The Weekly Brief: Mexico


March 2, 2020 edition—Baja California’s wind; Pemex’s fuel exports; and privates’ oil production.




Last Week in a Minute or Less


Electric Power & Renewables. The CENACE published its operation tariffs for the year; Elecnor will use Baja California’s wind; and Vestas will supply turbines for Energía Sierra Juárez 2.


Natural Gas Mid-Downstream & LNG. New Fortress Energy is making progress in Baja California; and Mexico doubled its US natural gas purchases.


Liquid Fuels Mid-Downstream. Despite protests, Mexico ratified clean diesel fuel for trucks and buses; Pemex’s exports went through the roof; and Mexico gained more from the special tax on gasoline.


Oil & Gas Upstream. AMLO said only three private companies will produce crude; Pemex will invest US$90m in Amatl-1 and Coatzin-1; and the Zama conflict is making Premier Oil’s life harder.


Government & NGO. Banxico cut the 2020 growth forecast; AMLO said foreign firms’ investments are expected; and Alfonso Romo said Pemex is out of downgrade danger.


Déjà vu all over again. Last week’s readers were particularly interested in CRE’s proposed changes for self-supply (El Economista – Spanish); Mexico’s permit delays (Platts – English); and Enermex’s plans (Platts – English).



Geopolitics & Trade


Canadian trade lawyers will have to study the new NAFTA. Some business sectors will have to study up on the new agreement, although the main changes affect the rules of origin for auto production (National Magazine – English). A side letter to the agreement exempts from tariffs up to 2.6 million Canadian automobile exports to the US annually.


Trump promised more aid for farmers waiting for USMCA. President Trump pledged additional federal aid to farmers as the USMCA has yet to be ratified and its economic benefits are taking longer to materialize (Washington Examiner – English). President Trump did not specify the amount.


Kushner went to Mexico to pitch aid to Central America. Senior White House adviser Jared Kushner plans to boost US aid to Central America in exchange for cooperation on immigration (Washington Examiner – English). Kushner and the Mexican government planned an investment conference.



Political Economy


Alfonso Romo said Pemex is out of downgrade danger. According to the chief of the Presidency Office, Alfonso Romo, the state-owned company, is no longer at risk of losing its credit rating (El Economista – Spanish). Romo said that the power sector will maintain its current balance between public and private production.


Analysts expect Mexico’s economy to get by in 2020. According to a Citibanamex survey, analysts expect Mexico’s economic growth to reach 0.9% in 2020 (El Financiero – Spanish). Slightly more optimistic, Finamex forecasts 1.1% growth for 2020 (El Economista – Spanish).


The Finance Ministry will give the finance sector a makeover. The Finance Ministry is working on structural reform to consolidate and revitalize the finance sector (El Financiero – Spanish). The goal is to increase financial inclusion, competitivity, and savings.


It is confirmed: Mexico’s economy is slowing down. According to the National Institute of Statistics and Geography (Inegi), Mexico’s GDP contracted by 0.1% during 2019 (El Economista – Spanish). The result is the first contraction since 2009, and it is accompanied by a global economic deceleration.


The coronavirus risk made Banxico cut its 2020 growth forecast… Mexico’s central bank lowered its 2020 economic growth forecast from between 0.8% and 1.8% to 0.5% and 1.5% and increased its inflation view considering the uncertainty regarding the global impact of coronavirus (Reuters – English).


…and the inflation goal is also in doubt. Banxico does not expect inflation to fulfill the central bank’s target of 3% (El Financiero – Spanish). In the year through early February, inflation was 3.52%, just under the 3.57% forecast (Reuters – English) (Forbes – Spanish).


AMLO said foreign firms’ investments are expected. President López Obrador discussed plans to boost investment in Mexico with a group of foreign companies’ executives (Reuters – English). AMLO said the companies are “very optimistic about the economic future of the country.”



Legal & Regulatory


The ASF is not impressed with Pemex and private companies’ performance in 2018. The Superior Audit Office said that in 2018 the state-owned company only achieved 60% of the expected gas and oil production (El Financiero – Spanish). The energy reform had forecast 3 million barrels of production from Pemex and private companies.


AMLO said only three private companies will produce crude by 2024. According to President López Obrador, only three companies will produce a total of 200,000 daily barrels of crude by 2024, less than 10% of the current administration’s goal (El Financiero – Spanish). Two of the companies are ENI and Petrobal.


