The Weekly Brief: Mexico


July 30, 2018 edition—Nahle’s refinery field trip; Alpek’s sale; and AMLO’s NAFTA pen pal.




Last Week in a Minute or Less


Renewables & Electricity. The CRE set rules for lithium battery storage; Zapotecas stopped a wind park; and Alpek expects to sell power plants in the third quarter.


Natural Gas & Liquid Fuels. Pemex will offer an open season on its pipelines again; Andeavor has the Mexican market in sight; and Nahle visited the lands for the new refinery.


Oil & Gas Upstream. The CNH asked for a natural gas drilling stimulus; and Nahle considers new rounds.


Money & Power. Trump and AMLO exchanged letters; inflation is up again; and Fitch is more concerned with Mexico’s reforms.


Déjà vu all over again. Last week’s readers were particularly interested in Pemex’s farmouts (Excelsior – Spanish); Pemex’s financial transformation (Spanish); and TransCanada’s pipeline (Seeking Alpha – English).



NAFTA Negotiation


Trump and AMLO exchanged letters pushing NAFTA… President-elect López Obrador asked President Trump via letter to pursue a modernized NAFTA deal including all three countries (Bloomberg – English) (El Financiero – Spanish). President Trump answered, congratulating the president-elect and warning that a successful renegotiation must be quick (Reuters – English) (El Financiero – Spanish).


…and a deal is expected in a few months. Mexico’s Economy Minister Ildefonso Guajardo set the goal of Canada, the US, and Mexico signing a new NAFTA deal (Reuters – English). AMLO’s designated NAFTA negotiator expects a deal to be reached in the next few months (Reuters – English).


NAFTA talks will hit the gas to avoid threats to the auto sector. High-level talks returned after two months of limited negotiation, with the Canadian Foreign Affairs Minister Chrystia Freeland meeting the incoming and outgoing Mexican administration (Bloomberg – English) (El Financiero – Spanish). Mexico’s Economy Minister travelled to Washington to discuss NAFTA with US Trade Representative Robert Lighthizer.


Despite G20 trade tensions and Trump’s comments, optimism reigns. Canada downplayed President Trump’s comments (Reuters – English) that he may reach a separate trade deal with each NAFTA partner. Canada’s and Mexico’s finance ministers remained optimistic about NAFTA talks (Reuters – English) despite the tensions created by US tariffs in the G20 meeting.



The Road to Reform


The CNH asked for natural gas drilling stimulus. The National Hydrocarbon Commission (CNH) recommended the new government create a tax stimulus to encourage natural gas production (Postrock – English) (Oil & Gas Magazine – Spanish). The CNH said Mexico must reduce its dependence on imported US natural gas.


Pemex will offer pipelines…again. Pemex will offer its pipeline capacity in an open season for eight terminals in Chiapas, Guerrero, Michoacán, Oaxaca, and Tabasco (El Economista – Spanish). Illegal taps could affect the interest of future bidders (El Financiero – Spanish). Andeavor won the open season for two terminals in the North and Pacific areas (Forbes – Spanish).


The CRE set the rules for lithium battery storage. The Energy Regulatory Commission (CRE) will set the regulatory framework to store energy through lithium batteries to guarantee supply (El Financiero – Spanish). Asolmex is preparing a new energy storage committee to support the CRE in its new development.


Nahle considers new rounds. The next Energy Minister, Rocío Nahle, said the oil rounds could continue in the new administration depending on the review of the 105 contracts handed to private companies (El Economista – Spanish). Nahle described the previous rounds as “a very aggressive delivery.”


Where would the natural gas storage be located? A natural gas storage project is being considered in Chiapas, Tabasco, Tamaulipas, or Veracruz. The project would have a capacity of 10,000 million cubic feet and the decision would be made by the end of July (El Economista – Spanish).


The CRE changed some rules for distributed power plants. The Energy Regulatory Commission (CRE) offered 100 days to make the technical and administrative changes necessary to implement the Remuneration Regime and pay off the credits owed to exempt distributed generators (DOF – Spanish).



