The Weekly Brief: Mexico


January 7, 2019 edition—Canada modernizing Mexico’s hydro; Qatar Petroleum’s Mexican oilfields; and the border fight.




Last Week in a Minute or Less


Renewables & Electricity. Canada will invest in Mexico’s hydropower; Tamaulipas’ wind parks hit the brakes; and IEnova will power up Autlán.


Natural Gas & Liquid Fuels. TransCanada cut the ribbon on its Chihuahua pipeline; the Bajio and Central region will have high-sulfur diesel for six more months; and the military will fight fuel theft.


Oil & Gas Upstream. Pemex will focus on shallow waters; Qatar Petroleum got into three Mexican oilfields; and Pemex’s production kept dropping in November.


Money & Power. Banxico predicts low growth in 2019; HR Ratings okayed the 2019 budget; and Trump threatened to close the border.


Déjà vu all over again. Last edition’s readers were particularly interested in Mexico’s need for seven ethanol plants (El Economista – Spanish); pipeline auctions (El Financiero – Spanish); and the cancellation of the power auction (El Financiero – Spanish).



NAFTA Negotiation


AMLO wants to convince Trump to aid Central America. President López Obrador did not discuss the wall in his first phone call with President Trump, but he insisted the US join Mexico in the nation’s pledge to spend US$5bn next year to reduce migration through development programs in Central America (Bloomberg – English).


Sonora, New Mexico, and Arizona will cooperate to export natural gas. The governors of Sonora, New Mexico, and Arizona signed a memorandum to send natural gas from New Mexico to LNG plants in Puerto de Guaymas in Sonora and then to Asia in specialized vessels (El Financiero – Spanish).


Trump threatened to shut the border. President Trump threatened to close the US border with Mexico unless he gets US$5bn in funding for a wall (Reuters – English). The threat came after the House Republicans said they did not plan any votes and he blamed Democrats for the shutdown (Bloomberg – English).



The Road to Reform


The CRE had a busy break… The Energy Regulatory Commission (CRE) published the guidelines regarding power sales (DOF – Spanish), established the formats to report changes in gasoline and diesel prices (DOF – Spanish), published the requirements to acquire permits to distribute LNG (DOF – Spanish) and said 66 permits expired (DOF – Spanish).


…and requested a better budget. The CRE requested that the Chamber of Deputies increase the 2019 budget, after the chamber cut its budget by 30% (El Economista – Spanish). The CRE fired 367 temporary workers, 60% of the workforce (El Financiero – Spanish).


Pemex will focus on shallow waters. According to the 2019 budget presented by the López Obrador administration, almost half of the state-owned company’s budget will be directed to exploration and production in shallow waters and coastal areas (El Financiero – Spanish).


Asolmex wants to prioritize power auctions. The Mexican solar association considers restarting the power auctions a priority to maintain investment in the energy sector (El Financiero – Spanish). If there are no power auctions, the goal to reach 35% of clean energy will not be reached by 2024.


The Bajio and Central region will have high-sulfur diesel for six more months. The Energy Regulatory Commission (CRE) excluded the Bajio and Central region from the nationwide ban on high-sulfur diesel (Platts – English). The region receives supplies from the Tula and Salamanca refineries that are unable to produce low-sulfur diesel (El Economista – Spanish).


How long would it take to increase oil production? The new administration presented the National Hydrocarbon Plan with guidelines to increase oil production (Pulso Energético – Spanish). Pemex’s calculations to increase oil production can be reviewed, including the need to find new exploration areas to stabilize 3P reserves (Pulso Energético – Spanish).



Political Economy


Banxico forecast low growth in 2019 and 2020. In the last survey done by Mexico’s central bank, specialists forecasted 1.89% GDP growth in 2019, slightly under the 1.97% prediction made in November (El Economista – Spanish).


The military will fight fuel theft. Over 900 army, navy, and military police personnel will be deployed to protect 58 Pemex facilities vulnerable to fuel theft (Platts – English). The military will oversee facilities, fuel trucks, and pipeline monitoring systems. Fuel theft caused Pemex US$3.35bn in losses last year.


The Finance Ministry will use subsidies to avoid high oil prices. The Finance Ministry will apply a new policy of subsidies to the special tax on gasoline when fuel prices increase faster than inflation (El Financiero – Spanish). The goal is to reach the targets established in the 2019 Federal Income Law to obtain MXN269bn from fuels.


