The Weekly Brief: Mexico


July 08, 2019 edition—IUSA and Conymed won; the pipeline conflict continues; and Yucatán’s FSRU.




Last Week in a Minute or Less


Renewables & Electricity. IUSA and Conymed won big in the meter auction; a judge stopped the Huexca thermoelectric pipeline; and Sener’s head of Renewables quit.


Natural Gas & Liquid Fuels. CFE and IEnova will negotiate the pipeline conflict; CFE and Pemex changed their Yucatán gas supply plans; and an LPG pipeline exploded in Guanajuato.


Oil & Gas Upstream. AMLO canceled Pemex’s shale project; Pemex plans to get oil and natural gas from the Uchbal field; and ENI started producing crude at Amoca-Mizton-Tecoalli.


Money & Power. Canada complained at the G20 and the US Chamber of Commerce criticized CFE’s decision on pipelines; the Sener went way over budget; and Mexico has almost cracked an oil hedge formula.


Déjà vu all over again. Last week’s readers were particularly interested in CFE’s meters auction (El Financiero – Spanish); Siemens’ advice on storage (El Financiero – Spanish); and AMLO’s promise for Yucatán (Platts – English).



NAFTA Negotiation


US Democrats expect flexibility from Canada and Mexico on USMCA. A top Democrat said Canada and Mexico may be okay with the renegotiation of aspects of the USMCA to satisfy US lawmakers’ concerns. Opening the agreement on specific issues is one of the possible alternatives (Reuters – English).


The Colombian trade deal is a bad precedent for USMCA’s approval. Democrat lawmakers pointed to Colombian labor violations under a bilateral trade agreement and the Trump administration’s inaction to stop them as a reason to worry over the enforcement of the new NAFTA deal (Reuters – English).


The US Chamber of Commerce criticized CFE’s decision. The US Chamber of Commerce asked the state-owned company to reconsider its decision (US Chamber of Commerce – English) to develop an arbitration process to nullify certain services of the IEnova and TC Energía contract (El Economista – Spanish). The chamber considered the decision a bad sign for investors.


Canada complained about the pipeline conflict at the G20. During the G20 summit, Canada presented its concerns about the pipeline dispute while the Canadian ambassador denied the companies initiated an arbitration process (El Financiero – Spanish). Mexico’s finance minister met his Canadian counterpart during the summit and was “optimistic” that an agreement would be reached soon (Reuters – English).



The Road to Reform


AMLO canceled Pemex’s shale project. The National Hydrocarbons Commission (CNH) approved the state-owned company’s plans to frack the shale well Tampico-Misantla but President López Obrador canceled it, citing his objection to fracking as the reason (Platts – English). On June 25, the CNH had approved plans to drill and frack several wells.


The CRE okayed 336 permits. The Energy Regulatory Commission (CRE) approved 336 permits to sell and distribute petrochemicals, natural gas, and LNG. Most permits were for gas stations in Chihuahua, Mexico City, and Estado de México (El Financiero – Spanish).


IUSA and Conymed won big in the meter auction. The CFE finished the purchase of 1.7 million meters to distribute power by paying MXN$1.3m to four companies, with IUSA and Conymed (under investigation for collusion) being awarded 87% of the auction (El Economista – Spanish).


CFE and IEnova will negotiate their pipeline contracts… The Business Coordinator Board (CCE) and the government will review the contracts (El Financiero – Spanish), as further delays will have consequences (El Financiero – Spanish) (Platts – English). The CFE is seeking US$899m from IEnova in the dispute over the Texas-Tuxpan pipeline (Reuters – English).


…and Slim’s pipeline is next. The state-owned company started an arbitration process against Grupo Carso, asking to nullify certain sections of the Samalayuca-Sásabe contract (El Financiero – Spanish). The contract was limited to 472 million cubic feet per day through the pipeline crossing Chihuahua and Sonora for 25 years.


Pemex fused three subsidiaries together. After July 1, the units of Perforación and Servicios will join Pemex Exploración y Producción, while Etileno will be incorporated into Pemex Transformación Industrial (El Economista – Spanish) (Pemex – Spanish). Pemex said that the fragmentation of the state-owned company into subsidiaries increased bureaucracy and expenses.



Political Economy


Pemex lost millions on fertilizer plants. The Attorney General said the state-owned company lost US$212.6m in 2018 on restoring fertilizing plants (El Financiero – Spanish) while the investigation into Grupo Fertinal continues (Bloomberg – English). The report also pointed out Pemex Fertilizantes’ high debt and lack of qualified personnel.


