The Weekly Brief: Mexico


June 11, 2018 edition—Mexico’s renewables; Pemex’s Round 3.3; and NAFTA in 2019.




Last Week in a Minute or Less


Renewables & Electricity. The Wilson Center’s Mexico Institute had suggestions for Mexico’s renewable energy future; and Vestas will install turbines in the Mesa la Paz wind project.


Natural Gas & Liquid Fuels. The CRE okayed 33 storage permits; Engie plans to connect Mexico’s gas; and ASA will open up the jet fuel market.


Oil & Gas Upstream. Three are interested in Round 3.3, but only Pemex is in; Pemex fell behind in exploration; and the oil industry is coming back to life.


Money & Power. The NAFTA renegotiation may be pushed until 2019; AMLO would rather have no NAFTA than a bad one; and the Sener is worried about fuel theft.


Déjà vu all over again. Last week’s readers were particularly interested in the construction of the Baja California line (CMIC – Spanish); the push for a quick NAFTA deal (Bloomberg – English); and Guanajuato’s solar park (El Economista – Spanish).



NAFTA Negotiation


Trudeau and Trump hit a wall. Canada’s negotiators pushed for “a skinny NAFTA” (Bloomberg – English). Justin Trudeau said a planned meeting with President Donald Trump collapsed after Mike Pence insisted on a sunset clause (Bloomberg – English). Trump warned Canada that NAFTA must be “a fair deal” or no deal at all (Bloomberg – English).


A new NAFTA might be pushed back to 2019. Mexico’s economy minister said that it would be “very difficult” to reach a new NAFTA deal before Mexico’s presidential elections (Reuters – English). The tariff announcement may push the negotiation process into 2019 (Bloomberg – English) and a new batch of lawmakers.


Trump prefers a bilateral NAFTA. President Donald Trump is considering separate negotiations with Canada and Mexico (Bloomberg – English) while remaining in NAFTA. Trump insisted Canada and Mexico took “advantage” of the US economically (Bloomberg – English), with Mexico attracting US automakers and Canada restricting American agriculture imports.


Mexico responded to US tariffs. Mexico will continue negotiating a NAFTA deal with the US despite the tariffs (Reuters – English), although they will complicate it (Reuters – English). Mexico responded to the US tariffs by preparing to impose a 20% tariff on pork legs and shoulders from US suppliers (Business Insider – English).


AMLO would rather have no NAFTA than a bad one. According to his top economic adviser, the leading presidential candidate would prefer no NAFTA agreement than a bad one. AMLO would push to maintain trilateral NAFTA talks rather than bilateral (Bloomberg – English), as Trump suggested.



The Road to Reform


Pemex fell behind in exploration. The state-owned company has drilled eight exploratory wells of the 56 promised for 2018 (El Economista – Spanish), with 28% of the promised investment. A new plan for Pemex to maintain 93 awarded titles must be evaluated, according to the National Hydrocarbons Commission.


The Sener published its social impact evaluation. The Energy Ministry published the dispositions to evaluate social impact in energy projects (DOF – Spanish). The evaluation must be done for oil exploration and extraction, refining, fuel storage and distribution, and power generation, transmission, and distribution.


Three are interested in Round 3.3, but only one is in so far. Three companies showed interest in Round 3.3 (Reforma – Spanish). The National Hydrocarbons Commission (CNH) has only allowed the registration payment of Pemex, providing access to the data room. For Round 2.2, eight companies requested permission to pay for registration (El Financiero – Spanish).


The CRE okayed 33 storage permits. The Energy Regulatory Commission awarded 24 storage permits and nine are under review (El Financiero – Spanish). The Sener is promoting new infrastructure development to guarantee fuel supply in Mexico. Cenagas is mandated to acquire 45 Bcf of strategic gas reserves by 2026 (Platts – English).


ASA will open up the jet fuel market. In the second half of the year, Aeropuertos y Servicios Auxiliares (ASA) will implement a new integral strategy to promote competition in the jet fuel retail and storage market (El Economista – Spanish). After December 29, ASA will no longer sell jet fuel directly to airplanes in Mexico.



Political Economy


Everyone is concerned with fuel theft. The Energy Ministry said fuel robbery has to be addressed by justice institutions, with Pemex, the Finance Ministry, and the attorney general’s office exchanging information (El Economista – Spanish). Among the 17,217 people detained and accused of fuel robbery, only 343 received sentences, with 98% impunity (Excelsior – Spanish).


