The Weekly Brief: Mexico


June 1, 2020 edition—Jaguar E&P’s expectations for gas; and Hokchi Energy’s well.




Last Week in a Minute or Less


Electric Power & Renewables. Now 13 renewable projects are good to go; Cenace and CFE questioned the judge’s decision on renewables amparos; and states asked for the Cenace’s agreement to be canceled.


Natural Gas Mid-Downstream & LNG. Jaguar E&P has the Mexican gas sector in sight and is concerned with Mexico flaring gas and importing it; and US natural gas pipeline exports fell from March to April.


Liquid Fuels Mid-Downstream. Pemex’s refineries were accused of polluting; income from Pemex’s imports fell by half; and CFE promised to rely less on fuel oil.


Oil & Gas Upstream. Hokchi Energy restarted production in Tabasco’s shallow waters; Pulso Energético reflected on Mexico’s regulation; and Pemex’s oil production went up.


Government & NGO. The new NAFTA will help foreign investment recover; inflation reached 2.83% thanks to oil prices; and HR Ratings expects Mexico’s debt to increase for Pemex.


Déjà vu all over again. Last week’s readers were particularly interested in 23 renewable parks’ operations (El Economista – Spanish); AMLO’s opinion on the effect of the COVID-19 pandemic (Reuters – English); and Nahle’s search for order (El Economista – Spanish).



Geopolitics & Trade


Mexico’s foreign trade dropped 41%. Mexican exports fell 41% in April, its biggest decline in 34 years, due to the impact of the COVID-19 crisis (El Financiero – Spanish). The value of exports was US$23.3bn, the lowest amount since 2010 and the worst fall since March 1986.


The new NAFTA will help foreign investment recover. The Economy Ministry assured that the USMCA could help Mexico recover faster than other countries after the COVID-19 pandemic (Forbes – Spanish). The USMCA will focus on investing and growing the southern and southeast region.


A NAFTA panel backed the US on softwood lumber. The US International Trade Commission’s decision regarding softwood lumber imports from Canada was backed by a NAFTA panel. The US Lumber Coalition said the decision affirms the USITC determination that imports “materially injured” US producers and workers (Global News – English).


European investments are at risk. The European Chamber of Commerce and Industry in Mexico are concerned with the growing number of European investors mistrusting Mexico due to the lack of legal certainty (Forbes – Spanish). The chamber presented its concerns before the Economy Ministry after the change in renewable energy rules.



Political Economy


HR Ratings expects Mexico’s debt to increase for Pemex. The rating agency expects the federal government to continue increasing its debt to minimize the increase of Pemex’s debt (El Financiero – Spanish). The net debt of the public sector as a percentage of the GDP increased to 48.7%.


AMLO is working on an “alternative” GDP. President López Obrador said that an alternative to the GDP will be presented soon to measure Mexico’s economic growth (El Financiero – Spanish). AMLO will look for the guidance of mathematicians, economists, sociologists, and anthropologists, among other specialists.


Moody’s is concerned with the new renewable energy rules. According to the rating agency, the new rules for renewable energy projects are negative for credit purposes, as it delays income generation for private projects and Mexico’s capacity to reach its clean energy goals (El Financiero – Spanish).


Citibanamex’s survey expects the worst from the economy. According to the Citibanamex survey, Mexico’s GDP will experience a 7.6% contraction in 2020 (El Financiero – Spanish). Valmex has the most pessimistic forecast—a 9.7% drop in the 2020 economy.


Fitch has more bad news for Mexico’s future. The rating agency forecast a 7.4% contraction for Mexico’s economy in 2020 due to the effect of the COVID-19 lockdown (El Financiero – Spanish). Fitch previously expected a 6.6% contraction.


Inflation reached 2.83% thanks to oil prices. During the first two weeks of May, annual inflation increased 0.87 percentage points compared to inflation of 1.76% in the second two weeks of April (El Economista – Spanish). The reason is the recovery of the international oil price.



Legal & Regulatory


The CRE okayed new power transmission rates. The Energy Regulatory Commission (CRE) approved new rates that private electricity providers must pay CFE for transmission (Reuters – English). The CFE promised the decision will offer better tariffs for users (El Economista – Spanish), while private companies said the increase will affect clients (Forbes – Spanish).


States asked for the Cenace’s agreement to be canceled. The governors of Nuevo León, Coahuila, Tamaulipas, Durango, Michoacán, Jalisco, and Colima signed a document to demand the government’s final cancellation of the new agreement (El Economista – Spanish). The states asked that if irregularities are found in renewable energy contracts, they should be sanctioned.


