July 2, 2018 edition—The Round 3.2 thirteen; the Texas-Mazatlán pipeline in July; and NAFTA in two months.
Last Week in a Minute or Less
Renewables & Electricity. The CFE plans to sell power to the US; Veolia México will power up Mexico’s subway with waste by 2020; and Mexico’s future may be geothermal power.
Natural Gas & Liquid Fuels. The CFE declared the expiration date of certain distribution permits; Pemex paid 31.2% more to import gasoline; and jet fuel market liberalization is on the way.
Oil & Gas Upstream. Thirteen companies started the Round 3.2 pre-qualification process; new allocation criteria in farmouts follow global practice; and Sierra Oil & Gas is selling an oil block.
Money & Power. Inflation remained stable; AMLO won the elections, according to the exit polls, and NAFTA may be done in a couple of months.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s expanding pipeline net (El Financiero – Spanish); Pemex’s 20 farmouts (El Financiero – Spanish); and the presidential candidates’ energy proposals (El Economista – Spanish).
GM will manufacture the Chevrolet Blazer in Mexico. General Motors will continue with its plan to build the new Chevrolet Blazer in Mexico, despite President Trump’s criticism over manufacturing vehicles abroad. A GM spokesman said the company remains “committed to working with the administration on a modernized NAFTA” (Reuters – English).
Trudeau doubts Trump’s intention to impose auto tariffs. Canadian Prime Minister Justin Trudeau questioned if US President Trump would carry through the threats to impose tariffs on autos. Trudeau said that with the North American integration of the auto industry, the tariff would hurt Canada along with US companies and workers (Reuters – English).
AMLO’s NAFTA negotiator expects a deal in a “couple of months.” If AMLO wins the election, the economist chosen to continue the NAFTA talks, Jesus Seade, said he hopes a deal will be achieved within a couple of months (El Financiero – Spanish). Seade praised the work of Economy Minister Ildefonso Guajardo and his team advocating for the country (Bloomberg – English).
US companies want to stop Trump’s national security tariffs. US business chambers backed Sen. Bob Corker’s proposal to limit the presidential power to impose tariffs (El Economista – Spanish) for national security reasons. A group representing steel importers is working to overturn the trade law that allowed Trump to penalize steel and aluminum imports (WSJ – English).
The Road to Reform
Thirteen companies are after Round 3.2. The National Hydrocarbons Commission has authorized the inscription payment of five companies for Round 3.2, with a total of thirteen companies after the round (El Financiero – Spanish). All will fight for one of the 37 onshore fields.
Farmouts follow global practice. The change in the farmout allocation criteria that includes a cash bonus payment is part of the international standards for this type of contract (El Economista – Spanish). Both Pemex’s farmouts and contracts will represent US$1.7bn by 2018 and 2019 (Pulso Energético – Spanish).
Mexico works on jet fuel market liberalization. Mexico’s Communication and Transportation Ministry (SCT) ended the regulation that gave exclusive control over the jet fuel market to ASA. The market averaged 81,770 barrels per day in 2017 and 88,750 b/d of jet fuel on average from January to April 2018 (Platts – English).
The CRE declared the expiration of 156 supply permits. The Energy Regulatory Commission has cancelled permits that were not exercised in the permits period or were inactive for a year. The CRE will regulate and supervise the fulfillment of the obligations (DOF – Spanish) of the owners who have LP gas distribution permits.
López Obrador won the presidential election as rivals conceded. The earliest numbers announced by the electoral board gave Andrés Manuel López Obrador 53% of the vote, while Ricardo Anaya had 22% (Bloomberg – English). AMLO pledged to eradicate corruption and drug cartels violence (Reuters – English).
Mexico eyes new nukes. The government and CFE are considering resuming construction of more nuclear capacity in Mexico. Laguna Verde could expand its capacity to reach 4,408MW (El Universal – Spanish).
Inflation remained unchanged. Mexican consumer price inflation was 4.54% due to the increase in power prices (El Economista – Spanish) (Reuters – English). Energy prices are expected to rise when the program for peak season power tariffs ends in August or September.
