The Weekly Brief: Mexico


January 21, 2019 edition—Pemex’s oil exploration contracts; solar investments; and oil hedges completed.




Last Week in a Minute or Less


Renewables & Electricity. Solar energy investments reach US$6.3bn.


Natural Gas & Liquid Fuels. Fuel shortages may postpone the clean diesel rule; Pemex will invest MXN4bn in Minatitlán’s refinery; and a Mexico City pipeline was hit by “sabotage.”


Oil & Gas Upstream. Pemex will bid exploration contracts in January; AMLO will fight fuel theft from oil platforms; and Premier Oil hit reserves in the Zama field.


Money & Power. Inflation is expected to be around 3.8% to 4%; the IMF is happy with the fight against fuel theft; and the Finance Ministry completed its oil hedges.


Déjà vu all over again. Last week’s readers were particularly interested in Alpek’s sale of cogeneration plants (El Financiero – Spanish); power tariffs helping solar power (El Financiero – Spanish); and Pemex’s canceled contracts with gas stations (El Financiero – Spanish).



NAFTA Negotiation


Trudeau is working to end US metals tariffs. According to Prime Minister Justin Trudeau, Canada is working with politicians and businesses to pressure President Trump to eliminate the tariffs on its steel and aluminum (Reuters – English).


The US lumber tariff is pressuring Canadian producers. Canadian lumber producers are paying 20% tariffs on timber shipments to the US, their biggest customer (Bloomberg – English). The biggest Canadian producers have cut output by between 10% and 20% at sawmills.


JPMorgan cuts the Canadian currency’s forecast because of USMCA’s uncertainty. JPMorgan expects the Canadian dollar currency to weaken to C$1.35 per dollar by mid-2019, lowering the previous forecast of C$1.30 (Bloomberg – English). The reason is the negative outlook for the passage of the USMCA agreement.


Trump insists Mexico will pay for the wall. President Donald Trump said that Mexico will pay for the wall many times through the USMCA if Congress approves the new deal (El Economista – Spanish). Trump denies saying that Mexico will pay for the wall with a payment, such as a check.



The Road to Reform


Pemex will bid exploration contracts in January. The state-owned company plans to offer two contracts. The first was scheduled for January 15 and the second for January 30, including six and seven production platforms, respectively (El Financiero – Spanish).


Insecurity and long processes threaten gasoline imports. The Coparmex asked the government to speed up regulations to allow private companies to import fuels (El Economista – Spanish). The Concanaco said private companies do not import much gasoline due to transportation robberies, international prices, and high taxes (El Economista – Spanish).


The fight against fuel theft continues at all levels… The Tax Administration Service found irregularities in the tax payment process of MXN3.2bn at different gas stations (El Economista – Spanish). A contingency plan to speed up gasoline distribution helped drain inventories at terminals (Reuters – English).


…even at oil drilling platforms. President López Obrador said the administration will address the “acts of sabotage” and theft from oil drilling platforms (Reuters – English) as part of the strategy to fight fuel theft.


The fuel shortage may postpone the clean diesel rule. The government is expected to postpone the new rule that required the sale of cleaner diesel due to the fuel shortages caused by the fight against fuel robbery (Reuters – English). The lack of infrastructure may have also affected the implementation of the regulation.



Political Economy


A pipeline exploded killing 79 people. The Tuxpan-Tula pipeline exploited killing 79 people and leaving 66 injured as they were filling fuel containers (Reuters – English). The Attorney General will request the testimony of the Tlahuelilpan population to investigate the explosion (El Financiero – Spanish).


The fuel shortage will hit Pemex’s pocketbook. The state-owned company’s finances will suffer a drop in sales due to shortages in its first financial quarter (El Economista – Spanish). Pemex expects a capital infusion of US$1.25bn from the government by the end of the year (Reuters – Spanish).


The IMF expects the fight against fuel theft will improve public and Pemex’s finances. The International Monetary Fund is happy with the new administration’s plan to fight fuel theft, considering it a sign to end corruption (El Economista – Spanish) and to improve public finances and Pemex’s budget in the future.


