The Weekly Brief: Mexico


June 15, 2020 edition—CFE’s 775% tariffs increase; refineries overwork; and Pemex’s halted contracts.




Last Week in a Minute or Less


Electric Power & Renewables. Northern states work to boost renewables; now 17 companies have won against the Cenace; and CFE increased transportation tariffs 775%.


Natural Gas Mid-Downstream & LNG. Mexico cannot get enough of US natural gas; and tropical storm Cristobal hit gas the hardest.


Liquid Fuels Mid-Downstream. The Dos Bocas refinery work continues as expected despite the storms; and Pemex’s refineries worked harder during the lockdown.


Oil & Gas Upstream. Pemex halted contracts with private suppliers; the CNH extended the time frame for oil permits again; and Mexico will not make more oil output cuts.


Government & NGO. Inflation hit the gas in May; Banxico is concerned with the COVID-19 effect on Mexico; and the auto industry will ask for an extension on USMCA.


Déjà vu all over again. Last week’s readers were particularly interested in CCE’s opinion of the CRE’s decision (El Financiero – Spanish); Concamin’s concern with the new USMCA auto rules (El Economista – Spanish); and the increase in power tariffs (El Financiero – Spanish).



Geopolitics & Trade


Mexico nominated Jesus Seade to lead WTO. Mexico proposed senior trade official Jesus Seade, who participated in the renegotiation of the new NAFTA, as a candidate to be the director-general of the World Trade Organization (WTO) (Reuters – English). The current director will leave the position at the end of August.


The auto industry will ask for an extension of USMCA. According to the Mexican Auto Industry Association (AMIA), almost all auto companies will request more time to work under the new agreement (Forbes – Spanish). Four conditions were modified.


The STPS asked to avoid labor panels. The Work and Social Foresight Ministry showed the way labor panels would work and the in situ verifications after July 1 (El Financiero – Spanish). The ministry requested that unions and work centers avoid the activation of labor panels.


The Economy Ministry bets on the new NAFTA. Economy Minister Graciela Márquez expects the USMCA to push Mexico’s economic activity after the COVID-19 pandemic (El Financiero – Spanish). The minister is also counting on the relocation of manufacturing companies from Asia to Mexico.



Political Economy


The World Bank updated Mexico’s GDP forecast. According to the World Bank, Mexico’s economy will suffer a 7.5% GDP contraction due to the fall in fuel prices and tourism, along with mobility restrictions due to the COVID-19 crisis (El Economista – Spanish). The World Bank had previously forecast a 6% contraction.


Inflation hit the gas in May. Inflation increased to 2.84% in May from 2.15% in April due to food and drink prices (El Economista – Spanish). The data was under Reuters’ estimation of 2.97%, although within Mexico’s central bank’s goal range of 3% +/- 1 percentage point.


Banxico is concerned with the COVID-19 effect on Mexico. Mexico’s central bank is developing temporary measures to help the financial system affected by the COVID-19 crisis (Reuters – English) (El Financiero – Spanish). Banxico has developed measures to stabilize the financial market and strengthen credit channels for homes and companies.


The OECD sank Mexico’s economic forecast. According to the Organization for Economic Co-operation and Development (OECD), Mexico’s economy will contract by 8.6% in 2020 if there is a second wave of COVID-19 infections (El Financiero – Spanish). If there is no second wave, Mexico’s economy will contract by 7.5%.



Legal & Regulatory


Now 17 companies have won against the Cenace. The judiciary decided in favor of 17 renewable energy companies, putting a stop to the National Center of Energy Control’s agreement (El Economista – Spanish). The companies were not identified, and the government insisted on the temporary nature of the agreement.


Mexico looks to the renewable goal from afar. Mexico is far from reaching the goal of generating 35% of its energy from renewables by 2024 (El Financiero – Spanish). According to the International Energy Agency, only 23.4% of the energy consumed in the country came from solar, wind, nuclear, or geothermal.


