The Weekly Brief: Mexico


June 8, 2020 edition—Pipeline natural gas imports increasing; Pemex’s production fell; and private exploration progressed.




Last Week in a Minute or Less


Electric Power & Renewables. The Cenace’s new rules were definitively suspended; the AMDEE asked for more transmission infrastructure; and the CCE accused CRE of setting the industry back with its transmission tariff decision.


Natural Gas Mid-Downstream & LNG. Mexico opened up and so did pipeline natural gas imports; Mexico’s role as a key export market for natural gas will continue; and tropical storm Cristobal closed Mexico’s ports.


Liquid Fuels Mid-Downstream. Libre Abordo will no longer swap oil for food in Venezuela.


Oil & Gas Upstream. Mexico’s oil production fell 1.2%; private exploration and production progressed in Mexican waters; and the CRE and the Sener will remain under lockdown.


Government & NGO. The Finance Ministry expects a slow but steady recovery; the final USMCA rules were agreed; and rating agencies discussed when Mexico will lose its grade.


Déjà vu all over again. Last week’s readers were particularly interested in the CNH’s decision (Reuters – English); the endangered investments (Forbes – Spanish); and governors’ opinions about the Cenace’s decision (El Economista – Spanish).



Geopolitics & Trade


Mexico’s auto industry restarted after the COVID-19 lockdown… With Fiat Chrysler and BMW, Mexico’s auto industry continues reopening gradually with a reduced number of personnel (Reuters – English). Some Mexican governors asked companies to be cautious to avoid new outbreaks.


…and so did border factories. Workers returned to work at automotive factories on Mexico’s northern border. The car parts company Flex took the temperature of several hundred workers (Reuters – English). Approximately 30% of the factory workforce returned to their posts.


Analysts recommend better coordination to help out US-Mexico trade. Former ambassador Earl Anthony Wayne recommended better coordination, use of technology in production and management, and more cross-border data to improve US-Mexico trade flow after the COVID-19 pandemic (The Hill – English).


The final USMCA rules were agreed. The Mexican, US, and Canadian governments finally agreed on uniform rules to support the commercial agreement (Forbes – Spanish) to be published July 1 (El Economista – Spanish). According to Concamin, only 30% of Mexico’s auto industry could follow them (El Economista – Spanish).



Political Economy


Rating agencies discussed when Mexico will lose its grade… JP Morgan and Morgan Stanley warned that Mexico could lose its investment grade due to public policy management (El Economista – Spanish). Despite that, Barclays trusts that there are institutions that secure Mexico’s economic policy as a responsible debtor (El Economista – Spanish).


…and Banxico listened. Mexico’s central bank asked the government to consider the rating agencies’ considerations for Mexico’s future loss of grade, including institutional weakening and the use of public finances in an uncertain global context (El Economista – Spanish).


HR Ratings and BBVA have a grim forecast for the economy. HR Ratings modified its prediction for Mexico’s economy with a 7.4% contraction (El Financiero – Spanish). BBVA forecasts a fall of between 9.1% and 13.1% in public income depending on the GDP contraction (7% or 12%) (El Economista – Spanish).


The Finance Ministry expects a slow but steady recovery. Mexico’s Finance Minister expects the country’s economy to recover rapidly, but not as fast as the contraction produced by the coronavirus pandemic (Reuters – English). The minister also said Mexico’s reopening will be “very organized” as a new outbreak could be “terrible” (Reuters – English).



Legal & Regulatory


Fitch warned about the effect of new energy investment rules. The rating agency warned that the new rules approved by the Energy Ministry could affect private investment. Fitch also said that the decision could strengthen the CFE’s position in the market (El Financiero – Spanish).


The Cenace’s new rules were definitively suspended. A federal judge gave a definite suspension to the National Center of Energy Control’s agreement for 13 renewable energy plants (Forbes – Spanish). The plants will be allowed to perform pre-operation proofs in the national grid.


