Reuters – English) (El Financiero – Spanish). After Moody’s and Fitch downgraded Pemex, President López Obrador promised it will make all its debt payments (Reuters – English).


…and Pemex will offer 371 new positions. The state-owned company will increase its labor force with 371 job positions and will spend MXN3.8bn more in salaries than last year (El Financiero – Spanish). The increase breaks with Pemex’s inclination since the 2016 job cuts.


IMEF cut Mexico’s growth. The Mexican Institute of Finance Executives (IMEF) reduced its economic growth forecast in 2019 to 1.5% from 1.7% in January and 1.8% in December 2018 (El Economista – Spanish). The reasons are the difficulties faced by the new administration with fuel shortages and the strikes in the manufacturing system.



Market Trends


Canacintra wants CFE to invest. The National Chamber of the Transformation Industry (Canacintra) said Mexico could suffer power supply shortages if the state-owned company does not reactivate investments in generation and distribution (El Financiero – Spanish). Demand will grow 13% by 2022.


Pemex’s bailout did not impress bondholders and investors. Investors disagree over whether the plan to save Pemex would be enough to compensate for the losses (Reuters – English). Investors note that without outside investment, Pemex can only get funding from the government or through debt (Bloomberg – English).


Mexican businessmen required more order from AMLO. President López Obrador met with Mexico’s businessmen, including Carlos Slim, Alberto Bailleres, and Emilio Azcarraga, along with the business chamber. The outgoing head of the chamber said Mexico needs to give investors certainty after businesses suffered railroad blockades and strikes at the border (Bloomberg – English).


Investors fear AMLO’s tensions with the CRE. Investors feel the tension between President López Obrador and the regulatory bodies is an example of the president’s antagonism against an institutional model, which can affect the investment sector (El Economista – Spanish).



Strategy & Operations


SDE bets on Mexico’s sun. The Mexican company plans to invest MXN100m this year and to expand solar energy generation in Mexico in 2020 (El Economista – Spanish). The Asian company Trina Solar Limited expects Mexico to become the main solar market in Latin America by 2024 (El Economista – Spanish).


BHP will drill another well in Trión. The Australian company will invest US$256m to drill another well in the Trión field in the Gulf of Mexico (Forbes – Spanish). The appraisal well will be drilled in the second half of this year (OGJ – English).


Valle de Mexico will enjoy a fuel storage terminal soon. The construction of the fuel storage terminal will start in March (El Financiero – Spanish), and will be developed by the Hydrocarbon Storage Terminal (HST) with the Spanish company CLH. The new terminal could double local gasoline inventories.


Amdee expects US$14bn to be spent on wind projects. During President López Obrador’s administration, the Mexican Association of Wind Energy (Amdee) expects investments of over US$14bn in wind projects (El Financiero – Spanish). The total installed capacity could triple.


Braskem Idesa wants to build an ethane import terminal. Braskem Idesa plans to build an ethane import terminal and other projects to fight ethane shortages in Mexico (Platts – English). The Mexican petrochemical industry demands more ethane than is produced in the country.


All want a piece of the fuel supply cake. Foreign companies are fighting Pemex to supply Mexico’s central region, developing new infrastructure projects and establishing retail stations (Platts – English). Fuel demand in the central region averaged 346,500 barrels per day in November.



Old School Social


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



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


“El Popo” got mad with explosions and ash plumes. The Popocatépetl volcano has had several explosions and ash plumes that reached two kilometers above the mountain (Mexico News Daily – English). There were also harmonic tremors which lasted five and 10 hours, respectively.



Quote of the Week


“La hoz afilada tan fina segaba lo mismo la espiga que el último sol de la tarde.”


“The sharp sickle so thin reaped both the ear and the last sun of the afternoon.”


– Carlos Pellicer (1897-1977), Mexican modernist poet.



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