The Weekly Brief: Mexico

January 8, 2018 edition—Tamaulipas’ new wind farms; Denmark eyes Mexico’s oil; and NAFTA worries Trudeau.




Last Week in a Minute or Less


Renewables & Electricity. ATCO bought a hydroelectric plant in Veracruz; the third electricity auction had some drawbacks; and Tamaulipas bets on wind power.


Natural Gas & Liquid Fuels. Gas Natural Fenosa will widen its grid in Campeche and Yucatán; and Los Ramones will have a natural gas-fired thermoelectric plant.


Oil & Gas Upstream. Denmark’s oil companies have Mexico in sight; Trafigura and CFE won oil and natural gas contracts; and Amexhi suggests speeding up rounds and farmouts.


Money & Power. NAFTA kept Trudeau and Mexico’s auto industry up at night; Banxico hopes for 3% inflation by the end of 2018; and 2018 brought higher fuel prices.


Déjà vu all over again. Last week’s readers were particularly interested in the redefinition of open seasons (Spanish); Pemex’s hope to find a Maximino-Nobilis partner (Spanish); and the Mexican oil regulator’s cancellation of a potential venture with Pemex in the Maximino-Nobilis area (English).



NAFTA Negotiation


Mexico looks to Europe for trade allies. With President Donald Trump threatening to end NAFTA, Mexican officials visited Brussels to upgrade a trade deal (English) with Europe. Mexico is also bargaining with Argentina, Brazil, and Asia, after now that the US abandoned the Trans-Pacific Partnership.


NAFTA renegotiation impacts investment in Mexico’s auto industry. Public and private sector representatives said that the NAFTA renegotiation has put pressure on investment (Spanish) plans in the medium- and long-term in the auto industry. Guanajuato’s Ministry of Sustainable Economic Development assured that investments have not been chased away (Spanish).


NAFTA kept Trudeau worried over the holidays. Canadian Prime Minister Justin Trudeau said that NAFTA talks are keeping him awake at night due to their unpredictability. Trudeau would rather walk away from NAFTA than sign “a bad deal” (English).


Experts expect US-Mexico energy to weather NAFTA uncertainty. At a conference sponsored by the Institute of the Americas (IOTA), energy experts concluded the US-Mexico energy relationship is strong enough to withstand the uncertainty (English) caused by the NAFTA renegotiation and Mexico’s presidential election.



The Road to Reform


Trafigura and CFE won oil and natural gas contracts. The National Hydrocarbons Commission (CNH) announced that Trafigura and the state-owned CFE will sell the output from fields under the shared production contracts with Mexico’s government from 2018 through 2020 (English). Trafigura could market at least 150,000 b/d of oil by 2020.


Amexhi suggested speeding up oil rounds and farmouts. The Mexican Association of Hydrocarbons Companies (Amexhi) advised accelerate oil rounds (Spanish) and Pemex’s farmouts. Amexhi’s analysis center also suggested maintaining the free flow of hydrocarbons throughout North America and a tax and contract regime that recognizes shale’s particularities.


The third electricity auction had some drawbacks. According to a report from PwC, information about penalties and methodology (Spanish) was needed to estimate interconnection capabilities and export limits. PwC also pointed out that some regional limits were changed close to the auction date, forcing bidders to withdraw prequalified offers.


Industrial power supply was set free. Big industries can now end current power contracts (Spanish) to find other suppliers. The new rules don’t modify or harm the rights and obligations of parties that signed contracts under the repealed law.



Political Economy


Pemex and CFE returned to the red… From January to October, the two state-owned companies had a total deficit of MXN79.7bn (Spanish), 68.3% more in real terms than the MXN44.7bn recorded in the same period in 2016. Pemex had a deficit of MXN75.7bn and CFE had a deficit of MXN4bn.


…and the Finance Ministry expects public debt to go down. The Finance Ministry estimates public debt dropped to 46.7% in 2017 and will fall to 46.1% in 2018 (Spanish). The Finance Ministry noted that the government’s financial needs in 2018 anticipate a net deficit of 2% of the GDP.


Banxico’s New Year resolution: inflation at 3%. The Bank of Mexico expects inflation to reach levels close to its 3% goal (Spanish) by the end of 2018. Annual inflation for 2017 was likely higher than the 6.63% that was recorded in November.