Political Economy


Nahle visited the lands for the new refinery… The next Energy Minister, Rocío Nahle, visited Tabasco to check the lands where the new refinery could be built. The estimated cost of the new refinery is MXN100bn, and different financial strategies are being considered (El Financiero – Spanish) with public resources, private, or a combination of both.


…and visited Campeche to move Pemex. Nahle met businessmen and local government officials of Ciudad del Carmen, where the new administration plans to move Pemex’s main offices (El Economista – Spanish). The next Energy Minister visited the city to analyze its infrastructure and real estate conditions.


Inflation went up again. Mexican inflation increased more than expected in early July, which could bring a new rise in interest rates (Reuters – English) (Forbes – Spanish). Mexican inflation sped up to 4.85%, compared with the 4.65% rate in June.


Latin America teamed up against US tariff threats. Leaders of the Pacific Alliance and Mercosur met to present a united front against potential disruptions in the trade market produced by Trump’s threats. Chile, Colombia, Mexico, and Peru will work to end the remaining tariffs on 8% of products traded in the block (Reuters – English).



Market Trends


Fitch is more concerned with Mexico’s reforms than with the trade war. Fitch said the trade war between the US and China will not produce a wave of lowered debt ratings (El Economista – Spanish). Fitch will be watching if the Mexican government decides to reverse the reforms.


Next year could bring cheaper oil hedges. Analysts expect next year’s oil hedges to be cheaper than in previous years. The new administration has said that oil hedges would be maintained but the characteristics of the contracts would be reviewed (El Economista – Spanish).


Investment dropped in Mexico’s energy sector. Mexico produced 2% of the crude worldwide and investment in the sector dropped to less than 1.3% of total investment in the world (Pulso Energético – Spanish). Since 2004, the market share of Mexican production fell from 4.7% to 2.3% (Pulso Energético – Spanish).


Goldman Sachs wants to see AMLO’s calculations. Goldman Sachs warned that cuts in unnecessary expenses could not produce the savings the President-elect needs to fulfill campaign promises (El Financiero – Spanish). The main challenge for the new administration is to improve the macroeconomic context inherited from the previous administration with a balanced economy with full employment.



Strategy & Operations


Alpek expects to sell power plants in the autumn. The Mexican petrochemical company plans to complete the sale of the US$600-700m cogeneration power plants in the third quarter (Reuters – English) (El Financiero – Spanish). The sale of the plants located in Cosoleacaque and Altamira was announced in November 2017.


Zapotecas stopped a wind park. The construction and operation of a wind park project in the Unión Hidalgo municipality in the Tehuantepec Isthmus have been temporarily cancelled by the Federal Judicial Power and with the support of the National Commission of Human Rights (Excelsior – Spanish). The 30-year-long project has a capacity of 2,625MW.


Repsol got 40% of Bardahl. Repsol agreed to buy 40% of the Mexican lubricants company Bardahl, and the purchase will be completed in the third quarter (Forbes – Spanish). The goal is to increase sales outside Spain from 45% to 70% of Repsol’s business by 2021.


Andeavor has the Mexican market in sight. The US refiner plans to increase gasoline and diesel exports into Mexico after obtaining access to refined products infrastructure in the fifth phase of Pemex’s open season (Platts – English). Andeavor exports 15,000-20,000 barrels per day of gasoline and diesel.



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.


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



Lateral Thinking


Sharks have a new bodyguard: the Mexican Navy. The Revillagigedo National Park, Mexico’s home for sharks, is now protected by the Mexican navy, which patrols the area where the sharks move with boats and drones (Live Science – English). After tagging the sharks, scientists noticed that the animals used large swaths around each island (up to 160km).



Quote of the Week


“La emisión de las ideas por la prensa debe ser tan libre, como es libre en el hombre la facultad de pensar.”


“The broadcast of ideas by the press must be free, as free as the ability to think in man.”



– Benito Juarez (1806-1872), Mexican politician and lawyer of Zapotec origin.



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