State governor candidates offered environmental and energy proposals. The governor’s candidates offered to hand out electric bicycles to promote renewable energy-powered schools and to finance solar panels (El Financiero – Spanish). Other suggestions include creating a waste water network, cleaning up rivers, taking care of certain forests, and planting 80,000 trees.


Videgaray visited Washington for the OAS meetings. Mexico’s Foreign Minister Luis Videgaray traveled to the US capital for the Organization of American States’ assembly, holding bilateral meetings with counterparts from other countries (Reuters – English). At the meeting, Videgaray addressed his concerns over Venezuela’s political, economic, and social circumstances ( – English).


The financial cost of debt exceeded Mexico’s oil income. The financial cost of the debt reached record levels in the first quarter of the year, surpassing the federal government’s oil income. The financial cost of the debt reached MXN167.28bn from January through April (El Financiero – Spanish).



Market Trends


Mexico’s imports of US natural gas are reaching a new high. US natural gas exports directed to the southern border reached 4,520 million cubic feet (El Financiero – Spanish), surpassing the record achieved in March. Arizona’s exports have increased by 36% in a week.


AINDA will bet MXN12.9bn on the energy sector. AINDA will invest MXN12.9bn in energy sector projects, including oil, gas, power, water, and transportation, to renew and increase the current infrastructure (El Financiero – Spanish) from pipelines to storage terminals. The amount comes from the placing of a 15-year-long Development Capital Certificate.


Citibanamex expects a raise in Banxico’s rates. Citibanamex’s economists expect Mexico’s central bank to increase interest rates in June to 7.75% (El Financiero – Spanish). Banxico warned that US tariffs are a risk element for Mexico’s economy (Forbes – Spanish).


The World Bank and Monex differ on Mexico’s future. The World Bank forecasts 2.3% growth for Mexico’s economy (El Economista – Spanish), propelled by an increase in exports and the return of private investment. Monex reduced Mexico’s GDP prediction to 2% from 2.3% (El Economista – Spanish) due to the NAFTA uncertainty.



Strategy & Operations


Vestas will power up Mexico. Vestas Wind Systems A/S agreed to supply and install 306MW of turbines for the Mesa la Paz wind project developed by AES Corp. and Grupo BAL in Mexico. The 85 turbines will be operating by 2019 (Reforma – Spanish).


Engie plans to connect Mexico’s gas. The French company plans to interconnect the Energía Mayakan pipeline with the Natural Gas Transportation System, bringing US gas into the Yucatán Peninsula (Reforma – Spanish). Cenagas and the Sener announced MXN1.7bn in private and public investment to increase the natural gas offer in Yucatán (El Economista – Spanish).


Pemex opened the Tula refinery for a contract. The state-owned company has awarded a contract to Saipem SPA and Saimexicana to carry out work on the heavy oil (H-Oil) plant at Pemex’s 215,100 b/d Miguel Hidalgo refinery in Tula. The US$39.23m-valued contract will include rehabilitation and commissioning works (OGJ – English).


Mexico’s renewable energy future has three keys. The Wilson Center’s Mexico Institute recommended that Mexico’s policymakers focus on three key areas (The Dialogue – English): improve grid capacity and efficiency, expand fiscal incentives for certain technologies, and improve the land consultation process and disputes as well as develop community energy systems.


The oil industry is coming back to life. Mexico’s oil activity is restarting with 39 platforms under operation, compared to the 24.7 structures last year and 23.9 in 2016 (Pulso Energético – Spanish). Private companies are pushing production with 15 wells drilled (Spanish) and several discoveries to be developed soon, adding to the reserves (Pulso Energético – Spanish).



Old School Social


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


The Global Petroleum Show 2018 will be held June 12-14 at the Calgary Stampede Roundup Centre in Calgary.


The 14th Annual Mexican Energy & Infrastructure Finance Forum is scheduled for June 21-22 at the St. Regis in Mexico City.



Lateral Thinking


Is Mexico doing enough for its marine mammals? The Mexican federal agency CONANP is responsible for marine protected areas (MPAs), which are home to 98% of the 47 species of marine mammals in Mexican waters. However, the orca is left out of the MPAs and certain high species richness areas have no MPA designated (Science Trends – English).



Quote of the Week


“No puede haber dictador sin su ejército.”


“There cannot be a dictator without his army.”



-Francisco Villa (1878-1923), Mexican revolutionary general and commander of the División del Norte.



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