The Weekly Brief: Mexico


June 22, 2020 edition—Shell’s changed plans; a judge’s definite suspension; and Australian LNG on the way.




Last Week in a Minute or Less


Electric Power & Renewables. A judge grants definite suspension to Sener’s regulation; the CFE published transmission tariffs for 69kV power lines or above; and the energy sector complained about the tariff increase.


Natural Gas Mid-Downstream & LNG. Australia’s LNG may reach Mexico soon; and Mexico’s US gas imports keep rising.


Liquid Fuels Mid-Downstream. AMLO may sell fuel to Maduro; the governor of Baja California points to an LPG monopoly; and Mexico’s oil hedge will get pricier.


Oil & Gas Upstream. Shell okayed changes in its Mexican oil exploration; the government will review oil contracts in detail; and insecurity delayed private companies’ exploration plans.


Government & NGO. Mexico and the US maintained the border travel ban for another month; the USMCA will have 125 panelists to solve conflicts; and UBS forecasts a 9% contraction of Mexico’s GDP.


Déjà vu all over again. Last week’s readers were particularly interested in CFE’s transportation tariff increase (El Economista – Spanish); Morena’s proposal to fuse Cofece, CRE, and IFT (El Economista – Spanish); and CFE’s overcapacity estimation (El Economista – Spanish).



Geopolitics & Trade


Banxico worries that COVID-19 is outshining the USMCA. Mexico’s central bank board warned about the risks of low economic activity in the region if the COVID-19 pandemic continues, temporarily pushing aside the new NAFTA, which will start July 1 (El Financiero – Spanish).


Mexico suspended the Canadian migrant farm worker program. Mexico temporarily halted the program that sends workers to Canadian fields to review Canadian health policies and procedures (Reuters – English). Two workers from Mexico died after a COVID-19 outbreak affected 17 farms in Ontario.


Mexico and the US maintained the border travel ban for another month. According to Mexico’s foreign ministry, Mexico and the US decided to extend for 30 days the restrictions on non-essential travel across their border (Reuters – English). The decision was taken to slow the spread of the COVID-19 pandemic.


The USMCA will have 125 panelists to solve conflicts. The new NAFTA will count on 125 panelists to solve controversies, and July 30 will be the deadline to name the panelists (El Economista – Spanish). The number of panelists will depend on each chapter.


AMLO and Trudeau discussed the USMCA. President López Obrador had a phone call with Prime Minister Justin Trudeau, and they discussed their bilateral economic relationship and the USMCA deal (Reuters – English).



Political Economy


UBS forecasts a 9% contraction of Mexico’s GDP. The Swiss bank lowered its forecast for Mexico’s GDP with a 9% fall compared to the previous 7% contraction forecast (El Financiero – Spanish). The Mexican Institute of Finance Executives (IMEF) expects the economy to contract by 8.5%.


AMLO accused Iberdrola of a media attack. President López Obrador attacked the Spanish company, accusing it of developing a media campaign against his administration (Reuters – English) (Forbes – Spanish). A representative for the company in Mexico said Iberdrola had no comment on the matter.


Investors leave Mexico aside. The 2020 Kearney Foreign Direct Investment Confidence Index did not include Mexico among the 25 priority countries worldwide to invest in (El Financiero – Spanish). The reasons are low economic growth, the changes in policies, and the lack of transparency in the rules.


A new Energy Industry Chamber may dialogue with AMLO. A group of businessmen suggested the creation of the National Chamber of the Energy Industry to establish a new dialogue with the current administration regarding hydrocarbons and power (Forbes – Spanish). The CCE, the Concamin, and the Coparmex seem to be out of luck in their relations with the government.



Legal & Regulatory


A judge grants definite suspension to Sener’s regulation… A federal judge permanently blocked the Sener’s rules and instructions as it benefited CFE, prioritizing the electricity dispatch from CFE plants (Platts – English) (El Financiero – Spanish). The Sener argued that CFE’s plants were more “reliable” and that wind and solar power plants destabilized the grid’s operation.


