The Weekly Brief: Mexico


June 10, 2019 edition—Nuclear CELs; the six Dos Bocas contracts; and gas over fracking.




Last Week in a Minute or Less


Renewables & Electricity. Puebla will enjoy two new solar parks by autumn; nuclear energy will be included in CELs; and the Sener and the CRE disagree on power auctions.


Natural Gas & Liquid Fuels. Pemex estimates Tula’s makeover will be US$2bn; and the government offered six contracts for Dos Bocas.


Oil & Gas Upstream. The CNH does not trust Pemex’s contracts to be enough; the Sener studies using gas over fracking; and Guillermo García Alcocer left the CRE.


Money & Power. Fitch and Moody’s cut Mexico’s rating; Trump called off the tariffs; and the government’s savings could limit economic growth.


Déjà vu all over again. Last week’s readers were particularly interested in Cenagas’ pipeline management (Zocalo – Spanish); private power auctions (Reforma – Spanish); and CFE’s projects in Nuevo León (El Economista – Spanish).



NAFTA Negotiation


Mexico described the tariffs as “unfair” and an agreement was reached. Mexican Foreign Minister Marcelo Ebrard said US treatment of Mexico is “unfair and makes no economic sense” (Reuters – English). In the negotiations, Mexico pledged to increase borders security and President Trump called off the tariffs (Reuters – English).


Democrats continue working on the new NAFTA… Democrats still expect to achieve the USMCA ratification despite the debate over Donald Trump’s impeachment and his attacks on House Speaker Nancy Pelosi (Bloomberg – English). Democrats are urging the White House to collaborate to ratify the agreement by the end of the year.


…and Pence and AMLO pushed for the NAFTA approval. Vice President Mike Pence pledged the new agreement will pass this year as the administration is making “energetic efforts” to see Congress advance the deal this summer (Bloomberg – English). President López Obrador sent the new NAFTA for Senate approval, expecting legislators to hold a special session before September’s scheduled meeting (Bloomberg – English).


USMCA was in danger due to tariffs. Business Roundtable (El Financiero – Spanish) and US Senator Chuck Grassley accused President Trump of putting the new NAFTA ratification at risk (El Economista – Spanish) due to the new tariffs over illegal migration. A top US administration official said the tariffs would not interfere in the NAFTA finalization (Reuters – English).



The Road to Reform


The Sener studies using gas over fracking. The Energy Ministry is considering the use of gas injection to increase oil production and to avoid fracking (El Financiero – Spanish). Specialists have criticized the government for not presenting a project to increase natural gas production.


Even without production, rounds are helping the budget. The investments, taxes, and royalties that are being paid by oil contracts will contribute US$37.6bn to the Mexican government (Pulso Energético – Spanish). The rounds are expected to produce 280,000 barrels per day of hydrocarbons by 2024 (Pulso Energético – Spanish).


Guillermo García Alcocer left the CRE. The head of the Energy Regulatory Commission announced his resignation, effective June 15 (El Economista – Spanish). President López Obrador and the Energy Minister denied pressuring García Alcocer into leaving the position (Mexico news Daily – English) (El Financiero – Spanish) (El Economista – Spanish).


Nuclear energy will be included in CELs. The CFE could issue clean energy certificates (CELs) from its nuclear and hydroelectric plants (Forbes – Spanish). This new option has been established in the National Power System Development Program 2019-2033.


The Sener and the CRE disagree on power auctions. The Energy Ministry believes the progress of the first three power auctions is minimal (Reforma – Spanish). According to the Energy Regulatory Commission (CRE), 66% of the promised capacity for the first power auction is in operation and 37% of the second power auction (Reforma – Spanish).



Political Economy


Fitch and Moody’s cut Mexico’s rating. Fitch downgraded Mexico’s sovereign debt rating to BBB, nearing junk status, due to the risks of Pemex’s debt and trade tensions (CNBC – English) (El Financiero – Spanish). Moody’s changed Mexico’s outlook from stable to negative but kept the rating at A3 (Bloomberg – English).


