The Weekly Brief: Mexico


February 26, 2018 edition—EPM Eólica’s wind farm in NL; Pemex reduced its second open season; and a tough NAFTA round.




Last Week in a Minute or Less


Renewables & Electricity. EPM Eólica will have a new wind farm in Nuevo León; and Skye and Delta Factor signed a collaboration agreement.


Natural Gas & Liquid Fuels. Energía Mayakan will build a pipeline connecting Yucatán with Mexico’s north; diesel imports dropped in January; and Pemex’s second open season was reduced.


Oil & Gas Upstream. The CNH okayed Pemex’s farmout in Trión; and the IMP will give a hand to deepwater projects.


Money & Power. Donald Trump and Peña Nieto will not meet; the EU-MX FTA moved forward; and NAFTA’s seventh round will be tough.


Déjà vu all over again. Last week’s readers were particularly interested in the Oaxaca-Mexico transmission line bases (El Economista – Spanish); the first shale round in March (El Financiero – Spanish); and Trudeau’s hopes for NAFTA (Bloomberg – English).



NAFTA Negotiation


Mexico expects a harsh seventh round… Kenneth Smith expects the seventh round of NAFTA renegotiation to be “very difficult” (El Financiero – Spanish), trying to close several chapters and discussing the most delicate and controversial issues. Smith said an agreement is possible thanks to a series of ideas proposed by the Canadian team in Montreal.


… and auto content rules will be first on the agenda. Canada, Mexico, and the US negotiators plan to discuss rules of origin for more than 20 hours (Bloomberg – English) on February 25. High-technology vehicles, including hybrid, autonomous, and electric cars may be included (El Financiero – Spanish) in the proposal.


GOP senator worried over NAFTA causing rural “depression.” Iowa Republican Senator Chuck Grassley said a withdrawal from NAFTA could trigger a “depression” in US rural areas (Bloomberg – English). Mexico is the number one US export market for corn (Spanish), and the end of the agreement could be catastrophic for farmers.


Moody’s warned Mexico over the consequences of ending NAFTA. A US withdrawal from NAFTA could negatively impact Mexico’s rating (El Economista – Spanish), according to Moody’s. The end of the agreement could greatly impact Mexico’s macroeconomic performance, affecting its credit profile.



The Road to Reform


The CNH okayed Pemex’s farmout in Trión. BHP Billiton will invest US$262.5m in the next three years (El Economista – Spanish) in exploration and evaluation of Pemex’s farmout in the Cinturón Plegado Perdido block. The Anglo-Australian mining giant will start drilling two wells (El Economista – Spanish) in the Trión project in deep waters (Reuters – English).


The Sener will hit the gas on energy reform. The Energy Ministry said that the energy reform implementation will be intensified in the next 10 months (Excelsior – Spanish). Two oil tenders, a shale tender in the Burgos Basin, and farmout tenders will be held in the current administration’s remaining time.


Pemex’s second pipeline open season was reduced. The state-owned company will offer half of the storage terminals and pipelines originally considered (El Economista – Spanish) for the second open season. 107,898 barrels of storage in six terminals and 21,950 barrels per day of gasoline and diesel transportation capacity in four pipelines will be offered.


The IMP will give a hand to deep-water projects. The Mexican Institute of Oil (IMP) will offer services to private operators in deep-water fields with an investment of MXN2bn (El Economista – Spanish). The institute offers technical assistance to cut costs, time, and risks between exploration and production.




Sponsored Content


In its seventh edition, Mexico WindPower 2018 consolidates its position as Mexico’s most important Congress and Exhibition event in the wind power sector. It is the only event organized by the Global Wind Energy Council (GWEC) and the Mexican Wind Energy Association (AMDEE), together with E. J. Krause of Mexico. In addition, you can network with key industry personalities.





Political Economy


Donald Trump and Peña Nieto postponed their meeting. After a tense phone call with Trump pushing for a border wall, President Trump and President Peña Nieto postponed the first visit of the Mexican president to the White House (Reuters – English). The Foreign Minister met with senior US officials at the White House to discuss trade, security, energy, and migration (Reuters – English).


CFE and Pemex face earthquake consequences. Pemex and CFE said that the recent quake caused no major damage (El Economista – Spanish). CFE said it had restored 97% of power service (El Economista – Spanish) after 1,333,000 homes and businesses were left without electricity.


Users will pay for fuel robbery. Congressmen condemned the lack of arrests (Reforma – Spanish), with 2,795 open investigations of fuel thieves in 2017. The CRE established that economic damages caused by fuel that does not arrive to the final user is Pemex’s responsibility, but it could ask for compensation by increasing its tariff (El Economista – Spanish).