Despite protests, Mexico ratified clean diesel fuel for trucks and buses. The Mexican government ratified the environmental rule that requires the manufacturing of trucks and buses running only on ultra-low-sulfur diesel by January 2021 (Reuters – English). The Environmental Ministry defended the rule “to be consistent with commercial partners in North America and the European Union.”


The CENACE published its operation tariffs for the year. The National Center of Energy Control (CENACE) published the tariffs for the period between January 1 and December 31, 2020. For generators, operation tariffs were set at 3.1371 MXN$/MWh; for loads, it was established at 7.9946 MXN$/MWh (DOF – Spanish).



Market Trends


Pemex’s exports went through the roof, relatively speaking. The state-owned company sent 1.26 million barrels per day in January, a 13% increase compared with the previous month (El Financiero – Spanish). Exports increased by 30% to North America and 27% to Europe, compared with December 2019.


Pemex’s production had the best January in seven years. In January, national crude production was 1.724 million barrels per day, a first in seven years and a 6.4% increase compared to January 2019 (El Economista – Spanish). Contract production reached 109,688 daily barrels with a monthly increase of 6.61%.


Mexico gained more from the special tax on gasoline. The income from the special tax on gasoline (IEPS) grew by 53% in a year, the highest increase in 21 years (El Economista – Spanish). The special tax surpassed the forecast MXN$269.3bn by MXN$28.1bn.


Mexico doubled its US natural gas purchases. Mexico imported US natural gas valued at US$6.1bn in 2019, slightly more than double (107% increase) since 2015 (El Economista – Spanish). Mexico became the biggest US natural gas importer, with a 20.1% share, replacing Japan.



Strategy & Operations


AMLO will boost Baja California Sur’s power. President López Obrador announced a MXN$1bn investment for a supply program with a treatment plant to process water (El Economista – Spanish). A thermoelectric plant will be built and will be natural gas-fired.


IEnova will bet big in Mexico, just not as big as before. IEnova will invest US$815m in Mexico during 2020, US$10m less than last year (El Financiero – Spanish). From the total amount, US$455m will be devoted to hydrocarbon storage systems, US$200m for a gas transportation project, and US$160m in power generation.


Pemex will invest US$90m in Amatl-1 and Coatzin-1. The state-owned company will spend US$90.4m to drill two oil wells with the authorization of the National Hydrocarbons Commission (CNH). Pemex expects oil between 23 and 28 API degrees from Amatl-1 and light crude of 39 API degrees from Coatzin-1 (Forbes – Spanish).


The Zama conflict is making Premier Oil’s life harder. Premier Oil’s sale of its Zama share has been complicated by the conflict between Talos Energy and Pemex regarding the field’s operation (El Financiero – Spanish). The price of the field will be affected by investment uncertainty in Mexico.


New Fortress Energy is making progress in Baja California. New Fortress Energy is making progress building an LNG terminal in the port of Pichilingue, Baja California Sur (Business Wire – English). Over the past few months, the company said marine work has been developed at the terminal site (LNG Industry – English).


Elecnor will use Baja California’s wind… The Spanish company will build a wind park in Baja California with an investment of US$17.8m, with the installation of eight wind turbines (Energía Limpia para Todos – Spanish). The project will be developed in the San Matías community.


…and Vestas will supply turbines for Energía Sierra Juárez 2. Vestas secured a turbine supply, engineering, and construction order for the Energía Sierra Juárez 2 wind park with a 108MW capacity (Renews – English). Turbine delivery will take place in the third quarter of 2020 and commissioning is planned in the second quarter of 2021.



Old School Social


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


Mexico WindPower will be held March 4-5 at Centro Citibanamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico with nine consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.




Lateral Thinking


Butterflies need more than Mexico’s forests protected. According to a researcher from the Institute of Biology, the US and Canada should share responsibility with Mexico to protect the monarch butterfly’s forests because the insect’s North American migratory path is endangered by herbicides, climate change, and changing uses for land (Mexico News Daily – English).



Quote of the Week


“Los ideales permanentes de la revolución son la libertad, la democracia y la justicia social.”


“The permanent ideals of revolution are freedom, democracy, and social justice.”



– Adolfo López Mateos (1909-1969), Mexican politician and president from 1958 to 1964.




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