Pemex’s refineries were accused of polluting. Five Pemex oil refineries are among the 25 top polluters in the world for sulfur dioxide emissions (Mexico News Daily – English). President López Obrador accused previous administrations of turning the refineries into scrap due to corruption (El Financiero – Spanish).


Pulso Energético reflected on Mexico’s regulation. Five years after the signing of the first oil contracts in Mexico, Pulso Energético analyzed regulatory processes for production and exploration. The organization found that an operator takes between one and two years after the contract signing to obtain all the permits for exploration (Pulso Energético – Spanish).


CFE wants renewables to pay more. The state-owned company told the Industrial Chamber Confederation (Concamin) that the renewable energy sector is subsidized (Forbes – Spanish). CFE wants the companies to pay to back up their plants (El Financiero – Spanish).


Cenace and CFE questioned the judge’s decision on renewables amparos. The state-owned company said the court that offered writs of amparo to seven companies on the Cenace’s agreement was wrong (El Financiero – Spanish). The National Center of Energy Control (Cenace) will impugn the court’s decision (El Economista – Spanish).



Market Trends


Income from Pemex’s imports fell by half. The state-owned company lost 49.7% of its income from exports in April (El Financiero – Spanish). In April, Pemex received US$502m, a US$496m drop compared to the US$998m achieved in March.


Pemex’s oil production is higher than last year, but not last month. The state-owned company increased oil production by 2.6% in April (Forbes – Spanish). Pemex produced 1.72 million daily barrels of crude, compared to 1.67 million in the same period in 2019. Compared to March, Pemex’s production fell 1.4%.


US natural gas pipeline exports fell from March to April. In May, US natural gas pipeline exports to Mexico averaged 4.7, the same as in April, a drop from a record high 5.6 bcfd in March (Reuters – English). US natural gas futures rose 3% as output slows.


Banxico forecast an 8.8% GDP fall. Mexico’s central bank warns that the uncertainty associated with the COVID-19 pandemic limits a clear forecast for this year and the next one (El Economista – Spanish). Scenarios forecast Mexico’s GDP could fall between 4.6% and 8.8%.



Strategy & Operations


Jaguar E&P has the Mexican gas sector in sight… During the La Jolla energy conference, Jaguar E&P said that the company sees real potential for the gas industry in the next year in the country (Argus Media – English). Considering Mexico’s natural gas reserves, investing in gas production could increase energy security.


…and is concerned with Mexico flaring gas and importing it. Jaguar E&P pointed to the amount of gas flared while Mexico imports natural gas from the US. Flaring is destructive to the environment and suggests “negligence in modernizing the country’s pipeline infrastructure” (BN Americas – English).


Hokchi Energy restarted production in Tabasco’s shallow waters. On May 24, Hokchi opened the valve of the Hokchi-4DEL well (El Economista – Spanish). The field was awarded in the first oil round and it is located in front of the coast of Dos Bocas Port in Tabasco.


Now 13 renewable projects have the okay. A court okayed the definite suspension of Cenace’s hold on 13 projects (El Financiero – Spanish). The companies are allowed to continue with the pre-operative tests. The final resolution will take place on June 22.


CFE promised to rely less on fuel oil. The director of the state-owned company said the company will favor cleaner energy and would reduce the use of fuel oil as a source of generation (El Economista – 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!)



2nd Edition of Shallow and Deepwater Mexico was postponed due to the coronavirus. Date TBD.


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.


Mexico Assembly was postponed due to the coronavirus. Date TBD.


The Mexican Energy Forum is rescheduled for November 17-18 in Mexico City.


The Mexican Petroleum Congress is scheduled for June 24-27 in Monterrey and may be postponed until September.



Lateral Thinking


Bones of 60 mammoths were found under a future airport. Archaeologists found the bones of 60 mammoths at an airport under construction north of Mexico City. The excavations are taking place on the shores of an ancient lake, Xaltocan, now disappeared, and close to the site where human-built traps were found last year with a dozen mammoths (The Guardian – English).



Quote of the Week


“El amanecer es el momento en el que nada respira, la hora del silencio. Todo está paralizado sólo la luz se mueve.”


“Sunrise is the moment in which nothing breathes, the hour of silence. All is paralyzed, only the light moves.”



– Leonora Carrington (1917-2011), British-born Mexican artist, surrealist painter, and novelist.




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