The Weekly Brief: Mexico


July 23, 2018 edition—Topolobampo opened; Rounds postponed; and the US offers a separate trade deal.




Last Week in a Minute or Less


Renewables & Electricity. Puebla will start building a hydro power plant; El Bajío signed an agreement with Asolmex; and Nuevo León has 21 renewable projects.


Natural Gas & Liquid Fuels. Transcanada opened the Topolobampo pipeline; investigated LP gas distributors lower prices; and Pemex increased oil imports to 201%.


Oil & Gas Upstream. Rounds have been postponed until February; five companies are after Pemex’s clusters; and the CNH had suggestions for AMLO about Pemex.


Money & Power. Trump considers a separate trade deal with Mexico; the IMF lowered Mexico’s growth forecast; and AMLO presented infrastructure projects and legal changes.


Déjà vu all over again. Last week’s readers were particularly interested in 125 hydropower projects (El Economista – Spanish); CFE’s incentives for solar (El Economista – Spanish); and Los Cabos’ geothermal power (El Financiero – Spanish).



NAFTA Negotiation


Holidays may push NAFTA talks beyond July. Scheduling conflicts for the top negotiators may postpone the restart of the NAFTA renegotiation (Bloomberg – English). The Mexican Economy Minister Ildefonso Guajardo expects the next NAFTA meeting to take place in Washington during the last week of July (Reuters – English).


Trudeau is hopeful about NAFTA. Prime Minister Trudeau praised Canadians’ solidarity during tensions with the US, which helped Trudeau to maintain optimism for a successful NAFTA deal (Bloomberg – English). Trudeau is confident that a good trade deal beneficial to the three countries will be reached.


The US challenged allies in the WTO. The US launched five dispute actions in the World Trade Organization challenging retaliatory tariffs imposed by China, the European Union, Canada, Mexico, and Turkey (Reuters – English) after the US levied duties on steel and aluminum. US Trade Representative Robert Lighthizer said the retaliatory tariffs are illegal under WTO rules.


Trump is after a separate trade deal with Mexico. President Trump suggested first a trade deal with Mexico and later a separate one with Canada, questioning NAFTA’s future (Reuters – English) (El Financiero – Spanish). Mexico’s Economy Minister will hold bilateral trade talks with the US (Reuters – English) and will later meet with Canadian officials.



The Road to Reform


Rounds were postponed until February. The Mexican oil auctions programmed for this year have been postponed by the National Hydrocarbons Commission (CNH) until February, after President-elect Andrés Manuel López Obrador takes office (Reuters – English) (El Financiero – Spanish). The CNH justified the decision to attract more bidders.


Five are after Pemex’s farmouts. Five companies are at the pre-qualification stage while 12 have shown interest in the bidding process (Excelsior – Spanish) for Pemex’s farmouts. Uncertainty surrounding the government change is causing the slow reaction.


The Sener handed out 24 geothermal permits. The Energy Ministry has awarded 24 permits to public and private companies and six licenses for geothermal resources exploration (Excelsior – Spanish). The goal is to add 750MW of geothermal capacity by 2030.


LP gas distributors being investigated slashed prices. The Federal Prosecutor for Consumers (Profeco) received 280 complaints against LP gas distributors, sanctioning 67 of them (Milenio – Spanish). LP gas distributors reduced fuel prices by 21% (El Economista – Spanish) after the Federal Commission on Economic Competition (Cofece) investigated monopolistic practices.


The CNH had suggestions for AMLO. The National Hydrocarbons Commission (CNH) recommended AMLO reduce Mexico’s dependence on US natural gas (El Financiero – Spanish). The CNH also proposed Pemex’s financial transformation with a subsidiary, following the Chinese model (El Financiero – Spanish).



Political Economy


AMLO plans legal reforms against corruption… President-elect López Obrador presented his legislative priorities: electoral fraud as a serious crime, a cut in salaries and bureaucracy, and the end of the education reform (El Financiero – Spanish). AMLO also asked legislators to behave.