The Chamber of Deputies okayed the 2019 budget. The Chamber of Deputies reached an agreement over the 2019 budget, including an additional expense of MXN7.4bn for English in public schools, MXN7bn for states and municipalities, and MXN800m for women’s programs (El Financiero – Spanish).


Pemex moved to Campeche… All the directors of the state-owned company will work from Ciudad del Carmen, Campeche. Originally, Pemex Exploración y Producción would remain in Villahermosa, Tabasco, but the offices will finally operate in Campeche (El Financiero – Spanish).


…and faces many challenges. Platts estimates that Pemex’s 2019 upstream budget will not be enough to boost production (Platts – English). Pemex will have to pay even more in taxes (Reuters – English). The new administration will lower its imported gasoline and diesel costs by replacing spot cargoes with contracted purchases (Platts – English).



Market Trends


The delay in Cempoala’s pipeline will hit natural gas supply in Yucatán. The delay in the Cempoala pipeline project will affect Yucatán’s fuel supply in 2019. The Cempoala pipeline project has been on hold due to legal issues and writ of amparos (El Financiero – Spanish).


HR Ratings okayed the 2019 budget but with warnings. HR Ratings said the economic package is a “positive step,” but faces four risks: inflation at 3.4%, oil prices estimated at US$55 per barrel, an expected crude production of 1.85 million daily barrels, and the exchange rate of 20 pesos per dollar (El Economista – Spanish).


Pemex’s production kept dropping in November. The state-owned company’s oil and gas production continued falling 2.7% and 2.3%, respectively, from the previous month (Platts – English). November oil production fell by 47,500 b/d month-on-month to 1.71 million b/d, mainly due to the lower production in Ku-Maloob-Zaap and Tabasco Offshore regions.


Latin America and the Caribbean will grow by 1.7% in 2019. According to the ECLAC, the economy of Latin America and the Caribbean will grow by 1.7% in 2019 (El Economista – Spanish). The Dominican Republic and Panama will be the economies with the greatest economic expansion with 5.7% and 5.6% increases, respectively.


Banxico matched the Fed’s interest rate increase. Banxico increased the interest rate by 25 basis points, considering the uncertainty caused by the new government’s economic policies and the risk of higher inflation (Reuters – English) (El Financiero – Spanish). The decision followed the increases by the Federal Reserve in the US.



Strategy & Operations


TransCanada cut the ribbon on its Chihuahua pipeline. The Canadian company opened the El Encino-Topolobampo pipeline in the Bocoyna municipality with an investment of MXN20bn (El Financiero – Spanish). The pipeline will allow natural gas from Waha, Texas, to cross nine municipalities in Chihuahua and three in Sinaloa.


IEnova will power up Autlán. IEnova will provide power to the mining company for 15 years at fixed prices through solar power generation (El Financiero – Spanish). The contract will save Autlán money on its power supply.


Qatar Petroleum got into three Mexican oilfields. Qatar Petroleum signed an agreement with Eni to acquire a 35% stake in three offshore oilfields in Mexico (Platts – English) (El Financiero – Spanish). Qatar petroleum will hold interests in the Amoca, Mizton, and Tecoalli fields and will produce 90,000 b/d by the end of 2021.


Canada will invest in Mexico’s hydropower. President López Obrador will sign an agreement with Hydro-Québec to modernize 60 hydroelectric plants in Mexico (El Financiero – Spanish) (The Mazatlán Post – English). The goal is to increase power production with clean and cheap energy and to modernize the current plants.


Tamaulipas’ wind parks hit the brakes. As a consequence of the federal government’s policies to stop power auctions, 20 wind parks that were in the process of being authorized have been halted (El Financiero – Spanish). Each wind plant was backed by investments of US$100m.



Old School Social


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


The 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.



Lateral Thinking


It took a long while to domesticate Mexican corn. People brought maize from Mexico to South America more than 6,500 years ago, and farmers in Mexico and South America worked to domesticate the plant over several thousand years (ScienceNews – English). Scientists thought farmers in southern Mexico had domesticated the maize before the crop spread elsewhere.



Quote of the Week


“Cada suspiro es como un sorbo de vida del que uno se deshace.”


“Every sigh is like a sip of life that one gets rid of.”


– Juan Rulfo (1886-1957), Mexican writer. The quote is part of his 1955 novel Pedro Páramo.



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