July 10, 2017 edition— Baja’s underwater grid connection; US-Mexico pipelines approved; and NAFTA’s arbitrator.
Last Week in a Minute or Less
Renewables & Electricity. Baja California will connect with the national grid; Coahuila and Nuevo León will develop 28 projects; and Tamaulipas can count on 33 investment projects.
Natural Gas & Liquid Fuels. The US approved three US-Mexico pipelines; natural gas prices could increase by 30%; and Canada invests in Mexico’s pipelines.
Oil & Gas Upstream. Mexico’s government will offer legal clarity on fields and Pemex drilled without permission.
Money & Power. NAFTA could have a referee; Banxico’s surplus will help with Mexico’s debt; and the 7% interest rate could be maintained until 2018.
Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s natural gas pipelines (Spanish); Perry’s view on NAFTA (English); and Querétaro’s anticorruption system (Spanish).
The Road to Reform
Baja California will connect with the national grid… The CFE chief, Jaime Hernandez, announced a project to interconnect the isolated Baja California Sur electrical system with the national grid through an underwater cable, which will cost US$1bn (Spanish) (Spanish). The project will substitute the natural gas transportation infrastructure in the peninsula.
…and CFE declares void the Baja California Sur gas project. The state-owned company canceled the auction for the Baja California Sur natural gas project. CFE considers the natural gas project unnecessary given the approval of the new underwater transmission line (English).
Certainty wanted for fuel fields. Oil industry leaders called on the government to define clear rules to permit negotiations between companies awarded contiguous blocks which possibly hold shared fields (Spanish). Private companies manage 13 wells, drilled or being drilled, the equivalent of 59% of all wells drilled by Pemex in 2016 (Spanish).
Pemex will partner up again. The state-owned company will form two more partnerships so a third party could supply and operate hydrogen plants for the Madero and Cadereyta refineries (Spanish). In the coming weeks, the selection process for operators will conclude in Madero, Tamaulipas, and Cadereyta, Nuevo León.
The CNH accused Pemex of unauthorized drilling. The National Hydrocarbons Commission (CNH) will apply an administrative sanction against Pemex Exploración y Producción (PEP) for drilling ten wells without authorization (Spanish). The CNH detected a lack of receipts for the payment of rights for four wells, each valued at MXN42,100.
Political Economy
Writs of amparo threaten hydro projects. Construction of the Puebla I hydroelectric plant has been stopped during 15 months due to disagreements over the indigenous consultation process and the Amparo Law (Spanish). The project would receive an investment of US$1bn and the commitment to increase by 27% the annual budgets of three municipalities.
Jacobson defended NAFTA and a third party could provide adult supervision. The US Ambassador to Mexico, Roberta Jacobson, defended NAFTA, saying it allowed the three nations to expand trade and integrate their economies (Spanish). A Washington, DC think tank proposed the NAFTA renegotiation include creating an entity to promote cooperation in macroeconomic policies (Spanish).
CFE’s income hit by debtors. The state-owned company lost MXN65.6bn due to illegal connections and non-payments, the equivalent of 20% of CFE’s revenues in 2016 (Spanish). The default problem is three times greater than fuel theft afflicting Pemex, which is estimated at MXN59m per day, equal to losing 26,100 barrels per day (Spanish).
The Finance ministry relies on Banxico’s surplus. Mexico’s finance ministry plans to use funds from the central bank’s surplus for 2016 to cut peso debt by MXN5.62bn in the third quarter (English). The ministry would use the funds to reduce foreign currency debt by US$4.1bn next year.
Meade and Kelly discussed binational cooperation on finance and security. Mexico’s finance minister, José Antonio Meade, and US Homeland Security Secretary, John Kelly, met to discuss bilateral cooperation in regional security and financial issues (English) (Spanish). Kelly attended the event with the US ambassador in Mexico, Roberta Jacobson.
Market Trends
PwC said natural gas prices could jump 30%. Analysts expect natural gas prices to increase by 30% after the Energy Regulatory Commission eliminated the maximum price of first-hand sales (Spanish). Javier Estrada of PwC asserted the hike will last until CFE adjusts the flows of imported gas.
Canada bets on Mexico’s pipelines… Energy Minister Pedro Joaquín Coldwell announced that Canadian investment accounts for between 20% and 25% of the total US$12bn investment in pipelines (Spanish). Academic exchanges, tourism, and investments between Mexico and Canada increased after the visa requirement for Mexicans was eliminated.
…and investors will offer US$500m for Mexico’s energy assets. Riverstone Holdings and Miguel Galuccio resolved to raise US$500m in Mexico’s first ever stock market listing of a special purpose acquisition company (English). Vista Oil & Gas will invest in exploration and production assets in Argentina, Brazil, Colombia, and Mexico over the next two years.
Banxico’s 7% rate is here to stay…until 2018. According to analysts, Mexico’s central bank could maintain the 7% benchmark rate at least until the end of 2018 (Spanish). Analysts surveyed forecast the exchange rate will reach 18.70 pesos, 80 cents lower than their prediction in the June survey.
The OECD frets over Mexico’s energy inflation. In May, inflation of Mexico’s energy prices was the highest in the 34 OECD member countries, with a 16% annual variation (Spanish). The increase in inflation is explained by the fuel liberalization and the time it is taking for the economy to absorb the rise in prices.
Strategy & Operations
Pemex canceled five Maya crude shipments. Following the refinery fire, the state-owned company cancelled five shipments of Maya crude from the Salina Cruz terminal to the US West Coast (Spanish). The shipments were redirected to other US clients so the export balance remained unaffected.
The US okayed three US-Mexico pipelines. NuStar Logistics received permits from the US to develop three pipelines crossing the US-Mexico border (English) (Spanish). Two permits were granted by the US for existing pipelines that cross the border near Laredo and allow transportation of a greater variety of petroleum products.
Coahuila and Nuevo León will shine brighter. Coahuila will develop 22 solar projects and Nuevo León six with an investment of US$1.8bn, and the panels will be operational in 2018 and 2019 (Spanish). The projects are supported by the energy reform, the solar potential of the region, and the 60% drop in panel prices.
Tamaulipas may hit the jackpot in energy projects. Tamaulipas prepares for 33 investment projects, which amount to US$2.5bn (Spanish). The investment plans for the south of Tamaulipas are directed to alternative energy including wind and petrochemical energy.
Old School Social
Events in the world beyond your screen – go see and be seen!
The Mexico Oil & Gas Summit is July 18-19 at the Sheraton María Isabel Hotel, in Mexico City.
The US-Mexico Natural Gas Forum is August 14-16 at the Hyatt Regency Riverwalk in San Antonio, Texas.
Lateral Thinking
The Aztecs stacked up human skulls—lots of human skulls. Archeologists found 650 skulls, including women’s and children’s skulls, in a cylindrical edifice near the Templo Mayor of the Aztec capital that later became Mexico City (English). Historians suspect the tower is part of the Huey Tzompantli, a rack of skulls that scared Spanish conquistadores.
Quote of the Week
“Perro con hueso en la boca, ni muerde ni ladra.”
“Dog with a bone in its mouth, neither bites nor barks.”
-Porfirio Díaz (1830-1915), Mexican general and President from 1876 to 1911
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