The Weekly Brief: Mexico


June 29, 2020 edition—Iberdrola’s decision in Tuxpan; CNH’s well approval; and Pemex’s LNG market.




Last Week in a Minute or Less


Electric Power & Renewables. The Cofece asked the Supreme Court to rule on power regulation; a judge said no to Tampico Solar’s definite suspension request; and Iberdrola may leave the Tuxpan plant and CFE turns to options.


Natural Gas Mid-Downstream & LNG. US natural gas exports continue crossing the border; and Pemex wants in on the LNG market.


Liquid Fuels Mid-Downstream. The new fuel storage rule is unclear; and the COVID-19 pandemic cut gasoline demand and imports.


Oil & Gas Upstream. The CNH has 18 pending requests from oil companies; Slim will bet on an exploratory well in Veracruz; and the CNH okayed China Offshore’s well.


Government & NGO. The Finance Ministry expects economic recovery to be boosted by USMCA; Barclays expects Mexico to maintain its investment grade; and AMLO plans to visit Trump in July.


Déjà vu all over again. Last week’s readers were particularly interested in a new energy chamber (Forbes – Spanish); AMLO’s accusation against Iberdrola (Reuters – English); and the judge’s final decision on renewables (Platts – English).



Geopolitics & Trade


The Finance Ministry expects economic recovery to be boosted by USMCA. The Finance Minister expects the economic recovery to be much slower in the fall, but it could be helped by the new NAFTA and a strong banking sector (El Economista – Spanish).


AMLO and Trudeau will have to discuss mining companies. President López Obrador asked Prime Minister Trudeau to intervene to make Canadian mining companies pay their debts to Mexico’s tax office (El Economista – Spanish). AMLO said the administration is open to dialogue.


Capgemini is concerned with the USMCA effect on the auto sector. The director of Capgemini said the auto industry will suffer disruption considering the start of the new NAFTA and the effect of the COVID-19 pandemic on the industry (Forbes – Spanish). However, the USMCA will also bring benefits.


Mexican farmworkers will continue working in Canada. Mexico will resume the temporary farmworkers program in Canada after both countries reached an agreement to improve safety protections for workers on Canadian farms during the COVID-19 pandemic (Reuters – English).


The US Supreme Court decided on Trump’s steel tariffs. The US Supreme Court rejected a challenge presented by the American Institute for International Steel against President Donald Trump’s tariffs on imported steel (Reuters – English). The industry argued that a part of the law under which he imposed the tariffs violated the US constitution.


Mexico and the EU plan the signing of a strategic agreement for Christmas. Mexico and the European Union will speed up the internal process to sign the modernization of the strategic alliance agreement by the end of 2020 or the beginning of 2021 (El Economista – Spanish).



Political Economy


Barclays expects Mexico to maintain its investment grade. The British firm believes the country will maintain its investment grade between 2020 and 2023 (El Financiero – Spanish). Barclays expects a 0.5% current account surplus in 2020.


BBVA expects Mexico to recover slowly. BBVA expects Mexico’s economic recovery to be slow and in the shape of the square root symbol (EL Economista – Spanish) instead of a “V” or “U” shape (BBVA Research – English). BBVA expects 2020 GDP growth to be between -6% and -12%.


Banxico is expected to cut 50 points off of rates. According to 26 of the 27 bank and market analysts, Mexico’s central bank is expected to cut the benchmark interest rate to 5.00% (Reuters – English) (Forbes – Spanish). That level would be the lowest since September 2016.


Moody’s trusts tax stimulus for the economic recovery. The international rating agency believes the economic recovery will depend on each country, the lockdown measures, and the economic stimulus developed to face the COVID-19 pandemic (El Economista – Spanish). Moody’s expects G-20 economies to contract 4.6%.


Analysts expect Mexico’s economy to contract 8.4%. According to a Citibanamex survey, an 8.4% contraction of the GDP is expected considering the fall in industrial activity and the delay in the reopening of the economy after the COVID-19 pandemic (El Financiero – Spanish).


AMLO plans to visit Trump in July. President López Obrador plans to travel to Washington to meet President Donald Trump (El Financiero – Spanish). The reason for the visit will be the celebration of the new NAFTA and will be the first presidential travel since AMLO became president in 2018.



Legal & Regulatory


The CNH has 18 pending requests from oil companies. The National Hydrocarbons Commission (CNH) received 18 requests from oil companies to modify their plans or receive an extension due to the COVID-19 pandemic (El Financiero – Spanish). The companies are arguing force majeure for the changes.