Mexico is now an official member of the International Energy Agency. Mexico officially became member number 30 of the International Energy Agency (IEA) (Reforma – Spanish) and the first Latin American member (World Oil – English). Mexico’s inclusion is a clear example of the IEA’s modernization strategy.


The EU-MX FTA moved forward, but not finalized. Mexico and the European Union concluded the ninth round of negotiation to modernize their free trade agreement (El Economista – Spanish), closing five more chapters (El Universal – English). The discussions on goods, rules of origin, and intellectual property are pending for future negotiation rounds.



Market Trends


Mexico’s country risk is down. Mexico’s country risk reached 178 basis points (El Economista – Spanish), a fall of 16 units compared to previous weeks. Mexico reached an historic minimum of 71 points on June 1, 2007 and a maximum of 624 basis points on October 24, 2008.


Banxico will follow the Fed. Inflation increased by 0.5% (El Financiero – Spanish) in January compared to the previous month, surpassing analysts’ forecasts. Based on this data, analysts expect an increase in the Fed’s rate by March 21 and a consequent raise in the Mexican central bank’s rate.


Foreign capital has Mexico in sight. Despite the uncertainty surrounding the presidential election and the NAFTA renegotiation, Mexican foreign investment amounted to US$7.2bn in January (El Financiero – Spanish) between government bonds and public stock companies. The amount is well above the US$1.1bn reported in the same period in 2017.


Despite uncertainty, Mexico’s GDP in 2017 held on. According to analysts, Mexico’s GDP growth in 2017 was 2.1% (El Economista – Spanish), after a 1.8% expansion in the last quarter of the year (The Wall Street Journal – English). In 2017, Mexico’s economy surprisingly resisted the increasing uncertainty surrounding the election of President Trump and the NAFTA renegotiation.



Strategy & Operations


Skye and Delta Factor will make Nuevo León greener. Skye Group and Delta Factor Consulting signed a collaboration agreement (El Financiero – Spanish) to establish trade relations in the energy sector. The goal is to position Nuevo León as the leading state in the development of sustainable and efficient power supply in Mexico.


EPM Eólica will wind up. EPM Eólica Dolores will install a wind park in the municipality of China, Nuevo León, to generate 267.75MW (El Financiero – Spanish). The project will occupy 167.53 hectares and include 85 wind turbines.


Energy associations teamed up to launch a campaign supporting energy reform. The energy associations launched the “México con Energía” campaign to show the benefits of energy reform (El Financiero – Spanish) to the general population. The goal of the campaign is to share the advantages of energy reform and to educate the general public.


Private diesel imports dropped in January. Private diesel imports fell to 179 million liters, 11% less than in November (Reforma – Spanish), a level not seen since October of last year. The reasons are the price difference between Pemex and US importers and weekly changes to the fuel tax.


Energía Mayakan will connect Yucatán with Mexico’s north. The Yucatán peninsula will be connected with the north of the country through a new pipeline to be opened in the first quarter of 2019 (El Financiero – Spanish). Energía Mayakán and the National Center of Natural Gas are defining the industrial sector needs in Yucatán, Campeche, and Quintana Roo.



Old School Social


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


The Mexico Oil & Gas Breakfast: Infrastructure Outlook & Fuels Market Development is scheduled for February 27 at the Marriott Reforma Hotel, Mexico City.


The 4th Natural Gas Power Plant Construction Summit, Mexico 2018, will be held February 28-March 1 at the Hotel Marquis Reforma. The summit is the most influential summit and the only tailor-made forum focusing on stimulating opportunities amongst natural gas power plant owners, developers, and EPCs in Mexico’s booming natural gas power market.


The GCPA Mexico City Breakfast is scheduled for February 28 at the Four Seasons Hotel, Mexico City.


The Mexico Energy Assembly is scheduled for February 28-March 1 at the St. Regis Hotel, in Mexico City.


CERAWeek will be held March 5-9 at the Hilton Americas-Houston, in Houston, Texas.



Lateral Thinking


Lasers revealed a large scale Purépecha city. A high-tech laser mapped out an ancient city called Angamuco, a 30-minute drive from Morelia, built by Purépechas, rivals of the Aztecs. The city extended over 26 square kilometers, with 40,000 building foundations (The Guardian – English).



Quote of the Week


“Gracias por los cielos de indiferencia y tierras de amargura que tanto y mucho fueron. Gracias por las desesperaciones, soledades.”


“Thanks for the skies of indifference and lands of bitterness that were so many. Thanks for the despairs, the solitudes.”


– Carlos Pellicer Cámara (1897-1977), Mexican writer, poet, and politician.



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