The Weekly Brief: Mexico


July 01, 2019 edition—Meter auction questioned; underwater pipeline’s referee; and BP’s drilling plan.




Last Week in a Minute or Less


Renewables & Electricity. CFE defends the meter auction but some have concerns; AMLO promises a power plant for Yucatán; and Siemens points to Mexico’s storage needs.


Natural Gas & Liquid Fuels. CFE asked for a referee over the marine pipeline; the Sener invited seven to compete for Dos Bocas; and the Cenace speeded up the oil pipeline.


Oil & Gas Upstream. BP’s drilling plan got the okay; private companies’ crude production will multiply 10-fold by 2024; and Pemex’s production is debated.


Money & Power. Pelosi has doubts regarding USMCA; inflation dropped to Banxico’s goal; and Banxico kept the interest rate unchanged.


Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s position in the RECAI (Forbes – Spanish); Yucatán’s state of emergency (Platts – English); and Moody’s warnings (El Economista – Spanish).



NAFTA Negotiation


Pelosi found problems in USMCA approval… US House of Representatives Speaker Nancy Pelosi mentioned enforcement tools, labor and environmental protections, and provisions on pharmaceuticals (Reuters – English) as key impediments to the USMCA congressional approval. She said that the agreement cannot be “NAFTA with sugar on top.”


…and Lighthizer believes he can ease her concerns. US Trade Representative Robert Lighthizer said the core concerns on enforcement of labor and environmental provisions can be solved quickly (Reuters – English). Opposition to the deal in Congress could kill the Trump administration’s hopes of claiming it as a victory ahead of the 2020 election.


Mexico ratified the new NAFTA… The Mexican Senate approved the United States-Mexico-Canada Agreement (USMCA), becoming the first country to ratify the new agreement (Platts – English). Rep. Kevin Brady, lead Republican of the House Ways and Means Committee, congratulated the Mexican Senate on its overwhelmingly positive vote.


…and AMLO encouraged the US to follow. President López Obrador said that it is up to Canada and the US to ratify the USMCA (Reuters – English) after the Mexican Senate’s approval. AMLO expects the NAFTA replacement will give confidence to international and national investors in the country.



The Road to Reform


CFE defends its meter auction, but some have concerns. The state-owned company pledged savings of MXN600m thanks to the meter auction (El Financiero – Spanish). Companies and state workers accused CFE of planning to hand a new millionaire contract to IUSA (Reforma – Spanish).


CFE asked for a referee over the marine pipeline. The state-owned company sent Infraestructura Marina del Golfo a request to mediate to nullify certain clauses in the Texas-Tuxpan contract (Reforma – Spanish). IEnova did not detail the amount of CFE requests to be refunded (El Financiero – Spanish) (Reuters – English).


CFE lost with private companies’ self-generation. The self-supply scheme has produced losses in CFE as private companies use the state-owned company’s transmission infrastructure (El Financiero – Spanish). The director of CFE Generación V questioned the existence of a power surplus.


Pemex will modernize six refineries by 2020. Energy Minister Rocío Nahle said the first phase of the refining plan includes the rehabilitation of the existing refinery (El Economista – Spanish). After the process, the refineries will work at 90%.


The Sener invited seven to compete for Dos Bocas. The Energy Ministry invited seven companies (Jacobs, KBR, Saipem, ICA Fluor, Samsung, Bechtel, and Wood Group) to participate in the bidding for seven contracts to construct the Dos Bocas refinery (El Financiero – Spanish). ASEA started the public consultation on the refinery (El Economista – Spanish).


The Cenace speeded up the oil pipeline. The National Center of Energy Control (Cenace) declared a state of emergency to speed up the work on the pipeline installation from Progreso to Mérida (El Financiero – Spanish). Pemex will supply 240 million cubic feet per day of natural gas after July 15 through the Texas-Tuxpan pipeline (El Financiero – Spanish).



Political Economy


Inflation went back to Banxico’s goal. Mexico’s consumer prices increased less than expected, just 0.01% during the first half of June, and consumer prices were up by an annualized 4% (Reuters – English). Inflation returned to Banxico’s goal of 3% +/- one percentage point (El Economista – Spanish).


Pemex will forget about deepwater projects. The state-owned company does not plan to invest in deepwater projects in the Gulf of Mexico and will focus its exploration and production efforts in shallow water and onshore areas (Reuters – English). Pemex has drilled and made discoveries in territorial deepwater but without production yet.