…and the Sener will fight the judge’s decision on renewables. The Energy Ministry pledged to question the court’s resolution that suspended the new policy of the power sector (El Economista – Spanish). President López Obrador said that they will be looking for a dialogue (El Financiero – Spanish).


The CFE published transmission tariffs for 69kV power lines or above. The state-owned company published the procedures to determine the tariffs for transmission services in 69kV power lines or above (DOF – Spanish). After July 1, the CFE will charge more to self-supply companies (Forbes – Spanish).


The government will review oil contracts in detail. The government will evaluate more than 100 oil contracts handed to foreign and local private companies (Forbes – Spanish). The government will make recommendations regarding “the fulfillment of obligations” established in the contracts.


The energy sector complained about the tariff increase. The Industry chamber warned that the transmission tariff increase breaks the interconnection contracts signed with the CFE (El Economista – Spanish). The Coparmex asked the Energy Regulatory Commission (CRE) to put an end to the increase in transmission tariffs (El Financiero – Spanish).


Jalisco is fighting Sener’s agreement. The government of Jalisco will ask the Supreme Court to invalidate the Energy Ministry’s agreement. The governor argued the agreement includes measures that mean a setback for climate, energy, and public health measures (El Economista – Spanish).



Market Trends


Australia’s LNG may reach Mexico soon. Oversupply and high inventories in the Asian LNG market sent an Australian LNG cargo to a terminal in Mexico (Platts – English). The 94,528 dwt vessel British Mentor is heading towards Manzanillo, where CFE operates an LNG terminal.


Mexico’s US gas imports keep rising. US gas pipeline exports to Mexico reached a record 5.8 Bcf/d on June 10 due to the summer weather and the reopening of Mexico’s economy (Platts – English). A 400MMcf/d increase in south Texas exports went to the Tamazunchale pipeline, feeding large population and industrial centers in central Mexico.


Mexico’s oil hedge will get pricier. The country will have to pay more for its oil hedge for 2021, but will likely continue with this practice to avoid further damage to its finances with international investors (Reuters – English) (El Norte – Spanish).


The governor of Baja California points to a propane monopoly. The northern state governor complained about the gas monopoly in the state and how it grew strong during previous governments, making LP gas prices in the region the highest in the country (El Financiero – Spanish).



Strategy & Operations


Shell okayed changes to its oil exploration plans in Mexico. The National Hydrocarbons Commission (CNH) approved modifications to Shell’s exploration contract so it is able to speed up spending on one of its deepwater exploration wells (Platts – English). Shell can increase its spending from US$12.5m to US$74.2m.


API accused Mexico of discrimination against US investors. The American Petroleum Institute (API) is concerned that recent decisions made by the Mexican government may affect US investors and violate regional free trade agreements (Reuters – English) (Platts – English). API warned of the ever-growing difficulties in obtaining permits (El Financiero – Spanish).


Coal’s role in the power sector is under review. The Plutarco Elías Calles coal plant has seven units with a total capacity of 2,778MW, the second most important in the country (El Economista – Spanish). Experts argue that the three coal-powered plants in the country produce 22% of the greenhouse gases of the energy sector (El Economista – Spanish).


Insecurity delayed private companies’ exploration plans. The National Hydrocarbons Commission explained that Panter Exploración y Producción will double the period to evaluate the area that was awarded in Round 2.2, as the company requested more time due to the COVID-19 crisis and insecurity caused by organized crime (El Economista – Spanish).


AMLO may sell fuel to Maduro. President López Obrador said he would sell fuel to Venezuela for humanitarian reasons despite the US sanctions (El Economista – Spanish). AMLO said Mexico is a free and sovereign country.



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 numbers of Mexico’s coronavirus czar are questioned. Hugo López Gatell, Mexico’s deputy health minister, said the COVID-19 epidemic is slowing down and that the curve was flattened in the country on May 25. Since that announcement, Mexico’s infections have more than doubled to 159,793 (Bloomberg – English).



Quote of the Week


“El ave canta, aunque la rama cruja, porque conoce lo que son sus alas.”


“The bird sings, despite the creak of the branch, because it knows it has wings.”



– Salvador Díaz Mirón (1853-1928), Mexican poet.




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