…and five infrastructure projects. AMLO’s infrastructure plan for 2018 to 2024 includes five projects: the trans-isthmic corridor (the modernization of the Coatzacoalcos and Salina Cruz port and the train connecting them), the Mayan train connecting tourist areas, two new refineries, and the México-Querétaro train (El Financiero – Spanish).


A minimum salary increase will be discussed with Banxico. President-elect López Obrador said the increase in the minimum salary will not be immediate and Mexico’s central bank would be consulted. The increase must be studied to avoid inflation (El Economista – Spanish).


The Finance Ministry relaxed the gasoline stimulus. The Finance Ministry lowered the tax stimulus despite a new increase in fuel prices (El Financiero – Spanish). The ministry said the income obtained from taxes was 3.3 times more than from oil sales (El Economista – Spanish).



Market Trends


Pemex ups oil imports to 201%. Between January and May 2018, Pemex’s production dropped by 25% due to scheduled and unscheduled stops in processing plants (Excelsior – Spanish), propelling fuel imports by 201%. The Cangrejera complex, the Cosoleacaque plant, and the Salina Cruz refinery suffered outages.


Power tariffs are up again. Domestic tariffs of heavy users (DAC), with an average consumption above 850kwh per month, have increased 12% in Nuevo León in the first seven months of the year (Reforma – Spanish).


The IMF lowered Mexico’s economic growth forecast. The International Monetary Fund (IMF) reduced Mexico’s estimated growth to 2.7% by 2019, 0.3% less than the previous forecast (El Financiero – Spanish). The IMF expects Mexico’s economy to grow 2.3% during 2018, maintaining the previous prediction.


Recent rounds put Mexico on the deep water oil map. In 2030 deep water extraction will increase by almost 38% to produce 2.1 million daily barrels (El Economista – Spanish). That would represent 116% of what Pemex produces today and Mexico would provide 300,000 daily barrels.



Strategy & Operations


El Bajío and Nuevo León go after renewables. The Energy Cluster of El Bajío and Mexico’s solar association signed a collaboration agreement to develop the solar market (El Financiero – Spanish). Nuevo León will invest US$1.6bn in power generation projects in five years, with 12 projects under construction and nine ready to start (El Financiero – Spanish).


CYDSA goes after fuel storage. CYDSA plans to increase the underground fuel storage under its control to 14 saline caves in the long-term (El Economista – Spanish). Today the company only operates one.


Puebla will start building a hydro power plant. The Environment and Natural Resources Ministry okayed the environmental impact permit for the construction of a hydroelectric plant. The US$126.7m project was paralyzed in 2011 by three municipalities (El Economista – Spanish).


Acciona and Tuto Energy can afford Sonora’s solar plant. Acciona and Tuto Energy signed the funding for the US$264m solar plant Puerto Libertad in Sonora (El Financiero – Spanish). A part of the Puerto Libertad 229 MWp complex will provide the CFE with 478.3GWh.


Transcanada cut the ribbon on the Topolobampo pipeline. The Canadian company said the 560 km-long Topolobampo Pipeline started operations to move more US natural gas to northwest Mexico to serve demand (Seeking Alpha – English) (El Financiero – Spanish). The pipeline, with an investment of US$1.2bn, could transport 670 million cubic feet per day.



Old School Social


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


Expo Energía is scheduled for August 14-16 in Puebla, Mexico.


The 2018 Deloitte renewable Energy Seminar will be held August 15-17 at the Westin Denver Downtown in Colorado.


The Expo Eficiencia Energética is scheduled for August 22-24 at Cintermex in Monterrey.



Lateral Thinking


A Mexican company invented straws made of avocado seed. The Mexican company Biofase develops straws, cutlery, and plastic products with avocado seed residue. One person consumes approximately 38,000 straws during his/her lifetime, and a straw takes 10 million years to degrade (Huffington Post – Spanish).



Quote of the Week


“Todos somos una parte insignificante pero importante de un todo del que todavía no tenemos conciencia.”


“We are all an insignificant but important part of a whole that we still have no awareness of.”



– Frida Kahlo (1907-1954), Mexican artist, famous for her self-portraits and nature-inspired works.



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