Odebrecht sanctions were delayed by amparos. Odebrecht and a Pemex civil servant filed three writs of amparo (Spanish). The goal was to stop the Comptroller’s office from resolving the administrative procedures against them that were ready to be issued.


China sets its eyes on Mexico. With the Trump administration setting an uncertain tone towards Latin America, China plans to broaden its presence in the region (Spanish). In 2010, China surpassed the US as the major market exporter to Latin America, excluding Mexico. China’s trade with Mexico could also increase if NAFTA is cancelled.




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Market Trends


CFE expects a Christmas gift from Fibra-E. In the first two months of 2018, the state-owned company expects an investment of MXN10bn through Fibra-E (Spanish) to develop electrical infrastructure. CFE expects to propel alliances with the private sector and continue participating in long-term electricity auctions.


2018 kicked off with higher fuel prices. The new year started with increases of between 56 and 70 centavos per liter (Spanish) for regular and premium gasoline and diesel. The Energy Regulatory Commission (CRE) said that gasoline prices have remained stable (Spanish) and Pemex said it would not rapidly increase gasoline prices.


Pemex’s oil exports broke through the ceiling. The state-owned company exported 1.38 million barrels per day (bpd) (English) of crude oil, the highest amount since 2010, due to weak domestic demand. In November, exports were 115,000 bpd higher than in October and 46,000 bpd higher year over year.


The dollar skyrocketed during the holidays. The dollar rose during the holidays to levels last seen since March 2017 (Spanish), worrying the Bank of Mexico. Banxico sold US$500m in foreign exchange hedges (English) to limit the dollar rally.



Strategy & Operations


ATCO got a hydroelectric plant in Veracruz. The Canadian company bought a 35MW hydroelectric plant (English) in Veracruz for US$90m (Spanish). Electricidad del Golfo is one of the Mexico’s largest “self-supply” hydroelectric power plants, with a small reservoir regulating the Apatlahuaya River’s flow.


Gas Natural Fenosa will widen its grid in southern Mexico. The Energy Regulatory Commission (CRE) handed the Spanish company permits to distribute natural gas (English) in the southern states of Campeche and Yucatán. The company will invest MXN1.2bn (Spanish) to serve 52,000 clients in the next five years.


Tamaulipas goes with the wind. Eolica Vicente Guerrero ordered Vestas’ turbines with a combined capacity of 118MW (English) for the Vicente Guerrero wind park in Tamaulipas. Tamaulipas’ energy commissioner announced the state will receive an investment of US$200m to build two new wind parks, Salitrillos and 3 Mesas IV (Spanish).


Denmark’s oil companies have Mexico in sight. Danish companies are interested in Mexico’s oil following the energy reform (Spanish), as the country focuses on clean energy and renewables at home. Maersk Oil participated in oil field auctions in 2016 and 2017, and will be part of the two rounds scheduled for 2018.


Los Ramones counts on a new thermoelectric plant. Power company Los Ramones requested a permit from the Environmental and Natural Resource Ministry to remove area vegetation to build a thermoelectric plant (Spanish) powered by natural gas. The project will cover 20 hectares, including a substation that will be operated by CFE.



Old School Social


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


The Gas Storage Outlook Conference is scheduled for January 9 at the Royal Sonesta in Houston, Texas.


The FIEM 2018 will be held January 11-12 at the Centro Expositor Puebla in Puebla.


The 3rd Mexico Infrastructure Projects Forum is scheduled for January 17-18 at Hotel Camino Real in Monterrey.


Mexico WindPower will be held February 28-March 1 at Centro Citibanamex in Mexico City. In its seventh edition, Mexico WindPower 2018 consolidates its position as Mexico’s most important congress and exhibition event in the wind power sector. In addition, you can network with key personalities in the industry and meet real buyers face-to-face.



Lateral Thinking


Mexico City’s metro is sinking and accidents will increase. Mexico City is sinking by 30 centimeters per year (English), and that has bent rails, caused a train crash, and slowed down the system. A new satellite-based map shows spots where future accidents may occur.



Quote of the Week


“Art is a weapon that penetrates the eyes, the ears, the deepest and subtlest human feelings.”


– David Alfaro Siqueiros (1896-1974), Mexican painter part of the Mexican muralism movement



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