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July 27, 2020 edition—Pemex’s amparo on storage; CNH’s extension for oil companies; and solar growth.
Last Week in a Minute or Less
Electric Power & Renewables. The Sener extended the Laguna Verde-1 reactor’s life; private companies will focus on distributed generation; and the solar industry will be hit by new Sener rules.
Natural Gas Mid-Downstream & LNG. US natural gas pipeline exports to Mexico will hit new records; and Guadalajara can’t get enough natural gas.
Liquid Fuels Mid-Downstream. Pemex asked for an amparo for the new storage policy; gasoline and diesel demand fell during the COVID-19 lockdown; and a Pemex pipeline exploded in Veracruz.
Oil & Gas Upstream. The CNH offered an extension to oil companies; oil companies will keep their oil production promise; and Nahle says Mexico will follow the OPEC agreement.
Government & NGO. US borders are still closed for non-essential travel restrictions; Mexico looks toward Asia for new business; and Mexico’s inflation went up in the first half of July.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s cancellation of four plants’ tenders (El Economista – Spanish); Nahle’s defense before the EIA (El Economista – Spanish); and CFE’s coal purchase (Economic Times – English).
Geopolitics & Trade
Canadian investments in Mexico feel the uncertainty. The president of Canada’s Chamber of Commerce in Mexico said that Canadian companies would want to see certainty in Mexico to consider investing and they are concerned with the recent changes in the energy sector (El Financiero – Spanish).
US borders are still closed for non-essential travel restrictions. US restrictions on non-essential travel at US land borders with Canada and Mexico will be extended through August 21 (Reuters – English). The goal is to slow the travel-related spread of the COVID-19 pandemic.
Mexico looks toward Asia for new business. Mexico spoke to foreign companies to attract business from Asia to capitalize on the new NAFTA (Reuters – English). With the increase in regional content requirements, steel companies could find big opportunities.
Political Economy
Mexico lost Spanish investment opportunities. The lack of legal certainty will not risk current investments but will prevent new flows of investment that could generate jobs (El Financiero – Spanish). Spanish investments reached US$5.5bn.
Mexico’s inflation went up in the first half of July. Mexico’s annual inflation rate increased in the first half of July thanks to higher prices on energy and some food items (Reuters – English) (El Economista – Spanish). Experts forecast annual inflation of 3.58% for the first two weeks of July.
The American Chamber of Commerce expects a 12% fall in the GDP… The American Chamber of Commerce of Mexico expects Mexico’s economy to fall 12% in 2020 due to the effect of the COVID-19 pandemic in the local economy (El Financiero – Spanish).
…and Scotiabank has bad news too. Scotiabank forecasted that Mexico’s GDP will contract by 9.08% due to new information from the Global Indicator of Economic Activity (IGAE) and the evolution of the COVID-19 pandemic in Mexico (El Financiero – Spanish).
Pemex made a deal on pay increases. The state-owned company agreed with the oil workers’ union on a 3.37% increase in regular pay and a 1.80% raise in benefits (Reuters – English) (El Financiero – Spanish). The increase will go into effect on August 1 and will last until July 31, 2021.
BoA warned Mexico that it may lose its investment grade. Bank of America said Mexico may lose its investment grade credit rating in 2021 (Reuters – English). The reason would be the fiscal deterioration along with a very weak economic recovery.
Legal & Regulatory
Pemex asked for an amparo for the new storage policy. The state-owned company put forward a writ of amparo regarding the obligation to report its inventory to rent its storage capacity (El Economista – Spanish). Pemex asked to suspend the obligations that started on July 1.
The CNH offered an extension to oil companies. The National Hydrocarbons Commission (CNH) approved an extension for oil companies with minimum work programs due to the effect of the COVID-19 pandemic (El Financiero – Spanish). Several companies have delayed or canceled activities.
Cofece fines solar companies that associated without an okay. The Federal Commission of Economic Competition fined BAS Projects Corporation and EXI Solar MXN$997,000 because the companies centralized assets (El Economista – Spanish). EXI Solar purchased a solar generation project from BAS Projects.
Experts do not know what to expect from Mexico’s power market’s long-term prospects. Although all agree on the short-term pessimistic forecast, experts differ about whether the long-term looks as gloomy (Platts – English). Some believe “in the long run, the right decisions will have to prevail.”