AMLO trusts Pemex’s US$8bn loan. President López Obrador believes the US$8bn loan to renew credit lines and refinance liabilities is a sign of confidence by the 23 banks involved (Reuters – English) (Pemex – Spanish). His statements were made after Pemex’s recent credit downgrades.


The Sener blew past its budget. The Energy Ministry increased its expenses by 457.8%, or MXN24.5bn, while the rest of the ministries cut their expenses (El Financiero – Spanish). The increase is due to the financial investment of MXN$20bn promised to Pemex.


Mexico will raise bond issuance. Mexico will increase bond issuance with maturities of 3, 5, 10, 20, and 30 years during the third quarter (Reuters – English). Compared with the second quarter, average insurance volume for 3-year bonds is scheduled to increase by MXN$800m.


The head of Renewables at Sener quit. Luiz González Quijano, head of the Renewable Energies unit of the Energy Ministry, resigned due to “strictly personal reasons” (El Financiero – Spanish). Repeatedly, the current federal government has been criticized for its lack of interest in renewable energies.



Market Trends


Mexico has almost cracked an oil hedge formula. According to a finance ministry official, Mexico is close to completing work on the oil hedge formula, including changes to how it factors fuel oil prices into its export variety (Reuters – English) (El Economista – Spanish).


Moody’s condemned CFE’s request for a referee. The rating agency described CFE’s decision to start arbitrations with two pipeline building companies as negative for IEnova and TC Energy. Moody’s said the decision will affect the market, investors’ trust, and CFE’s future partnerships (El Financiero – Spanish).


Mexico is into Chinese gasoline. In April and May, Mexico has been the second highest volume importer of Chinese gasoline, with 174,000mt of gasoline arriving in May (Platts – English). Exports to Mexico grew 1.4% month over month in May and have increased from 35,000mt imported a year ago.


The Texas-Tuxpan pipeline delay would impact Texas gas… The delay of the Sur de Texas-Tuxpan pipeline, which could last longer with arbitration proceedings, is impacting South Texas gas supply. In June, basis prices went down compared to the same period in the previous year, and gas storage inventories in the region have filled fast (Platts – English).


…while Mexico’s industry needs natural gas badly. The industrial chambers warned that if a regular supply of natural gas is not secured in the next two weeks, the national industry could stop production (El Economista – Spanish). Several companies are operating at 30% capacity due to the lack of natural gas supply.



Strategy & Operations


Pemex plans to get oil and natural gas from the Uchbal field. The state-owned company will invest US$283.12m to develop the Uchbal field. The goal is to obtain 15.8 million barrels of oil and 7,200 million cubic feet of natural gas over the life of the field (El Economista – Spanish).


ENI started crude production at Amoca-Mizton-Tecoalli. ENI will limit production to 8,000 barrels of crude per day from the Amoca-Mizton-Tecoalli shallow water complex due to constraints at Pemex’s San Ramón and La Venta (Platts – English). Without the limitation, ENI could produce 15,000 barrels per day.


CFE and Pemex changed Yucatán gas supply plans. CFE is considering the contract of an FSRU to secure gas supply in the Yucatán Peninsula in the short-medium term (Platts – English) (El Financiero – Spanish). The plan to supply the region via gas swaps between Pemex and CFEnergia was canceled.


A judge stopped the Huexca thermoelectric plant’s pipeline. A federal judge ruled in favor of the Amilcingo people and stopped the construction of the pipeline that will supply the Huexca thermoelectric power plant. The decision is part of the conflict between 70 communities located close to the project and the companies that won CFE’s auction, Abengoa and Elecnor (El Financiero – Spanish).


An LPG pipeline exploded in Guanajuato. Pemex’s LPG pipeline in Celaya exploded due to an accident caused by excavation equipment, killing one person and injuring three (La Vanguardia – Spanish). The extent of the damage is unknown and the pipeline likely affected is the Cactus-Guadalajara pipeline (Platts – English).



Old School Social


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



The Mexico Oil & Gas Summit 2019 will be held July 17-18 at Sheraton María Isabel, in Mexico City.



Lateral Thinking


Guadalajara woke up under ice. An unexpected hailstorm hit Guadalajara, burying the city under a meter of ice ( – English). Scientists doubt the storm is related to climate change, but instead to the mountainous region and the fact that during the summer, the atmosphere tends to be wet and unstable, causing hail to form (NBC News – English).



Quote of the Week


“La duda es la fiel servidora del sentido común.”


“Doubt is the loyal servant of common sense.”


– José Vasconcelos (1882-1959), Mexican writer, philosopher, and politician.



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