The Weekly Brief: Mexico

June 12, 2017 edition— Pemex’s farm-outs in demand; Durango shines with Eosol; and next year’s elections encourage faster NAFTA talks.






Last Week in a Minute or Less


Renewables & Electricity. CFE progressed on 80% of its projects, but postponed the biggest transmission grid; and Durango will host Eosol’s solar farm.


Natural Gas & Liquid Fuels. Banxico disappointed with the LP gas liberalization; natural gas imports spiked; and Engie will widen the Mayakan pipeline.


Oil & Gas Upstream. Sierra O&G and China Offshore Oil Corporation are interested in Pemex’s farm-outs; Pemex decreased exploratory drilling; and Engie and VPM partnered up to produce natural gas.


Money & Power. The OECD reduced Mexico’s GDP forecast; elections hit the gas on NAFTA renegotiation; and the World Bank sees an end to Latin America’s recession.


Déjà vu all over again. Last week’s readers were particularly interested in the first private bill of sales for crude (Spanish) and the debate over including the energy sector in the NAFTA renegotiation (Spanish) (Spanish) (English).



The Road to Reform


Banxico declares LP gas liberalization a failure. A study by Mexico’s central bank concluded that the LP gas price liberalization has not reflected international market trends. LP gas prices for producers increased by 8.6% since the liberalization while prices to consumers rose 17.3% (Spanish).


Sierra O&G and China Offshore Oil Corporation want to partner up with Pemex. Twelve companies expressed interest in Pemex’s three farm-outs for onshore and deep water hydrocarbons exploration, development, and extraction (Spanish). The National Hydrocarbons Commission (CNH) said that only two, Sierra O&G and China Offshore Oil Corporation, started the pre-qualification process.


The biggest transmission grid tender will be postponed. Bidding for the Direct Transmission Grid will be delayed a year past the original scheduled tender and will suffer a few changes (Spanish). The project will not be offered until the end of 2017 due to CFE concerns about the consortia of tender participants.


CFE projects are 80% completed. Among the CFE’s 85 strategic projects, 34 are in operation, 38 under construction, and 13 more will be up for offers in the coming weeks. Pipelines, new natural gas plants, transmission networks, and improvements to distribution requiring US$24bn in investment will be up for bid (Spanish).


Doubts surround Pemex’s gasoline verification. The Energy Regulatory Commission (CRE) responded positively to the petition of fuel retailers to reduce quality testing and certificates on fuel due to the lack of proper laboratories (Spanish). Pemex raised doubts about its ability to check fuel quality with its 53 mobile laboratories (Spanish).



Political Economy


Mexico and US elections encourage speeding up NAFTA talks. Economy Minister Ildefonso Guajardo said the US and Mexican elections in 2018 offer motivation for completing the NAFTA renegotiation this year (English). US Commerce Secretary Wilbur Ross agreed, saying the closer the election date, the more complicated Mexico’s congressional approval becomes (English).


Pemex will supply Cadereyta and Tula with steam and energy. The state-owned company will develop its cogeneration projects in the next five years, supplying power and 850 tons per hour of steam to the Cadereyta refinery (Spanish). Together with the Tula refinery, the projects will require a combined investment of US$1.1bn.


The OECD lowered Mexico’s GDP forecast. The Organisation for Economic Co-operation and Development (OECD) reduced the projection for Mexico’s economic growth in 2017 to 1.9% from its forecast of 2.3% in November (Spanish).  According to the report, Mexico faces economic risks from the NAFTA renegotiation and other US protectionist policies (English).


Pemex dropped exploratory drilling. The state-owned company drilled seven wells from January to April, compared to 17 wells in the same period in 2007 (Spanish). Pemex’s exploratory drilling fell from 49 wells per year to 22 annually between 2007 and 2016, and reserves fell 43% in the decade.