Inflation is expected to be around 3.8% to 4%. Barclays forecast Mexico’s inflation will reach 3.8%, below the 4.8% of 2018 (El Economista – Spanish). Jonathan Heath, who has been proposed as the director of Mexico’s central bank, said inflation will end 2019 at around 4% (El Economista – Spanish).


Banxico is worried about the economy if the fuel shortage continues. Jonathan Heath, the proposed director of Mexico’s central bank, warned that if fuel shortages continue during February and March, it could endanger Mexico’s economic growth (El Economista – Spanish).



Market Trends


The Finance Ministry completed its oil hedges. Mexico finished its 2019 oil hedge at US$55 per barrel, placing US$1.23bn in options (Reuters – English) to protect the government’s public finances (El Economista – Spanish). The oil hedges would be one of the most expensive hedges paid by the government.


The Energy Ministry published the gasoline import numbers. The Energy Ministry said fuel imports were not reduced in the first month of the new administration. Pemex Transformación Industrial imported 559,000 barrels per day in December and 764,800 barrels per day in the first nine days of January (El Economista – Spanish).


Foreign investment in the MEM dropped 77%. Foreign investment in the exchange market in Mexico fell 77% in 2018, and this trend is expected to continue in 2019 due to global uncertainty (El Financiero – Spanish). The reasons are the low economic growth forecasted, the risk of downgrades from rating agencies, and the uncertainty of the new administration’s economic policies.


Mexico’s country risk dropped to 215 points. Mexico’s country risk has lowered to 215 points, after reaching 240 points during the previous administration (El Economista – Spanish). During the last two weeks of December, a change was observed in the country’s risk level thanks to the publication of the 2019 budget.



Strategy & Operations


Tons of fuel are stranded in Veracruz. Two tankers carrying 30,000 tons of fuel have been stranded at the Coatzacoalcos port since December (El Financiero – Spanish). The Energy Minister said Mexico continues importing 80% of the gasoline that it consumes.


A Mexico City pipeline was hit by “sabotage.” A fuel pipeline that supplies Mexico City was closed after suffering two ruptures in a day (Reuters – English). The leaks at Tuxpan-Poza Rica-Azcapotzalco were repaired by Pemex, and the government will patrol the pipeline by air (Platts – English).


Pemex will invest MXN4bn in Minatitlán’s refinery. The Minatitlán refinery, which works at 29% of its capacity, will receive an investment of MXN4bn to increase refining (El Economista – Spanish). The amount is 5.3% of the budget devoted to rescuing the refining system.


Premier Oil had good news in the Zama field. Premier Oil says the first appraisal well in the Zama field encountered the main Zama reservoir (OGJ – English). The Block 7 interests are held by Talos 35%, Sierra Oil & Gas 40%, and Premier Oil 25%.


BP and Repsol may look for alternatives to Pemex. Private companies such as BP and Repsol are looking for alternatives to Pemex’s supply, such as private fuel transporters from ports to gas stations (El Financiero – Spanish). The companies are also considering importing fuel by train and ship.


Solar energy investments reach US$6.3bn. The installed capacity of solar energy reached 3,000MW, with investments of US$6.3bn (El Economista – Spanish). The Mexican solar association estimated this trend will continue in 2019 and will strengthen Mexico’s energy sovereignty.



Old School Social


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


OMC 2019 is scheduled for January 28 at the NH Collection Mexico City Airport T2 in Mexico City.


Energy Mexico 2019 will be held January 29-31 at Centro Cultural Banamex in Mexico City.


MIREC WEEK is offering a breakfast to discuss the impact of the new administration’s policies in renewables and is scheduled for February 6 at the Sheraton María Isabel 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


The Mojave rattlesnake’s fatal venom is all over the place. Clemson University researchers found that the Mojave rattlesnake’s hemorrhagic venom is not only located in Arizona and in Mexico, but can be found in several places throughout the snake’s distribution (Clemson Edu – English). Scientists found that four lineages of rattlesnakes are breeding with one another.



Quote of the Week


“Entre tu aurora y mi ocaso, el tiempo desaparecía y era nuestra y era mía sangre, labio, vino y vaso.”


“Between your daybreak and my sunset, time disappeared and they were ours and they were mine blood, lip, wine, and glass.”



– Salvador Novo (1904-1974), Mexican writer, poet, and official chronicler of Mexico City.



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