The Weekly Brief: Mexico


January 20, 2020 edition—Chihuahua’s solar; legal certainty for pipelines wanted; and Mexico’s stabilized production.




Last Week in a Minute or Less


Electric Power & Renewables. The IDB will boost Morelos’ solar plant; Chihuahua bets on solar; and the Inter-American Dialogue analyzed and compared power auctions in Latin America.


Natural Gas Mid-Downstream & LNG. Pemex may be facing sabotage on gas robberies; and specialists demand legal certainty for new natural gas pipeline projects.


Liquid Fuels Mid-Downstream. The CRE set Pemex free to establish prices; and the Dos Bocas project may have forgotten secondary infrastructure.


Oil & Gas Upstream. The CNH published the operational rules of its advisory board; Mexico’s oil production finally stabilized in 2019; and Pemex’s new debt refinancing bonds were a hit.


Government & NGO. The US Senate passed the new NAFTA; the IMF cut Mexico’s growth outlook; and February 15 is the date to watch for new projects.


Déjà vu all over again. Last week’s readers were particularly interested in the energy sector’s investment plan (El Financiero – Spanish); the Dos Bocas’ resources (El Financiero – Spanish); and Mexico’s new solar plants (Energía Limpia para Todos – Spanish).



Geopolitics & Trade


The US Senate passed the new NAFTA. The US Senate approved the USMCA, including tougher rules on labor and automotive content (Reuters – English) (El Financiero – Spanish). The legislation to implement the new NAFTA passed with 89 votes against 10 and was sent to President Trump to be signed into law.


Mexico welcomes the USMCA approval and the investment that comes with it. President López Obrador believes the US Senate’s USMCA approval will generate confidence in Mexico, boosting investment in the country and the arrival of companies and jobs (Reuters – English).


Trudeau is pushing for a fast USMCA ratification. Prime Minister Trudeau said that the USMCA would be first thing on the agenda in the Parliament’s first session on January 27 (El Financiero – Spanish). Trudeau urged legislators to approve the new NAFTA, but the opposition party said they wanted to study the new deal (Reuters – English).


Trump described the USMCA as a treaty for the 21st century. In the World Economic Forum of Davos, President Trump said that the USMCA represents “a new model of trade for the 21st century” (El Economista – Spanish). Trump asked other nations to follow the example.



Political Economy


The IMF cut Mexico’s growth outlook. The International Monetary Fund (IMF) reduced Mexico’s growth outlook for 2020 to 1% from 1.3% and for 2021 to 2.3% from between 1.8% and 2.4% (Forbes – Spanish) (El Economista – Spanish). The IMF estimated that Mexico’s economic growth in 2019 was non-existent, despite the previous estimate of 0.4%.


CFE saved MXN$3bn on vehicles. The state-owned company saved MXN$3bn on the bidding of cars for the next four years (Forbes – Spanish). The bidding has saved CFE from contracting additional services such as maintenance, car parts, geolocation, insurance policies, etc.


Mexico is trying to stop a new migrant caravan. More than 3,500 Central American migrants reached Mexico’s southern border (Reuters – English). Although the National Guard tried to stop them, migrants tried to cross the Suchiate River from Guatemala to Mexico (El Financiero – Spanish).


Economists expect Mexico’s economic growth to reach 1%. According to a Citibanamex survey, economists expect Mexico’s economic growth to reach 1% in 2020 and 1.7% in 2021 (El Financiero – Spanish). BNP Paribas forecast a 0.6% growth while BBVA estimates 1.5%.



Legal & Regulatory


The CRE set Pemex free to establish prices. The Energy Regulatory Commission (CRE) will allow Pemex Industrial Transformation (TRI) to impose gasoline and diesel prices freely on its competitors, as the state-owned company does not have a dominant power in firsthand sales (El Financiero – Spanish).


The CNH published the operational rules of its advisory board. The new rules include the integration of the board, its functions, and the contents of the sessions (DOF – Spanish).


