The Weekly Brief: Mexico


July 15, 2019 edition—Iberdrola’s pledge; the pipeline discussion; and Morena’s fracking ban.




Last Week in a Minute or Less


Renewables & Electricity. Iberdrola will maintain its investments in Mexico; CFE plans renewable energy plants by 2023; and IUSA goes after solar roofs too.


Natural Gas & Liquid Fuels. The pipeline discussion began; budget cuts affect the Madero refinery’s makeover; and Pemex was fined for altering the LP market.


Oil & Gas Upstream. Pemex will add 22 fields to its portfolio; Morena plans to ban fracking by law; and less oil production means a tighter budget for AMLO.


Money & Power. Mexico and Lighthizer work on a loophole in the USMCA; Urzúa left the Finance Ministry with a bang; and inflation is back within Banxico’s target.


Déjà vu all over again. Last week’s readers were particularly interested in CFE’s goal in the pipeline dispute (Reuters – English); the FSRU for Yucatán (Platts – English); and CRE’s permits (El Financiero – Spanish).



NAFTA Negotiation


Mexico and Lighthizer work on labor and environmental provisions. Mexico and US Trade Representative Robert Lighthizer are working to close a loophole in the USMCA dispute resolution mechanism to comply with the Democrats’ demands on labor and environmental provisions (Reuters – English).


Democrats warned that too much pressure may backfire. A group of Democrats warned the Trump administration against sending Congress the new NAFTA for a vote this week (Bloomberg – English). Some in the administration plan to build pressure for a vote before the six-week break.


California farmers will win with the new NAFTA. The new trade agreements improve every element of NAFTA, and the California agriculture industry could gain significantly (SF Chronicle – English). Almost 20% of California’s agricultural exports go to Mexico and Canada, and US exports to Canada and Mexico increased by 300% after the first NAFTA.



The Road to Reform


Morena plans to ban fracking by law. Senators Martí Batres and Antares Guadalupe Vázquez will present a proposed law to ban fracking in Mexico. The goal is to avoid irreversible damage to the environment and to permanently cancel the approved and ongoing fracking projects (El Financiero – Spanish).


The pipeline discussion began. The negotiation between the federal government and the companies building natural gas pipelines started with the CCE and the CMN as mediators. By July 15, all the representatives involved in the negotiation will meet again (Reforma – Spanish) to present their progress to date.


The Sener controls CRE’s publications. The Energy Ministry requested the cancellation of the publication of three Energy Regulatory Commission (CRE) agreements in the Official Paper of the Federation (DOF), despite the fact that the CRE is an institution with technical and administrative autonomy (El Economista – Spanish).


ASEA published the Dos Bocas environmental impact report. The Security, Energy, and Environment Agency published a version of the Environmental Impact Manifestation for the Dos Bocas refinery to allow public access to the information. The goal is to inform the people involved in the public consultation (El Financiero – Spanish).


Pemex was fined for altering the LP market. The state-owned company subsidiary Pemex Transformación Industrial (TRI) received a fine of MXN36.2m from the Energy Regulatory Commission (CRE) (Reforma – Spanish). The reason was the preferential treatment to certain clients in the LP gas market, producing a distortion in it.



Political Economy


Urzúa left the Finance Ministry with a bang… Finance Minister Carlos Urzúa resigned due to policy disagreements (Reuters – English) (El Financiero – Spanish). Urzúa posted a letter explaining the reasons for his decision, such as certain public policies and the appointment of people with conflicts of interest in his ministry.


…and Herrera took up the baton. Arturo Herrera, former deputy finance minister, was named by President López Obrador as the new head of the ministry (Reuters – English). Herrera said that Mexico is “very, very far” from a recession, despite a contraction in Mexico’s first quarter growth (Reuters – English) (El Financiero – Spanish).


Less oil production means a tighter budget for AMLO. The fall in crude production hit oil income and, if there is no change, it would complicate the government’s 2020 fiscal goals (El Financiero – Spanish). Crude production averaged 1,680,000 barrels per day, 210,000 barrels per day less than expected.


Inflation nudged down to Banxico’s target range. Mexico’s annual inflation rate slowed to 3.95% due to lower price pressure for energy and certain agricultural products (Reuters – English) (El Economista – Spanish). The inflation rate returned to the goal established by Banxico: 3%, +/- 1%.



Market Trends


Bond buyers back Mexico’s peso… After the Fitch downgrade and the US threat to impose tariffs, Mexico’s peso fell, but foreign bond buyers lifted it, attracted by Mexico’s high interest rates (Reuters – English). Bond buyers borrow money in countries with low interest rates to buy bonds of a high-yield country such as Mexico.


…but Mexico received less direct foreign investment in 2019. The change of government and the deceleration in economic growth (El Financiero – Spanish) have affected direct foreign investment for 2019 and 2020. Foreign direct investment is expected to reach US$25bn in 2019.


Mexico’s country risk is down. Since the day President López Obrador won the election, Mexico’s country risk has been volatile, and now it has dropped down to 194 points (El Economista – Spanish). Still, the value is high compared to other Latin American countries such as Perú and Colombia.


Mexico’s competitiveness is in the hands of pipeline negotiators. Concanaco-Servytur and Coparmex warned that the competitiveness of the country could be affected by a delay in the starting date of the Texas-Tuxpan pipeline. The pipeline could solve the shortage problems in the southeast region and would lower the power costs (El Financiero – Spanish).



Strategy & Operations


Iberdrola kept its faith and US$5bn in Mexico. The Spanish company maintained its intention to invest US$5bn in Mexico to build gas and renewable energy plants (El Financiero – Spanish). The investment will be made between 2019 and 2024, including three combined cycle plants in Tuxpan and a solar park in Puebla.


IUSA goes after solar roofs too. Besides controlling the meter market, IUSASOL, the solar division of IUSA, opened its solar panels plant in 2013 with the capacity to manufacture 2 million panels per year. IUSASOL plans to expand its production to be the main national supplier and to export abroad (El Financiero – Spanish).


CFE plans renewables… by 2023. The government plans to start the construction of eight geothermal plants with a total capacity of 117MW and reactivate Chicosén II between 2023 and 2024 (El Financiero – Spanish). In the coming years, combined cycle and cogeneration plants will be prioritized.


Pemex will add 22 fields to its portfolio. The state-owned company plans to add 22 new fields to its production portfolio in the second half of the year, doubling the 22 already under development (El Financiero – Spanish). Despite the announced focus on shallow waters, Pemex will pursue a deepwater project in the Perdido Fold Belt (Reuters – English).


Budget cuts affect the Madero refinery. The Finance Ministry’s cuts in Pemex’s budget affected the Madero refinery, which will have only MXN2bn, half of the resources promised for its maintenance (El Financiero – Spanish). By 2020, the rest of the resources will be available.



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


AMLO will ease his control over scientists. Mexico’s National Council of Science and Technology announced that scientists would no longer require presidential approval for every trip abroad, as previously set by President López Obrador. However, the restrictions over equipment maintenance, gasoline to collect field samples, or electricity in research facilities remain (The Scientist – English).



Quote of the Week


“«¿Que hace usted en la torre, Pito Pérez?».

«Vine a pescar recuerdos con el cebo del paisaje».”


“«What are you doing up in the tower, Pito Pérez? »

«I came to fish memories with the bait of the landscape».”


– José Rubén Romero (1890-1952), Mexican writer, diplomat, and member of the Mexican Language Academy.



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