The Weekly Brief: Mexico


June 3, 2019 edition—Oaxaca’s wind; Pemex’s toluene; and Mexico’s shrunken economy.




Last Week in a Minute or Less


Renewables & Electricity. CFE and Nuevo León partnered up on 194 projects; BlackRock bought Canadian Solar’s project in Aguascalientes; and private power auctions are the new normal.


Natural Gas & Liquid Fuels. Van Oord won the first Dos Bocas contract; analysts expect Cenagas to manage the pipelines; and Pemex plans to export toluene.


Oil & Gas Upstream. Pemex’s crude production dropped to a new low; Eni may dominate private shallow-water operators; and private operators expect more rounds to boost oil production.


Money & Power. AMLO plans no layoffs and a huge tax relief for Pemex; Mexico’s economy shrank by 0.2%; and Canada took the first step for USMCA ratification.


Déjà vu all over again. Last week’s readers were particularly interested in Iberdrola’s (El Financiero – Spanish) and Enel’s new power plants (El Financiero – Spanish).



NAFTA Negotiation


Trump threatened Mexico with tariffs to stop migration. President Donald Trump announced he will add a 5% tariff on all Mexican imports to pressure the government (The Guardian – English) to stop Central American migrants trying to cross the border (El Economista – Spanish). The tariffs will increase 5% each month after the conditions are not met, assuming Trump follows through.


US Congress aides may cross the border. A bipartisan group of US congressional representatives plan to meet with the Mexican labor minister to discuss labor reforms that need to be implemented (Bloomberg – English) for the Democrats to support the new NAFTA.


Canada is pushing for USMCA ratification. Foreign Minister Chrystia Freeland presented a “ways and means motion” to the House of Commons (Reuters – English), the first step towards a formal presentation of a bill. Former Canadian Liberal Foreign Minister John Manley expects the new deal to pass this summer.


Mexico is working to avoid new US tariffs. Mexico will design a system to monitor steel and aluminum imports, avoiding Chinese products from crossing into the US with the consequent restart of the US tariffs (Platts – English). Mexico’s Economy Minister is considering the participation of US and Canadian authorities to ensure the system’s effectiveness.



The Road to Reform


Van Oord won the first Dos Bocas contract. The Dutch company won the contract to prepare the land to build the refinery in Dos Bocas, Tabasco. Besides Van Oord, the companies invited were Dredging International, Boskalis, and Dragados (El Financiero – Spanish).


Without public power auctions, companies go private. After the cancellation of power auctions, both generators and clients are considering private auctions as a mechanism to continue the development of new projects (Reforma – Spanish). For private clients, the goal is to obtain better prices with less uncertainty.


Analysts expect Cenagas to manage all the gas pipelines. The National Center of Natural Gas (Cenagas) could become the only administrator of the pipeline system in the country, including CFE’s pipelines (Zócalo- Spanish). Cenagas would have to guarantee equality for all participants in the market.


Private operators expect more rounds to boost oil production. Private operators’ executives recommended more frequent oil rounds to increase oil production (Platts – English) (OGJ – English). Others would like the government to allow private companies to take over Pemex’s Round Zero pledges that it has not been able to fulfill.


Yucatán’s private sector begs for gas supply. Yucatán’s businessmen are concerned about the possible cancellation of contracts with private companies that would build turbo-compressors, affecting gas supply (El Financiero – Spanish). Cenagas suspended the contracts due to delays in construction by Taylor Servicios Técnicos and Maja Consulting Group.



Political Economy


Mexico’s economy shrank by 0.2%… In the first quarter, Mexico’s economy contracted by 0.2% compared to the previous quarter, the worst start to a year since 2009 (El Financiero – Spanish). The announcement was a blow to the government trying to convince investors it can increase growth in the country.


…but the government sees no risk of recession. The Chief of the Presidency Office denied that the economy may reach a recession after the fall in economic growth in the first quarter and the low growth perspective (El Economista – Spanish).


AMLO plans no layoffs and a huge tax relief for Pemex. President López Obrador pledged there would be no layoffs of Pemex’s workers despite its debt and downgrade fears (Reuters – English). The government plans to offer Pemex a tax relief of MXN138.7bn in 2020-2021 (Reuters – English).


Inflation gave Mexico a break in early May. Mexican consumer price inflation was lower than expected in the first half of May, reaching 4.43% (Reuters – English). Economists expected inflation to rise to 4.48%. Inflation remains above Mexico’s central bank goal (El Economista – Spanish).



Market Trends


Pemex’s crude production dropped to a new low… In the first quarter of 2019, the state-owned company’s production fell to 1.672 million barrels, the lowest level since 1990 (El Economista – Spanish). Pemex’s production has fallen 10.8% in a year and Pemex’s light crude oil production suffered the most (El Economista – Spanish).


…and Pemex’s exports fell 11% in April. The state-owned company’s oil exports dropped by 11% in April compared to the previous month. Maya crude exports fell to 1.023 million barrels per day in April from 1.150 million barrels per day in March (Reuters – English).


Pemex plans to export toluene. The state-owned company is considering using its benzene production to produce more toluene and export it (Platts – English). Pemex’s toluene is sold in the domestic market and the Cangrejera complex can produce 500 mt per day each of toluene and benzene.


Fitch has some advice for Pemex. The rating agency recommended that Pemex cut its tax load by half to reinvest in its activities and to pay its debt, which has reached US$107b (El Financiero – Spanish). The goal is to reinvest in oil production activities.



Strategy & Operations


BlackRock bought Canadian Solar’s project in Aguascalientes. BlackRock has purchased a 68MW solar park from Canadian Solar (El Financiero – Spanish). The project was developed in Aguascalientes and started operations in 2019.


CFE and Nuevo León partnered up on 194 projects. The government of the northern state and the state-owned company will invest MXN100.9m in 194 power projects to benefit 36 municipalities (El Economista – Spanish). The goal is to provide electricity to 99.5% of the state (El Financiero – Spanish).


Oaxaca is big on wind power. The governor of Oaxaca cut the ribbon on the biggest wind park in Latin America, with 396MW capacity and US$1.2bn in investment (El Economista – Spanish). With the three levels of government and the business sector working together, Oaxaca’s economy has grown 3.9%.


Eni may become king among private shallow-water operators… The Italian company has permits for six exploration plans and is committed to drilling seven exploratory targets in Mexico (Platts – English). Depending on the success of these wells, Eni and its partners are interested in five more projects.


…while Puebla is falling behind on solar. Puebla has a radiation of between 5.8 and 6 kwh per square meter per day, well above the national average (El Economista – Spanish), but the state is behind in attracting new solar projects. Puebla generates 1.8% of the country’s total solar production.



Old School Social


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


The Mexican Energy Forum will be held June 4-5 at the W Mexico City, in Mexico City.


The Expo 2019 Eléctrica Internacional is scheduled for June 4-6 at Centro Citibanamex.


The Global Petroleum Show will be held June 11-13 at Stampede Park, in Calgary.



Lateral Thinking


Mexico City may be creating its own clouds. Researchers have found that in large cities, the heat maintained by buildings in the afternoon drives turbulence in the air, increasing the moisture in the clouds during the spring and summer (English). There are reasons to believe a similar phenomenon is common in Mexico City.



Quote of the Week


“Dawn is the time when nothing breathes, the hour of silence. Everything is transfixed, only the light moves.”


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



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