The Sener extended the Laguna Verde-1 reactor’s life. The Energy Ministry approved a 30-year extension for the Laguna Verde-1 reactor, which will be operating until July 2050 (Platts – English). The second unit at Laguna Verde has a valid license through April 2025, and a similar extension has been requested.
The solar industry will be hit by new Sener rules. According to a survey developed by Solar Power México, 80% of solar energy companies will be affected by the recent legal changes in Mexico (Forbes – Spanish). The same number of surveyed companies believe the new political changes limit renewables.
Market Trends
Nahle says Mexico will follow the OPEC agreement. The Energy Ministry said Mexico signed an agreement with OPEC that up until December, national production will not surpass 1,758,000 barrels per day (El Financiero – Spanish). The Energy Minister assured the agreement will be followed.
CFE’s sales fell 11% during the COVID-19 pandemic… Income from the state-owned company fell 11.4% during April and May, the first two months in which economic activities were reduced (El Financiero – Spanish). CFE’s sales in those two months were MXN57.8bn.
…and so did gasoline and diesel demand. Diesel demand fell 33.9% in May while gasoline demand dropped 29.5% to 556,483 barrels per day (El Economista – Spanish).
US natural gas pipeline exports to Mexico will hit new records. Despite the fact that US natural gas futures fell slightly (1%), pipeline exports to Mexico are on track to hit a record monthly high (Reuters – English).
Oil companies will keep their oil production promise. Despite the economic crisis caused by the COVID-19 pandemic, private companies will maintain their oil production goal for 2020, around 75,000 barrels per day, a 50% increase compared with last year’s production (Forbes – Spanish).
Solar energy generation is expected to grow by 35%. According to the Mexican Association of Solar Industry (AMIF), solar generation will grow by 35% (El Financiero – Spanish). The president of the association said it is important to differentiate between large-scale projects and solar roofs (which are not affected by the new policies).
Strategy & Operations
Coal plant closed and 620 workers were fired. Minera Carboeléctrica Río Escondido (MICARE), a subsidiary of AHMSA, closed, firing 620 of its 870 workers (El Financiero – Spanish). The plant had faced economic solvency issues since November 2018.
A Pemex pipeline exploded in Veracruz. The state-owned company reported an explosion on a pipeline in the San Andrés well, located in Papantla, Veracruz (El Financiero – Spanish). The explosion took place when Pemex workers were doing maintenance work.
Guadalajara can’t get enough natural gas. Despite the completion of the final segment of the Wahalajara system, demand for natural gas in Guadalajara is not being met (Platts – English). The last leg of Fermaca’s Wahalajara natural gas import pipeline system remains out of service (Argus Media – English).
Private companies will focus on distributed generation. The solar generation industry assures 2020 will have growth similar to the experience in 2019 (El Economista – Spanish). The industry expects to continue increasing operations in energy generation that do not belong to the grid.
Abengoa scored a win in Mexico. Abengoa obtained a favorable verdict in Mexico in a series of appeals made by creditors. The ruling will allow the company to obtain liquidity and continue working its viability in the country (Europa Press – Spanish).
Old School Social Goes Viral
(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)
The 2nd Edition of The Madrid Energy Virtual Conference will be held September 28-October 2.
MIREC Week has been postponed from June 2-4 to October 8-10 at Centro Citibanamex.
Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.
The Mexican Energy Forum is rescheduled for November 17-18 in Mexico City.
2nd Edition of Shallow and Deepwater Mexico was postponed to February 16-18, 2021, at Ciudad del Carmen, Campeche.
Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.
The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.
Lateral Thinking
Artifacts found in Mexico may rewrite the America’s history. Stone tools found in a cave in Mexico indicate that people could have lived in the area around 33,000 years ago, more than 10,000 years before humans were thought to have settled in North America (Science News – English).
Quote of the Week
“Fusílenlo, después averiguamos.”
“Kill him first, then we will find out.”
– Francisco Villa (1878-1923), Mexican revolutionary general.
We hope you have a productive week. Please send any news, comments, or historical findings to MexicoWeekly@energynarrative.com.
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