Pemex may be facing sabotage on gas robberies. President López Obrador confirmed the increase of illegal taps to steal gas and thought that the phenomenon could be a sabotage against Pemex (Debate – Spanish). Despite the increase in illegal taps, the amount of stolen fuel has not increased.


The Dos Bocas project may have forgotten secondary infrastructure. On top of the technical problems that the Dos Bocas refinery construction is facing, certain specialists have noticed that the construction does not include the development of infrastructure to transport fuel to the demand locations (Xeva – Spanish).


On February 15, the government and the private sector will present new projects. The government and the private sector will present on February 15 the infrastructure projects for the energy sector as part of the national agreement of infrastructure investments (El Financiero – Spanish). The agreement could contain US$30b in investments (El Economista – Spanish).



Market Trends


Mexico will attract capital inflows thanks to its high interest rate. Thanks to high interest rates, Mexico will attract resurgent capital inflows in 2020 after an uncertain year due to the USMCA deal and US-Chinese tensions (Reuters – English). Mexico’s central bank interest rate is 7.25%.


Mexico’s oil production finally stabilized in 2019. In December, private and Pemex production reached its best rate of the year according to the National Hydrocarbons Commission. December’s production reached 1,712,000 barrels of crude per day on average (El Financiero – Spanish).


The Inter-American Dialogue analyzed and compared power auctions in Latin America. The Clean Energy Auctions in Latin America report analyzed power auctions in Brazil, Chile, Mexico, Argentina, Peru, and Jamaica (The Dialogue – English). Like in Chile and Peru, Mexico’s auctions were dominated by large international firms and many projects were not built on schedule.


Pemex’s new debt refinancing bonds were a hit. The state-owned company issued US$5.0bn in bonds with 11-year and 40-year maturities, which will be used to refinance Pemex’s debt (Reuters – English) (El Financiero – Spanish). Part of the funds will be used to repurchase debt maturing in 2020.



Strategy & Operations


Chihuahua bets on solar. Chihuahua will invest US$1.5bn to install new solar energy plants, as the state has world-level potential to generate clean energies at low cost due to its solar irradiation levels (El Economista – Spanish). Chihuahua registers an average level of 6.0 kwh per square meter while Mexico’s national average is 4.0 kwh per square meter.


Specialists demand legal certainty for new pipeline projects. Engie’s natural gas transport has been in the Yucatán peninsula since 1999 via the Mayakan pipeline and today, it operates at 30% due to the lack of natural gas. Energía Mayakan will be expanded to Cancún (El Economista – Spanish).


The IDB will boost Morelos’ solar plant. IDB Invest handed a financing package of US$17.2m to X-Elio to build and do maintenance work on the Xoxocotla solar plant with a capacity of 70MW (Energía Limpia para Todos – Spanish). The project was awarded in the second power auction.


Spanish companies ask for energy certainty. Spanish businessmen asked President López Obrador’s government for legal certainty to invest in the power, oil, and fuel sectors (El Economista – Spanish).



Old School Social


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


The Mexico Energy Outlook 2020 Roundtable is scheduled for February 25-26 at the Marriott Reforma in Mexico City.


Mexico WindPower will be held March 4-5 at Centro Citibanamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico with nine consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.



Lateral Thinking


Mexico’s energy sector future seems uncertain for most. Investors are growing concerned about President López Obrador’s measures regarding the energy sector (World Oil – English). Experts urge the government to encourage investment in the renewable energy sector by addressing its infrastructure bottlenecks in transmission lines (Forbes – English).



Quote of the Week


“(Sobre Antoni Gaudí) Un artista sublime que expresó en forma original, fantástica y delirante, los anhelos de mejoramiento espiritual de la humanidad en una época cansada, aburrida y gestada, que sólo producía ‘arte’ para divertir a los intelectuales sofisticados.”


“(About Antonio Gaudí) A sublime artist that expressed in an original, fantastic, and delirious form the longings for the spiritual improvement of humanity in a tired, bored, and developed period, that only produced ‘art’ to entertain sophisticated intellectuals.”



– Juan O’Gorman (1905-1982), Mexican painter.



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