The CCE accused CRE of going backward with its decision. The Business Coordinator Board said the CRE’s decision on transmission tariffs means a 30-year setback in the sector (El Financiero – Spanish). The CCE accused the CFE of being behind each new rule to capture the energy market artificially.


The CRE and the Sener will remain under lockdown. The Energy Regulatory Commission (CRE) and the Energy Ministry (Sener) will continue with the cancellation of periods until “health authorities determine that there is no epidemiological risk related with the opening, in a gradual and orderly manner, of activities” (DOF – Spanish) (DOF – Spanish).


The AMDEE asked for more transmission infrastructure. The wind energy industry asked for more power transmission infrastructure to consolidate more renewable energy projects (Forbes – Spanish). The renewable energy industry invested US$17bn in Mexico, while US$11.4bn corresponds to the wind energy sector.



Market Trends


Power transmission tariffs are expected to multiply by four. The cost that self-supply power plants pay to use the national grid will increase between four and eight times (El Financiero – Spanish). Data from the industry showed that the high and medium tariffs will increase by 427% and 468%, respectively.


Tropical storm Cristobal closed Mexico’s ports. In June 3, ports in the coastal states of Veracruz, Tabasco, and Campeche closed due to the arrival of tropical storm Cristobal (Platts – English). Oil and gas infrastructure is working without disruption due to emergency protocols set by Pemex.


Mexico’s oil production fell 1.2%. According to the National Hydrocarbon Commission (CNH), in May, Mexico’s oil production dropped to 1.625 million daily barrels (El Economista – Spanish). The amount is 129,000 barrels less than April’s production and above the cut agreed with OPEC (El Financiero – Spanish).


Mexico opened up and so did pipeline natural gas imports… According to analysts, Mexico will continue being a key destination for US natural gas producers for the coming years (Natural Gas Intel – English). Pipeline volumes are displacing LNG imports and crude imports.


…and Mexico’s role as key export market will continue. The reopening of Mexico’s economy after the COVID-19 lockdown may increase natural gas volumes in the natural gas pipelines (Natural Gas Intel – English). Pipeline exports from the US to Mexico averaged 4.5 Bcf/d during the first weeks of May.



Strategy & Operations


Libre Abordo will no longer swap oil for food in Venezuela. The Mexican company said it was bankrupt and that President Maduro ended the oil-for-food agreement exchanging Venezuelan crude for water trucks (Reuters – English). Mexico and the US are investigating the company for the exchange agreement with Venezuela (El Economista – Spanish).


Private exploration and production is making progress in Mexican waters. Companies that won production contracts in shallow waters are reaching first oil or increasing production earlier than expected (Platts – English). Eni is ready to drill a fourth well to increase production to 20,000 barrels per day.


Nahle denies pulling strings in Dos Bocas. Energy Minister Rocío Nahle denied that a MXN5bn contract was awarded to a friend of hers, Arturo Quintanilla Hayek, in the Dos Bocas refinery (Forbes – Spanish). The opposition parties asked President López Obrador to explain why the Energy Ministry awarded the contract to Nahle’s pal (El Financiero – Spanish).


Tula’s environmental damage is under scrutiny. The state-owned thermoelectric plant in the Tula industrial area generates 3% of the power used in the country, and it is the greatest source of pollution in the Valley of Mexico (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 rescheduled for September 30 – October 3 in Monterrey.



Lateral Thinking


The oldest and biggest Maya structure was found with airborne mapping. Excavations and airborne mapping at Aguada Fénix uncovered the oldest and largest known structure built by Maya people with clay and earth. The structure was built around 1,000 BC to 800 BC and is 1,400 meters long (Science News – English).



Quote of the Week


“La experiencia no se adquiere por la simple acumulación de años, sino por la reflexión de los sucesos.”


“Experience is not acquired only by accumulating years, but by reflecting on events.”



– Melchor Ocampo (1814-1861), Mexican lawyer, scientist, and politician.




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