Morena suggests fusing together the CRE, the IFT, and the Cofece. The coordinator of the ruling party suggested creating the National Institute of Competence for the Wellbeing, incorporating the Federal Institute of Telecommunications (IFT), the Federal Commission of Economic Competence (Cofece), and the Energy Regulatory Commission (CRE) (El Economista – Spanish).


The CNH extended again the time frame for oil permits. Mexico’s oil regulator will allow energy companies to secure permits and plan approvals, extending a freeze on deadlines, until the government determines it is safe to resume official work. The last extension does not include an end date (Reuters – English) (DOF – Spanish).



Market Trends


Mexico will not make more oil output cuts. President López Obrador said the country cannot, and will not, make additional oil output cuts beyond those agreed at the OPEC+ meeting (Reuters – English) (El Financiero – Spanish). OPEC+ agreed to extend its oil output production cut and agreed to stricter methods to guarantee production promises.


The CFE forecasts overcapacity in 2024. The state-owned company said today there is a 30,000MW overcapacity, 35% of the national installed capacity, while the general recommendation is to limit it to 15% (El Economista – Spanish). The CFE said that by 2024, there will be 102,000MW of installed power generation.


CFE points to self-supply as responsible for MXN7bn losses. The state-owned company accused self-supply schemes of annual losses of MXN7bn, describing it as “a black market” (El Financiero – Spanish). The CFE pointed to the low amount that private companies pay for the grid.


CFE increased transportation tariffs 775%. The state-owned company published the increases in transportation tariffs for renewable energy or cogeneration generators under self-supply schemes; the increases are between 446% and 775% (El Economista – Spanish) (PV Magazine – Spanish).


Mexico cannot get enough of US natural gas. US natural gas exports to Mexico increased this month due to the country opening after the COVID-19 lockdown, looming demand growth from summer temperatures, and Fermaca delaying the Wahalajara pipeline system (Platts – English). US pipeline exports to Mexico are averaging 5.2 Bcf per day in June.


Tropical storm Cristobal hit gas the hardest. Approximately 23% of US oil and natural gas production from the Gulf of Mexico was still offline on June 10 after tropical storm Cristobal. In Mexico, Pemex had to stop production at some of its wells in the area affected by tropical storms Amanda and Cristobal (Platts – English).



Strategy & Operations


The Dos Bocas refinery work continues as expected despite the storms. Tropical storm Cristobal fell over the Dos Bocas refinery’s construction site, but according to local authorities, work did not stop, and the timetable is expected to remain unchanged (El Financiero – Spanish).


Pemex’s refineries worked harder during the lockdown. The state-owned company increased production at its refineries by 17% (El Economista – Spanish). Pemex’s refinery system returned to levels not seen since 2018, as rehabilitation has been 67% completed and will cost MXN25bn.


Pemex halted contracts with private suppliers. The state-owned company canceled eight contracts with suppliers, producing a loss of thousands of jobs (El Financiero – Spanish). Pemex canceled the contracts to cut expenses on maintenance work of coastal platforms in shallow waters.


Northern states work to boost renewables. The Energy Cluster of Sonora plans to develop strategies that allow the country to continue the development of renewable energy projects (El Economista – Spanish). The Mexican Association of Solar Energy believes the country has high potential to develop renewable energies but is limited by the Sener’s policies (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


Chicxulub created a million years of hot water. The asteroid that created a crater on the Yucatán peninsula sent superheated seawater swirling through the crust below for more than a million years (Science News – English). The Chicxulub impact destroyed more than 75% of life on Earth.



Quote of the Week


“Ya es tiempo de que los prejuicios acaben, de que la sociedad se establezca sobre bases más sólidas, más naturales, más sabias, más justas y más nobles.”


“It is time for prejudices to end, for society to establish over more solid, natural, wiser, fairer, and more noble bases.”



-Francisco Villa (1878-1923), Mexican revolutionary general.




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