The government cut Pemex’s DUC to 54%. The government cut Pemex’s profit-sharing duty to 54% by 2021 from 65%. The reduction will increase the state-owned company’s budget by US$4.8bn per year after 2021 (Platts – English) (Pemex – Spanish).


Citibanamex lowered Mexico’s GDP outlook… Citibanamex decreased Mexico’s growth outlook from 1.2% to 0.9%, the fourth cutback in its forecast since November 2018 (El Economista – Spanish). Citibanamex also lowered its 2020 growth outlook from 1.7% to 1.5%.


…and so did Barclays. Barclays lowered Mexico’s economy growth from 1.2% to 0.5% as the economy is losing strength rapidly (El Economista – Spanish). Barclays also cut the 2020 outlook to 1.5% from 2%.


Mexico will invest big in Central America. The government will invest US$100m in Central America as part of the development plan for the region, including the implementation of the program “Sowing Life” in El Salvador, and later in Guatemala and Honduras (El Financiero – Spanish). The amount will come from the Yucatán fund.



Market Trends


Banxico held interest rate at 8.25%. Mexico’s central bank maintained its benchmark interest rate at 8.25%, after annual inflation hit the brakes this month and despite the signs of a weaker economy (Reuters – English). Banxico’s decision followed the US Federal Reserve’s decision to maintain its rate.


Fitch warned about the consequences of canceling power projects. The rating agency said the cancellation of power projects could increase the risk in power supply and price volatility (El Financiero – Spanish). Considering the cancellation of the Isthmus line and the Baja California interconnection line, Fitch argued that new transmission capacity is needed.


Pemex’s production is a whole debate. Pemex plans to produce 2.6 million barrels per day and to book reserves for more than 20 billion (Platts – English). President López Obrador said Pemex’s production has stabilized, despite a report that showed that output fell 0.7% in May compared with the previous month (Reuters – English).


CESF said Pemex’s bonds are a red flag. The Financial System Stability Board (CESF) said the review of Mexico’s and Pemex’s credit ratings are a risk point for the authorities and supervisors who comprise the board (El Economista – Spanish). The uncertain international context could also affect the Mexican economy.



Strategy & Operations


BP’s drilling plan got the okay. The National Hydrocarbons Commission (CNH) approved BP’s US$97m exploration plan for the next four years (Reuters – English). The plan covers a 700,000-square-kilometer shallow water block on the coast of Tabasco.


Enel Green Power México complained about CRE’s changes. The general director of Enel Green Power México is concerned about the delays in the documentation approval due to the changes in the Energy Regulatory Commission (CRE) (El Financiero – Spanish). Although certain delays take place when the government changes, it is important to restart activity.


Private companies are all over the energy business. The CCE presented its work plan to have a say in the government’s decisions in the energy sector (El Financiero – Spanish). Private companies import a third of Mexico’s diesel (El Financiero – Spanish) and their crude production will multiply by 10 by 2024 (El Economista – Spanish).


Siemens points to Mexico’s storage needs. The senior vice president of Smart Infrastructures for Siemens Mexico, Central America, and the Caribbean said the country needs to develop a 2.3 GW storage system to avoid disruptions in the system with the new power projects (El Financiero – Spanish). Generation based on renewable sources can fluctuate and generate high costs in the transmission system.


AMLO pledges a solution for Yucatán’s power. President López Obrador pledged the construction of a power plant in the region to end blackouts in the Peninsula (Platts – English) (El Financiero – Spanish). A fire in CFE’s substation in Campeche caused blackouts in different parts of the city (El Financiero – Spanish).



Old School Social


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



The Mexico Oil & Gas Summit 2019 will be held July 17-18 at Sheraton María Isabel, in Mexico City.



Lateral Thinking


The Monarch butterfly population is difficult to restore. Researchers from the University of Chicago have found that monarchs purchased from commercial suppliers may not be able to migrate effectively. While wild butterflies show reduced reproductive capacity but a tendency to orient south, the commercial population showed neither of those features (Arstechnica – English).



Quote of the Week


“La vida es hermosa. Y es dura también, las dos cosas. Uno tiene que manejar eso.”


“Life is beautiful. And it is hard too, both. One has to manage that.”


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



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