Renaissance Oil is unhappy with Mexico’s fracking ban. According to the founder of Renaissance Oil, the ban on fracking and the decision to suspend oil auctions affects investor interest (Reuters – English). Experts argue Mexico could learn the lessons and better practices for increasing the productivity of the oil wells using less water (El Financiero – Spanish).


The Cofece asked the Supreme Court to rule on power regulation. The Mexican antitrust watchdog, Cofece, asked the Supreme Court to study whether the Energy Ministry violated the constitution with recently issued power market regulation (Platts – English) (Forbes – Spanish). The Sener argued the grid’s reliability is above any economic interest (El Economista – Spanish).


The new fuel storage rule is unclear. After July 1, the new minimum fuel storage rule forces gasoline, diesel, and airplane fuel distributors to have a minimum amount of product storage. However, the rule created uncertainty in the sector due to Pemex’s infrastructure concentration and the lack of information regarding the rules (El Economista – Spanish).


The Northern states joined forces with Jalisco against the Sener. Seven governors from Tamaulipas, Nuevo León, Coahuila, Durango, Michoacán, Colima, and Guanajuato will join forces with Jalisco against the agreement issued by the Sener limiting renewable energy sources (El Financiero – Spanish).


AMLO is considering a constitutional reform to get rid of CRE. President López Obrador is considering the possibility of a constitutional reform to eliminate the Energy Regulatory Commission and other organizations (El Financiero – Spanish). AMLO criticizes the existence of hundreds of independent and autonomous organizations.



Market Trends


The transformation industry expects a 25% increase in costs. The transformation industry demanded the federal government end the power transmission schemes that will generate a 25% extra charge in power consumption that had already changed to renewable energy (El Economista – Spanish).


The COVID-19 pandemic cut gasoline demand and imports. In April, gasoline demand fell 39% and imported fuels reached their lowest share of total consumption in the last four years, reaching just less than 60% in gasoline, diesel, and LP gas (El Economista – Spanish).


US natural gas exports continue crossing the border. US natural gas exports to Mexico reached 5.3bcf per day, a slight increase from 5.2bcf per day (Reuters – English). The increase in daily output was offset by forecasts for warmer weather and higher air conditioning demand over the next two weeks.


Pemex wants in on the LPG market. The state-owned company is considering going into the LP gas distribution market under its own brand (El Financiero – Spanish). Pemex only participates in the sale to private suppliers that sell to final consumers.



Strategy & Operations


Slim will bet on an exploratory well in Veracruz. The National Hydrocarbons Commission (CNH) approved Operadora Bloque 12 to drill an onshore well in the Salina basin in Veracruz (El Financiero – Spanish). The company will invest US$3.1m.


The CNH okayed China Offshore’s well. The National Hydrocarbons Commission (CNH) approved the Xakpún-1EXP exploratory well on the coast of Tamaulipas (El Financiero – Spanish). The block was awarded during Round 4.1, and it will be the second well drilled by China Offshore.


AHMSA accused CFE of canceling coal contracts. AHMSA said the state-owned company informed it that the coal supply contracts for its two thermoelectric plants in the north were canceled (El Economista – Spanish). The contracts were renewed through public auctions for 27 years.


Tetra Pak hit the brakes on renewables due to uncertainty. Tetra Pak has stopped the process of transitioning toward renewable energy considering the uncertainty generated in the country regarding this issue (Forbes – Spanish). The company is concerned with losing competitiveness by not using renewables globally.


A judge said no to Tampico Solar’s definite suspension request. A judge denied the Tampico Solar project’s definite suspension against the tariff increase of the state-owned company (El Financiero – Spanish). Tampico Solar was the first project to receive a temporary suspension of the tariffs.


Iberdrola may leave the Tuxpan plant and CFE turns to options. The Spanish company may cancel a US$1.2bn investment in the construction of the Tuxpan plant (El Financiero – Spanish) (Forbes – Spanish) (Mexico News Daily – English). The CFE will offer a tender for the construction of the plant.



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!)


The Wilson Center webinar “The Outlook for Renewable Energy in Mexico at a Time of Crisis” is scheduled for July 1.


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


Mexico was shaken by a 7.4 earthquake during the COVID-19 pandemic. One person was injured, and four died in Oaxaca after a magnitude 7.4 earthquake struck the southern coast of the state (Live Science – English) (Reuters – English). The quake emerged from the fault at the edge of the North American and Cocos plates.



Quote of the Week


“Si nadie te garantiza el mañana, el hoy se vuelve inmenso.”


“If no one guarantees tomorrow, today turns immense.”



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




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