The Weekly Brief: Mexico

July 3, 2017 edition— Oaxaca and Coahuila get windy; Round 2.2 and 2.3 contested; and NAFTA will include energy.






Last Week in a Minute or Less



Renewables & Electricity. Oaxaca will receive US$5bn for wind projects; Coahuila will build a wind farm; and Laguna Verde may be expanded.


Natural Gas & Liquid Fuels. Pipeline construction delays can affect gas supply and BP opened a new gas station.


Oil & Gas Upstream. Twenty-eight companies will compete in Rounds 2.2 and 2.3; the CNH approved two more Round 1.3 fields; and Zoque communities turned back Sener.


Money & Power. Perry says NAFTA renegotiation will include energy; inflation skyrocketed; and the CFE placed a US$750m bond in Taiwan.


Déjà vu all over again. Last week’s readers were particularly interested in Iberdrola’s interest in the Oaxaca-Mexico City line (Spanish); the natural gas price liberalization in the north (Spanish); and natural gas imports (Spanish).



The Road to Reform


Rounds 2.2 and 2.3 will be a 28-way fight. In Round 2.2, ten contracts will be up for bid by nine qualified bidders (Spanish). In Round 2.3, titans Carlos Slim and Alberto Bailléres and 17 other firms will compete for 14 areas located in the Burgos, Tampico-Misantla, Veracruz, and Cuencas del Sureste regions (Spanish).


The CNH okayed two more fields for Round 1.3. The National Hydrocarbons Commission (CNH) approved two evaluation plans after the original winners in Round 1.3 failed to present the required economic guaranties (Spanish). The plans of Servicios de Extracción Petrolera Lifting and Tonalli Energía were approved for fields in Veracruz.


Delayed pipelines can affect gas supply. The delay in the pipeline operations in the north could affect access to US gas in Mexico (English) (Spanish). Mexico’s central region would be the hardest hit due to its location far from domestic supply and importation pipelines.


Sener awarded 21 geothermal permits. By the end of May, the Energy Ministry (Sener) had awarded 21 permits for exploration of geothermal resources (Spanish). Thirteen permits went to the CFE and eight to private companies for activities including geological and geophysical survey and confirmation of resources.


Laguna Verde may grow. Twenty-one executives from 15 US nuclear power generation firms visited CFE’s Laguna Verde power plant in Veracruz and held meetings with the Energy Ministry to consider increasing the nuclear plant’s installed capacity (Spanish). The intention is that US companies would collaborate in developing the plant expansion.



Political Economy


The CFE placed a US$750m bond in Taiwan. The state-owned company placed a US$750m, 30-year bond in Taiwan’s Formosa bond market (English). CFE became the first Mexican issuer and the first Latin American corporation to participate in this market (Spanish).


Inflation took off on LP gas and tomato prices. The increase in LP gas, tomatoes, air transport, and food propelled inflation in the first two weeks of June to 6.3% annualized (Spanish). It is the second consecutive month with inflation above 6%, the highest rates in 17 years.


Perry is inclined to include energy in NAFTA. The US Energy Secretary Rick Perry said the US has a unique opportunity to develop a “North American energy strategy” with Canada and Mexico (English) (Spanish). The goal of the NAFTA renegotiation is to “massage” the deal, and energy will be an important part of the reworking.


Querétaro leads in the fight against corruption. Querétaro has become the first state to fully implement the Anti-Corruption System  (Spanish). This represents consolidation of the first steps of the Model Law for Local Anti-corruption Systems.


The Salina Cruz refinery will restart in a month. The state-owned company announced operations will begin again at Mexico’s largest refinery on July 30, following clean-up and rehabilitation of the affected areas (English) (Spanish). The refinery has a daily processing capacity of 330,000 barrels of crude oil.



Market Trends


The IMF worried over Mexico’s economic growth. The International Monetary Fund (IMF) is concerned about Mexico’s economic growth which is stuck at 2% despite structural reforms (Spanish). IMF’s top economist for Latin America pointed out risks to Mexico’s economy including rising inflation, a reduction in investment flows, and exposure to international oil prices.


Pemex’s toluene and benzene outputs are on the rise. The state-owned company experienced a 460.4% increase in benzene production in May compared to the same period in 2016 (English). Toluene production grew 390.4% year-on-year, totaling 10,157 mt in May, a volume 8,086 mt greater than production in May 2016.


Carstens trusts Mexico’s rate can manage the Fed’s hike. Mexico’s central bank increased its key interest rate by 25 basis points to 7% (English). Central bank governor Agustin Carstens believes the central bank’s steps are in harmony with convergence of inflation to the 3% target (English).


Gasoline imports remain high and all exported products rose. Mexico imports 503,000 barrels per day of gasoline, or 1.5 times the volume produced in the country’s six refineries (Spanish). Mexico’s exported products were valued at US$35.4bn in May, a 12.9% annual increase, and 4.5% more than the previous month (Spanish).



Strategy & Operations


Coahuila bets on wind; Jalisco, on natural gas. Germany will invest US$200m in a wind energy project in Coahuila, with 50 windmills to generate 200MW (Spanish). Blackstone plans to build its first 875MW natural gas electricity generation plant in Mexico in Tierra Mojada, Jalisco (Spanish).


Zoques fought Sener and won. The Energy Ministry (Sener) asked the National Hydrocarbons Commission (CNH) to exclude two contractual areas from Round 2.2 bidding to protect the rights of the zoques (Spanish). The indigenous communities accused Sener of not consulting them for approval to open 12 wells for drilling (Spanish).


Oaxaca flies high with wind money. Oaxaca will receive US$5bn in foreign investments to operate new wind farms in the Isthmus of Tehuantepec. The project will generate 3,000MW in clean energy in four years and will create 9,000 jobs during construction and 1,500 permanent positions (Spanish).


CFE moved along with solar projects. Progress on the solar projects awarded in the first and second electricity auctions is 35%, and 10 projects out of 28 are at an advanced stage (Spanish). Among the advanced projects are the 745MW solar park in Coahuila, 270MW farm in Sonora, and the 157MW park in Chihuahua.


BP opened a new gas station, despite some issues with its first. The British company opened a second service station in Mexico City and its expansion plan includes new gas stations in nine states (Spanish). The opening came after BP was sanctioned due to irregularities in its first gas station, in Satélite, outside Mexico City.



Old School Social


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


A breakfast with Lic. Guillermo García Alcocer, CRE President, is July 5 at the Spanish Chamber of Commerce.


The Mexico Oil & Gas Summit is July 18-19 at the Sheraton María Isabel Hotel, in Mexico City.



Lateral Thinking


The App Economy took off in Mexico. Mexico is now home to an App Economy that has created more than 226,000 jobs and is an appealing destination for US companies looking to expand. More than half of the techie positions are in Mexico City, 20,000 in Monterrey, and 17,000 in Guadalajara (English).



Quote of the Week


“Tener los pies firmes, hundidos si es preciso, en el terruño; pero tener también los ojos y los oídos y la mente bien abiertos, escudriñando todos los horizontes es, en mi opinión, la postura correcta.”


“Having the feet firmly planted, sunken even, in the homeland; but also having the eyes, ears, and mind open, scrutinizing all horizons is, in my opinion, the correct stance.”


– Rufino Tamayo (1899-1991), Mexican painter representative of the Modernist movement



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