Banxico trusts a stable market after AMLO’s victory. Mexico’s central bank expects the market and the peso to remain stable if AMLO wins the presidential elections. The decision to make “serious adjustments” in the markets would depend on the message sent by the candidate’s administration regarding macroeconomic policy (El Financiero – Spanish).
Mexico reached 4th place in energy security. Among the 25 countries listed in the International Index of Energy Security, Mexico went up two places compared to the 2015 report, thanks to the operating import pipelines and the diversification of power generation sources (El Economista – Spanish). Between 1980 and 1992, Mexico led the ranking.
LP gas prices remain high. Although the LP gas price in Texas dropped by 8.5%, the price for Mexican consumers increased by 3.6%. Compared to the prices reported by the Energy Regulatory Commission (CRE), the price has increased by 29% (El Economista – Spanish).
Pemex pays more to import gasoline. The state-owned company paid 31.2% more for oil imports (El Economista – Spanish) due to the increase in gasoline and diesel prices and in the volume of fuel bought abroad. In the first five months of 2018, fuel imports increased from 851,100 barrels per day to 938,000 barrels.
The US responded to the EU, China, and the WTO members. US Trade Representative Robert Lighthizer attacked the retaliatory tariffs undertaken (Reuters – English) by the European Union, China, and the World Trade Organization members, and warned that the US will take “all necessary actions” to protect its interests (El Financiero – Spanish).
Mexico may face a fuel shortage. The increase in fuel prices and the rise in fuel robberies could produce an energy shortage, affecting specific supplies such as jet fuel in the Mexico City airport. The Canacar demanded that authorities intervene in the design of an integral fuel security strategy (Excelsior – Spanish).
Strategy & Operations
The Texas-Mazatlán pipeline will be working by July. The 430km pipeline connecting the south of Texas with Mazatlán will start operations by the end of July. The CFE will be the main client transforming two thermoelectric plants into natural gas plants (El Financiero – Spanish).
Mexico’s subway will be powered by trash in 2020. Veolia México will construct the first plant in Latin America that will transform waste into power through a thermal process. The plant will receive an investment of MXN11.5bn and will start operations in 2020 (El Economista – Spanish).
Sierra Oil & Gas is selling a stake in an oil block. Sierra Oil & Gas hired Canada’s Scotia Waterous to sell a stake in a nearby exploratory block (Bloomberg – English). The farmout deal is in the final stage.
The CFE plans to sell power to the US. The state-owned company requested permission from the Federal Energy Regulatory Commission to compete in the international fuel and power market in the US (Reforma – Spanish). The goal is to sell power and power support in the US and at the border.
Mexico’s future may be geothermal power. The high costs of geothermal energy have affected Mexico’s energy capacity in this sector, even under the energy reform. In 2014, Mexico was fourth in the sector (El Financiero – Spanish), behind the US, the Philippines, and Indonesia, but in 2017 Turkey and New Zealand surpassed Mexico.
Old School Social
Events in the world beyond your screen—go see and be seen!
The Mexico Oil & Gas Summit will be held July 18-19 at the Sheraton María Isabel in Mexico City.
Expo Energía is scheduled for August 14-16 in Puebla, Mexico.
Mexico’s soccer fans didn’t actually cause an earthquake. Minutes after the Mexican national soccer team scored a goal against Germany in the World Cup, several seismographs around Mexico City found activity that looked like a small, artificial earthquake. However, specialists later reviewed professional data and saw no noticeable increases in seismic activity (LiveScience – English).
Quote of the Week
“Quienes creemos en la libertad debemos ejercer la tolerancia como prueba de nuestra convicción.”
“We who believe in freedom must exercise tolerance as proof of our belief.”
-Rufino Tamayo (1899-1991), Mexican modernist painter.
We hope you have a productive week. Please send any news, comments, or man-caused earthquakes to MexicoWeekly@energynarrative.com.
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