The Weekly Brief: Mexico


June 24, 2019 edition—Shell’s oil plans; Dos Bocas’ environmental impact; and solar growth.




Last Week in a Minute or Less


Renewables & Electricity. Yucatán has an urgent need for power; and solar grows, no thanks to AMLO.


Natural Gas & Liquid Fuels. ASEA said Dos Bocas will have a moderate effect on the environment; gasoline imports are up; and scrutinizing gasoline quality.


Oil & Gas Upstream. Shell has big plans for Mexican oil; Pemex goes all in at the Ixachi field; and the private sector condemned the farmout cancellation.


Money & Power. Mexico and Canada worked on ratifying the USMCA; businessmen and AMLO signed an investment agreement; and Moody’s and Fitch complained about Mexico’s policy uncertainty.


Déjà vu all over again. Last week’s readers were particularly interested in Siemen’s new energy company (Reforma – Spanish); Sener’s promised certainty (El Financiero – Spanish); and Tabasco’s need for renewables (El Financiero – Spanish).



NAFTA Negotiation


Trudeau pushes for the USMCA ratification… Prime Minister Justin Trudeau will meet US House Speaker Nancy Pelosi and US Senate majority leader Mitch McConnell to speed up the USMCA ratification (Reuters – English). Trudeau will also try to mend fences with Trump after last year’s G7 meeting (Reuters – English).


…and the US House expects to pass it before August. An official at the US Chamber of Commerce said a scheduled vote on the new NAFTA before August is feasible (Reuters – English), while the US Trade Representative pledged to work with Democrats to ratify it (Bloomberg – English). President Trump said Mexico and Canada are completely behind the USMCA and it is up to the US to pass it (Reuters – English).


Mexico’s Senate is working on ratification. Several Senate commissions approved a draft law that would pass the trade deal (Reuters – English). Mexico’s Economy Minister said the country will retaliate if the US imposes tariffs on Mexican exports (Reuters – English).


Mexico needs US wheat and US farmers need help. The Mexican wheat chamber expects US wheat imports to increase despite Trump’s threats (Reuters – English). Meanwhile, US farmers may need government aid for the third time next year (Reuters – English) if the Trump administration does not reach trade deals and reopen top export markets.



The Road to Reform


ASEA said Dos Bocas will have a moderate effect. The Security, Energy, and Environment Agency (ASEA) published the Environmental Impact report for the Dos Bocas refinery. The report concluded the project will have different environmental impacts that could be controlled and mitigated (El Financiero – Spanish).


Gasoline quality is under the microscope. A Nuevo León senator requested a detailed report on the steps undertaken to improve gasoline quality to the Energy Regulatory Commission (CRE), and it is to be handed over in 20 days (El Financiero – Spanish). In Mexico City, ethanol use in vehicles has increased, despite the authorities’ warnings about its polluting effect (Reforma – Spanish).


The private sector condemned the farmout cancellation. The Business Coordinator Board accused the government of surprising them by signing an investment agreement when the farmouts were being cancelled (Reforma – Spanish). A former Pemex advisor said the farmout cancellation could allow the option for Pemex to choose its own partners (El Financiero – Spanish).


Industry asked to be considered in energy plans. The President of the Industry Chambers Confederation said it has not been invited to discuss new projects for the energy sector, especially the construction of the Dos Bocas refinery (El Financiero – Spanish).



Political Economy


The IEPS has become the new piggybank. The Finance Ministry cut the Magna gasoline subsidy to 15.01% and the diesel IEPS to 12.90% (El Economista – Spanish). The increase in income, thanks to the special tax on gasoline, can compensate for the drop in income from other sectors (El Economista – Spanish).


The Finance Ministry offers real estate to increase the budget. The Finance Ministry will auction 27 real estate lots worth MXN176.5m (El Economista – Spanish). The lots are located in 11 states, and participants would have to register and offer a guarantee.


The CCE and AMLO signed a US$35bn investment agreement. The government and the Business Coordinator Board signed an agreement to promote investment and inclusive development (Reuters – English). The goal is to increase total investment to 25% of GDP, an investment of US$35bn over the next two years (El Financiero – Spanish).


Mexico will ask the IDB to help face the migration crisis. Mexico will ask for a US$20m credit line with the Inter-American Development Bank to stop the migration crisis (El Financiero – Spanish). The goal would be to improve migratory infrastructure in the southeast regions.



Market Trends


Natural gas production hit rock bottom… Natural gas production in the first four months of the year fell to its lowest level since 2005, with an average of 4,796 million cubic feet per day (El Financiero – Spanish). The reason is the 9.8% production drop in the northern region.


…and gasoline imports are up. In the first five months of 2019, Mexico’s gasoline imports averaged 599.63 thousand barrels per day, a 4.26% increase compared to the same period in 2018 (Reforma – Spanish). In 2018, the Sener estimated gasoline imports of 575.09 thousand barrels per day.


Moody’s criticized the administration’s unpredictability… The international rating agency pointed to Pemex’s debt and the government’s unpredictable policymaking as the main risks to Mexico’s economic and fiscal outlook (Reuters – English) (El Economista – Spanish). Moody’s said that the infrastructure projects have generated interest among investors (El Economista – Spanish).


…and Fitch asked for transparency in projects. Fitch warned that if there is no transparency in the project award process and if there is no clear message from the administration regarding its policies, uncertainty will threaten the market and investments (El Economista – Spanish).



Strategy & Operations


Shell has big plans for Mexican oil. The National Hydrocarbons Commission (CNH) approved Shell’s exploration plans for four deepwater areas (Reuters – English). Shell will invest US$1.06bn in the four blocks to drill six new wells.


Pemex goes all in at the Ixachi field. The National Hydrocarbons Commission (CNH) approved the state-owned company’s plan to develop Ixachi’s gas field in Tierra Blanca, Veracruz, the biggest onshore field discovered in the last 25 years. Pemex plans to invest US$6.4bn in 20 years (El Economista – Spanish).


Solar grows, no thanks to AMLO. Solar generation grew 32% in March compared to December 2018, increasing from 3,075MW to 4,075MW (El Financiero – Spanish). However, Mexico fell six positions in the Renewable Energy Country Attractiveness Index (Forbes – Spanish).


Private gas stations multiplied. The Energy Regulatory Commission (CRE) said that in March, the number of private gas stations reached 3,669, 30% of the national market. The CRE also estimated that 11% of gasoline imports and 29% of diesel were imported by private companies (El Economista – Spanish).


Yucatán needs power, badly. The National Center of Energy Control declared an operational emergency in Yucatán, where power demand surpassed generation (El Financiero – Spanish) (Platts – English) as a pre-emptive strategy (El Financiero – Spanish). Companies in the region are working at 65% due to the gas shortage (El Financiero – Spanish).



Old School Social


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



The Mexico Oil & Gas Summit 2019 will be held July 17-18 at Sheraton María Isabel, in Mexico City.



Lateral Thinking


Sea otters are genetically all tangled up. Scientists have found that sea otters have low genetic diversity, increasing the odds of extinction. Scientists are now studying the genes in 130 other sea otters from populations in the Pacific, including Alaska and Baja California (Science Daily – English).



Quote of the Week


“O ya no entiendo lo que está pasando o ya pasó lo que estaba yo entendiendo.”


“Either I do not understand what is going on or what I understood has already passed.”



– Carlos Monsiváis (1938-2010), Mexican writer and journalist.



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