Inai forced Sener to reveal indigenous communities’ consultations. The National Institute for Transparency, Information Access, and Personal Data Protection (Inai) demanded the Energy Ministry (Sener) publish information on consultations with indigenous communities in Yucatán prior to developing power projects (Spanish). The stage of consultation and progress in talks will be made public.



Market Trends


CFE increased June electricity tariffs for industry and commerce. The state-owned company hiked retail tariffs for industrial users between 0.5% and 1.1% in June compared to May (English) (Spanish). The commercial sector with demand under 25kW will see a 0.3% increase during the same period.


The peso likes the PRI. Mexico’s peso depreciated 0.4% after exit polls in the gubernatorial race in the State of Mexico showed a tie between the ruling party (PRI) and the leftist Morena party, and then rose sharply when the PRI’s victory became clear (English) (English). The Finance Ministry considered the PRI’s win a “vote of confidence” (Spanish).


The World Bank says adiós to Latin American recession. The World Bank said that Latin America will reach growth of 0.8% this year, leaving behind two years of recession. Mexico will experience “moderate” growth of 1.8%, along with Chile (Spanish) (English).


Natural gas imports skyrocketed. The Energy Secretary explained that the increase in natural gas consumption and the fall in production has driven natural gas imports to reach 59% of domestic demand (Spanish). Total demand in the first quarter was 7.712 billion cubic feet per day and production reached only 3.197 billion cubic feet per day.



Strategy & Operations


Durango will shine brighter with Eosol’s farm. Investors from the Spanish company will open a new solar farm in Durango with 225MW of generating capacity and an investment of MXN400m (Spanish) (English). Durango will soon receive US$1bn in foreign direct investment of which US$500m will be channeled to energy projects (Spanish).


Engie and VPM allied to produce natural gas. The French company and Virtual Pipelines Mexico will start producing compressed natural gas in Yucatán after investing US$25m to supply and maintain a network of 14 serving stations in the state (English) (Spanish). Engie will promote the use of natural gas in commerce, industry, and transport.


KCSM will move more gasoline on rails. The Kansas City Southern México (KCSM) railroad will broaden its capacity to move fuel by renting out trains or buying new tank trains (Spanish). KCSM allied with Watco Companies and WTC Industrial to develop a fuel storage terminal in San Luis Potosí.


Yaquis sabotage IEnova’s pipeline. Members of the Yaqui tribe damaged the piping and wiring of the pipeline that divides their territory and connects Arizona with Sinaloa to supply several industrial parks. IEnova executives demanded Mexico’s government send federal police to guard the region where fights have broken out between people for and against the pipeline (Spanish).


Engie will expand the Mayakan pipeline. The French company launched a consultation with potential clients to survey demand for natural gas transportation in the Yucatán Peninsula. The goal is to expand carrying capacity and lengthen the pipeline known as Energía Mayakan with an investment of US$300m (Spanish).


Puebla got hooked on renewables. Renewable energy companies expect 20% growth in sales and jobs due to the Energy Ministry’s requirement that 5% of energy consumed in the city be clean (Spanish). Executives of 17 European companies will tour Puebla planning to invest 17 million euros in environmental projects (Spanish).



Old School Social


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


The XXVIII Congreso Annual SNM/ 2017 LAS/ ANS Symposium is June 18-21 at the Gran Hotel Ciudad de México, Mexico City.


The CWC World LNG& Gas Series 15th Americas Summit is June 20-23 in Houston, Texas.



Lateral Thinking


The comings and goings of Mexico’s engineers into Arizona. The Autonomous University of Chapingo takes undergraduate seniors on field trips to Arizona, California, and Nevada to learn efficient watering techniques for improving farming on the outskirts of Mexico City (English). Many students then attend Arizona colleges with Mexican government scholarships.



Quote of the Week


“Nada se resiste al esfuerzo unido de un gran número de brazos.”


“Nothing resists the unified effort of a great number of arms.”


-Lucas Alamán (1792-1853), businessman, historian, and politician



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