The Weekly Brief: Mexico

July 17, 2017 edition— Acciona goes big in Sonora and Tamaulipas; Round 2.2 awarded seven blocks; and natural gas prices caused concern.






Last Week in a Minute or Less



Renewables & Electricity. Acciona will light up Sonora and Tamaulipas and Thermion will invest in wind and solar projects.


Natural Gas & Liquid Fuels. CFE’s pipeline auction was voided; Fenosa begins natural gas distribution in Sinaloa; and Baja California’s fuel will be transported by train.


Oil & Gas Upstream. Sun God Energía de México and Jaguar won Round 2.2; Round 2.3 was a big hit; and Pemex is seeking new farmouts.


Money & Power. Inflation is up again; Mexican and US energy ministers met; and Pemex increased union salaries.


Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s energy assets (English); Baja California’s connection with the national grid (Spanish); and CFE’s cancelation of the Baja California Sur gas project (English).



The Road to Reform


The CNH launched Round 2.2… The Mexican-Canadian consortium of Sun God Energía de México and Jaguar was the big winner of the Round 2.2 bidding, getting six blocks (English) (Spanish). Iberoamericana de Hidrocarburos Servicios and PJP4 de México won Area 1 and three blocks remained unclaimed (English).


…and Round 2.3 knocked the ball out of the park. Round 2.3 awarded 100% of the blocks, reaped the maximum possible amount of royalties, and saw three ties that amounted to an extra US$48m in signing fees (Spanish). Jaguar won three contracts, Carso Oil and Gas obtained two, and Shandong Kerui Oldfield, two.


Baja California’s fuel will roll in by train. The Energy Regulatory Commission (CRE) granted permits for five fuel transportation projects, including the Tijuana-Tecate de Baja California Railroad (Spanish). Train transportation is more expensive than shipments by boat, but also more flexible.


CFE’s pipeline auction was voided. The first annual auction for pipeline capacity was voided and will be held again on August 10 (English) (Spanish). The contracts awarded for pipeline capacity would extend from September 1 until August 31, 2018, and the number of contestants was not revealed.


Pemex is looking for new partners. The state-owned company presented its farmout opportunities to possible partners at the Farmout Day in Houston, Texas (Spanish). Pemex expects 2018 to be a busy year for alliances with partners for drilling projects and modernizing refineries.



Political Economy


Mexico and the US discussed energy collaboration. Prior to the NAFTA renegotiation, US Energy Secretary Rick Perry met with Mexican officials and pressed for development of a “North American energy strategy” (English) (Spanish). Perry will set the rules for the NAFTA renegotiation which is to start by August 16.


Peña Nieto had a busy week meeting the leaders of Guatemala and France… Presidents Enrique Peña Nieto and Jimmy Morales met to discuss the bilateral Shared Energy Agenda  (English) (Spanish). Peña Nieto also held talks with President Emmanuel Macron covering economic cooperation, trade exchange, and the trade agreement with the EU (Spanish).


…and an awkward encounter with Trump. In a meeting focused on trade and drug trafficking, President Donald Trump said Mexico should “absolutely” pay for the wall (English). Foreign Minister Luis Videgaray and Texas Governor John Cornyn discussed seeking greater US-Mexico energy integration and boosting trade between Mexico and Texas (Spanish).


Pemex gave a raise to its union. The state-owned company and its union agreed on a 3.12% salary increase (Spanish). The agreement, signed by José Antonio Gonzalez Anaya, Pemex’s CEO, and the union’s secretary general, Carlos Romero Deschamps, was reached 20 days before the due date, a historic achievement.


The soap opera with Pemex and Odebrecht continues. Pemex terminated its US$100m contract with Odebrecht for the Tula refinery due to breach of contract by the Brazilian firm which is under investigation by the US Department of Justice (Spanish). Pemex hired Hogan Lovells, the firm leading the audit of Eletrobras, to audit all Pemex contracts with Odebrecht (English).



Market Trends


Inflation went up again. Inflation reached 6.31% in June, the highest level in eight-and-a-half years  (English) (Spanish).  Mexico’s central bank governor said that inflation would drop to 4% by January 2018 (English). HR Ratings believes inflation is reaching its maximum levels after gaining ground back from depreciation and absorbing the hike in gasoline prices (Spanish).


Mexico’s municipalities will improve their energy efficiency. The Energy Efficiency and Sustainability Program in Municipalities (Presem) launched  projects in Huamantla, Tlaxcala, León, Guanajuato, and Puebla (Spanish). The Presem projects are backed by a World Bank loan of almost MXN3bn to improve public lighting and potable water (Spanish).


Banxico is following the Fed’s every move. At its June 22 meeting, most of Mexico’s central bank board members supported maintaining Mexico’s monetary policy stance coordinated with the US Federal Reserve’s rate increase (English). Most board members also consider a pause in Banxico’s rate hikes feasible given the behavior of consumer prices.


Natural gas prices are on everyone’s mind. Two industrial chambers demanded the Energy Minister postpone natural gas price liberalization, fearing a 20% increase in prices (Spanish). The chair of the Energy Commission of the manufacturing chamber (CONCAMIN) emphasized the need for a new open season for Pemex pipeline capacity (Spanish).



Strategy & Operations


Talos and friends hit 1 billion barrels in black gold. The US company and its partners made a “world class” oil discovery, hitting a reserve holding more than 1 billion barrels with their first well (English). The Zama-1 find can attract other private companies and push up bids in future rounds (Spanish).


Thermion will enjoy a make-over. The company will invest US$2bn in eight wind and two solar energy projects in the next five years in Mexico (Spanish). With the goal of becoming one of the main investors in renewable energy, the projects will be located in Coahuila, Guanajuato, Nuevo León, Sonora, and Tamaulipas.


Fenosa starts natural gas distribution in Sinaloa. The Spanish company started the first stage of natural gas distribution through the El Oro-Mazatlán pipeline (Spanish). Before 2017 ends, commercial distribution will benefit 45,000 homes in Sinaloa, with a 40% savings for domestic users and 60% for the industrial sector.


Acciona will power up Sonora and Tamaulipas. The Spanish company signed two contracts to supply Clean Energy Certificates (CEL) to CFE Calificados (English) (Spanish). The first contract is for 49,500 CELs per year derived from the Puerto Libertad solar farm and the second for 5,000 CELs related to El Cortijo wind park.


Oxxo Gas has pipelines in its sights. The fuel retail division of FEMSA is considering installation of a pipeline to import gas and become more competitive (Spanish). Pemex’s open season for pipeline capacity and the construction of new pipelines by private companies is forcing Oxxo Gas to analyze options.


IEnova bets on Veracruz. The Sempra subsidiary won the concession rights to build a marine terminal for hydrocarbons storage in Veracruz (Spanish). IEnova offered US$55m for the project that requires an investment estimated at US$115m which will create 500 direct jobs and 2,000 indirect positions.



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


Mexican students steal the show at Robochallenge 2017. The international robotics competition, Robochallenge, was held in Mexico for the first time and Mexican students won nine gold medals, nine silver, and five bronze (English). Some 600 robots were presented at the contest which attracted competitors from Brazil, Colombia, Ecuador, Japan, Mexico, and Romania.



Quote of the Week


“Intenté ahogar mis dolores, pero ellos aprendieron a nadar.”


“I tried to drown my pain, but it learned how to swim.”


-Frida Kahlo (1907-1954), Mexican painter



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