The Weekly Brief: Mexico


July 6, 2020 edition—Iberdrola’s dialogue with AMLO; Cenagas’ offers; and Pemex’s Quesqui evaluation.




Last Week in a Minute or Less


Electric Power & Renewables. The Supreme Court upheld Cofece’s argument against the Sener’s rules; AMLO will look into energy contracts; and AMLO and Iberdrola negotiated the Tuxpan plant.


Natural Gas Mid-Downstream & LNG. Cenagas offers new natural gas opportunities; Sempra Energy isn’t sure about Energía Costa Azul; and Mirage Energy has a natural gas pipeline project in sight.


Liquid Fuels Mid-Downstream. US refiners complain to Trump about Mexico; Mexicana de Fusiones y Adquisiciones may abandon Mexico for Aruba; and gas station owners will have a new way to talk with the government.


Oil & Gas Upstream. Pemex will evaluate Quesqui’s onshore field; Murphy Sur will bet on a deepwater field; and BP in Latin America will be led by Angélica Ruiz.


Government & NGO. The USMCA may be hard on Mexico’s labor and competitiveness; Banxico is ready to make more cuts; and GDP fell 17.94% in the second quarter.


Déjà vu all over again. Last week’s readers were particularly interested in CFE’s possible power plant auction (El Financiero – Spanish); a judge’s decision for Tampico Solar (El Financiero – Spanish); and AHMSA’s coal contract with CFE (El Economista – Spanish).



Geopolitics & Trade


The US ambassador warned about uncertainty regarding rules. The US ambassador to Mexico questioned whether it was a good time to invest in Mexico as “very discouraging things for foreign investment” have been seen in various sectors (Reuters – English) (El Economista – Spanish).


Trudeau warned about the effects of aluminum tariffs. Prime Minister Justin Trudeau said US tariffs against imports of Canadian aluminum would hurt US manufacturers (Platts – English). The Trump administration had yet to provide an update on the consideration to reimpose the tariff (Platts – English).


The USMCA may be hard on Mexico’s labor and competitiveness… The textile industry expects the new NAFTA to push Mexican industry to boost the competitiveness of the Mexican economy (El Economista – Spanish). The USMCA enforces harder rules on labor issues for Mexico than the US (El Economista – Spanish).


…and the IMF said the USCMA will not compensate for the lack of confidence. The International Monetary Fund (IMF) warned that the start of the USMCA will not compensate for the uncertainty and lack of confidence in Mexico (El Financiero – Spanish). Experts said Mexico will have to compete to attract investment (El Financiero – Spanish).


Three commissions okayed the new Environmental Agreement. The North American Foreign Relations, Foreign Relations and Environment, and Natural Resources and Climate Change commissions approved the agreement on Environmental Cooperation between Mexico, the US, and Canada (El Financiero – Spanish). The agreement will replace the one signed in 1993 for NAFTA.



Political Economy


Banxico is ready to make more cuts… Mexico’s central bank governor said the institution could make more cuts to the interest rate (El Financiero – Spanish). Banxico will ensure liquidity in the market throughout the crisis.


…and JP Morgan expects it. JP Morgan forecast that Mexico’s central bank will cut its interest rate again before the next meeting in August (El Financiero – Spanish). The IMF expects Banxico to continue with interest rate cuts to help businesses and families (El Economista – Spanish).


GDP fell 17.94% in the second quarter… Banxico’s monthly survey found that on average, Mexico’s annual GDP is expected to fall by 8.97% (El Economista – Spanish). The reason is the historic contraction of 17.94% estimated for the second quarter.


…and the IGAE estimates a 19.67% fall in Mexico’s economic activity. The global index of economic activity in Mexico (IGAE) fell by 19.67%, the biggest fall since tracking started in 1993 (El Financiero – Spanish). The result shows the effect of the COVID-19 pandemic and amounts to 12 months of decreases.


Inflation in Mexico increased in June. Inflation in the first two weeks of June increased to 3.17% (El Economista – Spanish). Experts point to the effect of the Hot Sale, the discount campaign offered on online sales, as the reason for the increase.



Legal & Regulatory


US refiners complained to Trump about Mexico. American Fuel & Petrochemical Manufacturers sent a letter to President Donald Trump complaining about Mexico’s energy regulators, stating that current and future investments in the sector are at risk as permits are being delayed and state-owned government companies are favored (El Economista – Spanish).


Gas station owners will have a new way to talk with the government. Fuel storage businesses, gas station owners, and distributors will create a National Chamber of the Liquid Hydrocarbons Industry (CANAIHL) that looks to become a way to communicate with the government. The institution will not include LPG or fuel oil businesses (El Financiero – Spanish).


CRE fired 40% of its personnel. The Energy Regulatory Commission enforced a massive cut of 200 temporary workers (El Financiero – Spanish) (Argus – English). The reason given was a request from the Finance Ministry to end those positions.


