The Weekly Brief: Mexico


March 1, 2020 edition—Dos Bocas’ troubles; CNH’s new hydrocarbons measuring rules; and the new power law was okayed.




Last Week in a Minute or Less


Electric Power & Renewables. The CRE set the final basic supply tariffs; IEnova will own Energía Sierra Juárez; and the new power law goes to the Senate.


Natural Gas Mid-Downstream & LNG. The natural gas shortage hit Mexico’s industry.


Liquid Fuels Mid-Downstream. The ASF is concerned with Dos Bocas; Dos Bocas’ Ica Fluor workers stopped working; and a judge suspended the new fuel import rules.


Oil & Gas Upstream. The CNH changed the hydrocarbons measuring rules; and Pemex reported an increase in oil production.


Government & NGO. Mexico’s economy did not start the year well; Moody’s expects Mexico to grow by 5.5%; and inflation reached 3.84% in February.


Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s natural gas storage plans (Platts – English); Mexico’s clean energy goals (Forbes – Spanish); and natural gas transportation tariffs (DOF – Spanish).



Geopolitics & Trade


Mexico and Texas negotiated over natural gas supply… President López Obrador negotiated with Texas after the state temporarily banned natural gas exports (El Financiero – Spanish). The president assured that Mexico was working at a diplomatic level to avoid the ban.


…and that decision is covered by the USMCA. The decision to limit natural gas exports did not violate the USMCA, considering the emergency situation (El Financiero – Spanish). The agreement considers natural disasters or circumstances that could menace security.


Manufacturers are following up on USMCA implementation. Manufacturers plan to work with the Biden administration and Congress to ensure that the US trade agreement partners treat industry fairly (NAM – English). Manufacturers continue to face trade barriers in Mexico.



Political Economy


The power shortages took 0.3% from the GDP. Banorte expects the outages due to the natural gas shortages to cost Mexico’s economy at least 0.3% of GDP (Forbes – Spanish). Banorte said that foreign investment is key for the economy to recover to 2016 and 2017 levels.


Mexico’s economy did not start the year well. The effect of the COVID-19 pandemic caused the worst start of the year in Mexico’s economic activity since the financial crisis of 2009 (El Financiero – Spanish). In December 2020, Inegi forecasted a fall of 5.4% at an annual rate.


Moody’s expects Mexico to grow by 5.5%. The international rating company forecasted an economic growth of 5.5% in 2021, from the previous 3.5% estimate (Forbes – Spanish). Moody’s expects a 2.6% growth in 2022, instead of the previously forecasted 3%.


Inflation reached 3.84% in February. The National Index of Consumer Prices reached 3.84%, the highest number since the second two weeks of October, when it reached 4.09% (El Financiero – Spanish). Increases in fuel and tariff prices reached 5.10%.



Legal & Regulatory


The CRE set the final basic supply tariffs. The Energy Regulatory Commission (CRE) published the agreement determining the basic supply tariffs for February 1 to 28 (DOF – Spanish). The generation costs of small power systems were included in the recoverable incomes of basic supply.


The ASF is concerned with Dos Bocas. The Federal Audit Office (ASF) found practically all the purchases made by the government for the construction of the Dos Bocas refinery (El Economista – Spanish) to be “outside the norm.” MXN75m, 2% of the investment, is unaccounted for.


The new power law goes to the Senate. The Mexican Congress approved the reform to the Power Industry Law (El Economista – Spanish) (Forbes – Spanish). The new law was sent to the Senate to continue the legal process.


A judge suspended the new fuel import rules. The Second Court handed a temporary suspension to a writ of amparo against the Economy Ministry and the Energy Ministry agreement in which new and higher requirements were set to import fuels in Mexico (El Economista – Spanish).


The CNH changed the hydrocarbons measuring rules. The National Hydrocarbons Commission (CNH) modified, added, and eliminated different dispositions of the technical rules in hydrocarbons measuring (DOF – Spanish). The changes refer to the information that has to be sent monthly and the quality measures.


The ASF warned the new power law may hit the market. The Federal Audit Office (ASF) warned that President López Obrador’s new power law may put system operations and the power market at risk (Forbes – Spanish).



Market Trends


US and Mexico’s pipeline volume will skyrocket. The volume of pipeline transportation between Mexico and Texas will grow 341% between 2019 and 2050 (El Economista – Spanish). The volume will go from 11.8 million tons in 2019 to 52 million tons in 2050.


Pemex reported an increase in oil production. The state-owned company said oil production increased in 2020 for the first time in 15 years. However, the measuring methodology changed: While oil production went down 1%, Pemex included a 0.23% increase in natural gas liquids to light crude (El Financiero – Spanish).


AMLO promised stable power tariffs. President López Obrador pledged that power tariffs would remain stable despite the crisis in Texas due to the natural gas shortage (El Economista – Spanish). Subsidies will be kept when temperatures increase during the summer.



Strategy & Operations


The natural gas shortage hit Mexico’s industry. Mexico’s steel and aluminum producers had to reduce natural gas consumption and suspend production as operating with lower gas levels was unsustainable (Platts – English). Altos Hornos de México lost about 20,000 mt of liquid steel (Platts – English), and Volkswagen halted production due to limited natural gas (Reuters – English).


The CFE offered 30,000MW to substitute gas. The state-owned company offered the National Center of Energy Control a capacity of 30,000MW to reduce the impact of the natural gas shortage from the US (El Economista – Spanish). Considering the natural gas supply shortages, 15 combined cycle plants were out.


Dos Bocas’ Ica Fluor workers stopped working. Hundreds of workers of the ICA Fluor company halted the work in Dos Bocas, pointing to exhausting work hours and low salaries (El Financiero – Spanish). They accused leaders of taking money from their salaries for offering them the contracts.


IEnova will own Energía Sierra Juárez. The subsidiary of Sempra Energy agreed to purchase the remaining interest in the Energía Sierra Juárez wind power complex from Cometa Energía and Saavi Energía (Renewables Now – English). Energía Sierra Juarez is located in Baja California.


Baja California Sur asked for more clean energy. The governor of Baja California Sur, Carlos Mendoza Davis, asked President López Obrador to guarantee clean energy projects for the state, such as a combined cycle plant (Reforma – 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!)



Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.


The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.



Lateral Thinking


A former Pemex advisor urged a natural gas strategy. Former independent advisor for the state-owned company, Fluvio Ruiz Alarcón, recommended the government develop a strategy to include tax incentives, storage, regulatory and legal special treatment, and a company prioritizing natural gas extraction (El Economista – Spanish).



Quote of the Week


“Busco, como único bien de la existencia, un gobierno respetado y de moralidad.”


“I look for, as the only good of existence, a respectful and morally grounded government.”




– José Joaquín de Herrera (1792-1854), Mexican politician who served as president of Mexico three times.



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