Fitch warned that Trump’s tariffs would hit Mexico’s GDP. The rating agency said the progressive increase of tariffs on Mexican products announced by President Trump will affect Mexico’s economic activity and exchange rate, generating a risky environment for inflation (El Economista – Spanish).


The government’s savings could limit economic growth. Experts agree that the new administration’s spending reductions could affect the country’s economic growth. A slow public spending trajectory in the second half of the year could hit the brakes on Mexico’s growth (El Economista – Spanish).


The CFE had a bad first quarter. The state-owned company lost almost MXN14bn in the first quarter of 2019 (El Financiero – Spanish), compared to the positive result of MXN543m in the same period in 2018. CFE costs increased almost 10% due to fuel prices (El Economista – Spanish).


AMLO will not attend the G20 meeting. President López Obrador decided not to attend the G20 meeting, sending the Foreign Relations and Finance Ministers instead (El Economista – Spanish). AMLO was criticized for losing the opportunity to create alliances with China and Japan to diversify trade (El Financiero – Spanish) (Mexico News Daily – English).



Market Trends


Trump’s new tariffs on Mexico may affect refiners… US Gulf Coast refiners could suffer from Trump’s threat of a 5% tariff on all Mexican imports, including crude imports (Platts – English). Retaliatory tariffs on US refined product exports could also affect their business.


…and the ESAI is studying how to avoid the damage. Energy Security Analysis Inc. said there are ways to avoid the tariff on Mexican crude oil imports, although it is unclear whether those will succeed. ESAI expects some refiners to pay more and some crude to head to Asia (OGJ – English).


Banxico cut Mexico’s growth forecast again. Mexico’s central bank cut Mexico’s economic growth outlook in 2019 to 0.8%-1.8% (Reuters – English). Banxico pointed to global and domestic risks to investment and consumer sentiment as the reason for the reduction.


Yucatán’s foreign investment outpaced all of 2018. During the first quarter of 2019, Yucatán received US$74.8m in direct foreign investment, an amount that is well over the total amount received in 2018 (El Financiero – Spanish). The main investors were the US and Spain.



Strategy & Operations


The CNH does not trust Pemex’s contracts to be enough. The National Hydrocarbons Commission (CNH) does not believe that changing 20 fields from assignments to contracts would be profitable enough (El Financiero – Spanish). Private companies insist Pemex cannot reach the production goal of 2.4 million barrels alone (El Financiero – Spanish).


The government offered six contracts for Dos Bocas. The Energy Minister announced the tender of six contracts for the construction of the Dos Bocas refinery (Reuters – English) by the end of June (El Economista – Spanish). President López Obrador pledged that companies will participate on equal terms, without favoritism.


Yucatán wants to produce more power. Yucatán plans to become the first state to produce more power than it needs with the construction of 23 new clean energy plants (El Financiero – Spanish). Meanwhile, the industry in the southeast region has experienced 30% shortages in gas supply (Reforma – Spanish).


Puebla will enjoy two new solar parks by autumn. In Puebla, two solar parks will begin construction in October by ErgoSolar, in partnership with Solarnet, with an investment of US$190m. The plants will generate 160MW, and another project will start in November (El Economista – Spanish).


The Sener has big power plans. The Energy Ministry plans to start 20 projects (El Financiero – Spanish) included in the National Power System Development Program 2019-2033. The projects will include combined cycle, geothermal, and cogeneration plants and the installation of 18,880MW (El Economista – Spanish).


Pemex estimates Tula’s makeover will cost US$2bn. Energy Minister Rocío Nahle said the head of the state-owned company forecasts an investment of US$2bn for the Tula refinery (El Financiero -Spanish). The previous estimate for the refinery reconfiguration was US$1.5bn.



Old School Social


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


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



Lateral Thinking


The best Mayan ballgame players were not sacrificed after all. Archaeologists have concluded that the famous ballgame played in the Pre-Columbian Americas (from Arizona to Colombia) in 1,500 known ball courts were heavily attended and sometimes a captive could be executed at the game, but it was not an integral part of the game (Live Science – English).



Quote of the Week


“Ser liberal cuesta mucho trabajo, ya que se precisa el ánimo de ser hombre en todo.”


“To be liberal is hard work, as it entails the need to be a man in everything.”


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



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