The Supreme Court upheld Cofece’s argument against the Sener’s rules. The Supreme Court ordered the suspension of all the Sener’s rules after accepting the demands of the antitrust regulator, the Federal Commission of Economic Competence (Cofece), against the new rules (Reuters – English) (El Financiero – Spanish). The suspension will be enforced until the Supreme Court issues a final ruling on the matter.


There are 172 amparo requests against new energy rules. According to the Business Coordinator Board (CCE), energy sector participants have handed 172 writs of amparo before court against the new rules published by the government (El Financiero – Spanish). There are 150 trials in process.


AMLO will look into energy contracts. President López Obrador said that there was fraud in the way energy contracts were awarded to private renewable energy companies in Mexico (Forbes – Spanish) (Energy World – English). AMLO pointed to fraudulent assignments in the ’90s that will be examined.



Market Trends


Exports dropped by 56.72% in May. The value of trade exports was US$18.6bn in May, the worst fall since data collection began in 1985. Oil exports amounted to US$929m, a 66.84% fall, the fourth consecutive month with setbacks (El Financiero – Spanish).


Mexico’s crude production dropped in May. According to the National Hydrocarbons Commission (CNH), Mexico’s crude production in May was 1.642 million daily barrels, including both Pemex and private companies’ production (El Economista – Spanish). The amount means a monthly fall of 4.9% in comparison with April.


Cenagas offers new natural gas opportunities. Cenagas is considering collaborating with private gas market participants through projects, celebrating the success of previous auctions. The Las Adelitas hub is expected to expand the pipeline network in the US and Mexico, offering more routes from Texas to Mexico’s key markets, including Monterrey (ICIS – English).



Strategy & Operations


Sempra Energy is uncertain about Energía Costa Azul. Sempra Energy will not provide a target time to make a final investment decision on the LNG export capabilities at its Energía Costa Azul regasification terminal in Mexico (Platts – English). The company pointed to a slowdown in regulatory approvals in Mexico due to the COVID-19 crisis.


Mexicana de Fusiones y Adquisiciones may abandon Mexico for Aruba. The Mexican company planned to build a modular refinery in Veracruz to produce gasoline, jet fuel, and diesel, but a dialogue with authorities has not been achieved. The project has been offered to Aruba’s Prime Minister (El Financiero – Spanish).


AMLO and Iberdrola negotiated over the Tuxpan plant. Iberdrola officials sent a letter to President López Obrador stating its openness to continue investing in Mexico and continue a conversation between both parts (Reuters – English) (El Economista – Spanish). AMLO expects to reach an agreement to build a combined cycle thermal plant in Tuxpan (El Economista – Spanish).


Iberdrola’s plant in Puebla continues as planned. Governor Miguel Barbosa Huerta assured that the Spanish company will finish the solar plant in Cuyuaco by the end of this year (El Economista – Spanish). Currently the project is 80% completed.


Pemex will evaluate Quesqui’s onshore field. According to the National Hydrocarbons Commission (CNH), the state-owned company will invest US$37m in an outpost well to evaluate the Quesqui onshore field in Tabasco (Forbes – Spanish). The goal is to evaluate the field to reduce uncertainty and update oil reserves.


Mirage Energy has a natural gas pipeline project in sight. Mirage Energy secured a US$4bn loan to construct pipeline and natural gas projects in Mexico (Express News – English). The 1,500-mile natural gas pipeline will connect Reynosa with the Yucatán Peninsula.


BP in Latin America will be led by Angélica Ruiz. The CEO of BP Mexico was named deputy president of the British company for the Latin American region (El Financiero – Spanish). Ruiz will continue leading BP in Mexico while working to transform BP into a net zero company by 2050.



Old School Social Goes Viral


(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)


The webinar “Will Mexico’s regulatory level playing field survive? A conversation with the experts” is scheduled for July 8 by Institute of the Americas.


The 2nd Edition of The Madrid Energy Virtual Conference will be held September 28-October 2.


MIREC Week has been postponed from June 2-4 to October 8-10 at Centro Citibanamex.


Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.


The Mexican Energy Forum is rescheduled for November 17-18 in Mexico City.


2nd Edition of Shallow and Deepwater Mexico was postponed to February 16-18, 2021, at Ciudad del Carmen, Campeche.


Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, In Mexico City.


The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.



Lateral Thinking


Mexico’s pools in the desert show pieces of Earth’s early life. In more than 300 pools scattered across 800 square kilometers of desert, scientists have found chemistry similar to that of Earth’s ancient seas, full of microbes, bacterial mats, and stromatolites (Science Mag – English).



Quote of the Week


“Quienes creemos en la libertad debemos ejercer la tolerancia como prueba de nuestra convicción.”


“We who believe in freedom have to be tolerant as a proof of our belief.”



– Rufino Tamayo (1899-1991), Mexican painter.



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