March 4, 2019 edition—Farmouts are out; voters liked the thermoelectric plant; and inflation is down.
Last Week in a Minute or Less
Renewables & Electricity. The ASF pushes for nuclear power; CFE will plan new combined-cycle plants; and Morelos’ thermoelectric plant was voted on and approved.
Natural Gas & Liquid Fuels. Pemex limited gas consumption; CFE will renegotiate its pipeline contracts; and Pemex lost doing business with Braskem Idesa.
Oil & Gas Upstream. AMLO hit the brakes on farmouts; and the CNH announced the end of the easy oil era.
Money & Power. Canada’s transport minister and Kudlow are concerned about US tariffs; inflation dropped to its lowest level in two years; and AMLO will investigate losses at Pemex plants.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s acquisition (DOF – Spanish); Braskem Idesa’s import terminal (Platts – English); and storage terminals (El Financiero – Spanish).
The US Agriculture Secretary hopes the USMCA will be ratified by summer. US Agriculture Secretary Sonny Perdue said that he hopes the US-Mexico-Canada trade deal, aka USMCA, would be ratified by Congress by summer (Reuters – Spanish). By then, he hopes Congress has a chance to understand the new provisions.
Canada’s transport minister warned about US tariffs… Transport Minister Marc Garneau warned US lawmakers in a high-profile gathering that the Parliament will struggle to ratify the USMCA if US tariffs on steel and aluminum do not end soon. Time is running out before the House of Commons takes its summer break (National Post – English).
…and Kudlow is working on it. White House economic advisor Larry Kudlow is working to lift US tariffs on steel and aluminum imports from Canada and Mexico after Marc Garneau’s warning (Bloomberg – English). Kudlow made the statement at the National Governors Association’s winter meeting in Washington.
Canada was ordered to pay (a bit) in NAFTA case. Canada will have to pay US$7m in damages to a US concrete company, Bilcon, which used NAFTA to argue it was denied permission to build a quarry in Nova Scotia (CBC – English). Bilcon was seeking US$443m in compensation.
The Road to Reform
CFE will renegotiate its pipeline contracts. The head of the state-owned company, Manuel Barlett, announced that the renegotiation of the contracts with Carso Energy, IEnova, and TransCanada will start in less than a month (El Financiero – Spanish). The companies did not oppose the renegotiation.
The ASF pushes for nuclear power. The Federal Audit Office (ASF) suggested the use of nuclear reactors to reach the goal of producing 35% of clean energies by 2024 (El Financiero – Spanish). The ASF encouraged the implementation of the mechanisms to finance and install three nuclear reactors.
AMLO hit the brakes on farmouts. President López Obrador said Mexico will not offer more oil joint ventures between Pemex and private companies until existing projects begin producing oil (Reuters – English). AMLO will use tenders on service contracts to increase Pemex’s oil production (Oil and Gas Magazine – Spanish).
The CCE defended the CRE. The Business Coordinator Board said any strategy to weaken the Energy Regulatory Commission could scare off investments in the energy sector (El Economista – Spanish). The regulating commissions can generate competition and regulate an equal playing field for investments.
Morelos’ thermoelectric plant was voted on and approved. President López Obrador announced that 59.5% of the votes were in favor of the thermoelectric project (El Economista – Spanish). The project will save on Morelos’ power imports (El Financiero – Spanish) and the UN will guarantee water quality (El Financiero – Spanish).
AMLO met CRE’s head and CNH’s commissioner stepped down. Guillermo García Alcocer met President López Obrador and felt at ease after the president assured the head of CRE that there is no political persecution (El Financiero – Spanish). Gaspar Franco, commissioner at the National Hydrocarbons Commission, left his position halfway through his term, on February 28 (Reuters – English) (El Financiero – Spanish).
The CNH announced the end of the easy oil era. The National Hydrocarbons Commission said that only 26% of exploratory wells were productive in 2018 (Pulso Energético – Spanish). On the other hand, only 19 exploratory wells were completely drilled last year in Mexico.
S&P lowers Mexico’s rating outlook. The international rating agency lowered Mexico’s rating outlook from stable to negative (Reuters – English). Mexico’s rating was maintained at BBB+, although there is a real possibility of a downgrade in the next 18 months (EL Financiero – Spanish).
Inflation dropped to its lowest level in two years. Mexico’s inflation reached its lowest level since the start of 2017, with consumer prices rising by 3.89% in the first half of February (Reuters – English) (El Financiero – Spanish), compared to the same period in 2018.
Considering uncertainty, banks target low-risk credits. Banks are focusing on less risky companies as the country is still adjusting to the new administration’s new public policies (Reuters – English). Japanese lenders will focus on Mexico’s “largest companies,” including multinational names and investment grade borrowers.
CFE is still getting fleeced. The state-owned company lost MXN30bn due to power theft and 7% of the total amount of energy produced (El Economista – Spanish). The CFE lost the same amount due to technical troubles (El Financiero – Spanish).
AMLO will investigate losses at Pemex plants. President López Obrador will investigate the hundreds of millions of dollars spent by Pemex to buy two fertilizer plants during the previous administration (Reuters – English). The Federal Audit Office (ASF) said Pemex squandered MXN$655m at the fertilizer unit in 2017.
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Analysts expect good things from Mexico’s inflation and exchange rate. Analysts surveyed by Citibanamex cut the outlook for 2019 inflation from 3.9% to 3.8% (El Financiero – Spanish). Banorte analysts expected inflation to reach 3.5% by the end of the year.
Pemex’s crude output hit a 30-year low. The state-owned company produced 1.62 million barrels of crude per day in January, the lowest since 1990 (Reuters – English), when Pemex’s available records started. Pemex’s olefins production improved from a 15-month low, amounting to 63,483 mt of ethylene, propylene, and butadiene in January (Platts – English).
Mexico wants to end US natural gas dependency. A senior advisor to President López Obrador said Mexico’s dependency on natural gas imports was the country’s most significant strategic energy risk. The government will create industry working groups to evaluate long-term electricity auctions (Platts – English).
Moody’s hit the Mexican peso. The international rating agency warned about pressure on the Mexican peso due to the rating outlook of Mexico’s sovereign debt this year (El Financiero – Spanish). Moody’s said that there is pressure on Mexico’s government to fulfill its objectives and preserve fiscal responsibility (Reuters – English).
Strategy & Operations
The ASF thinks Pemex had a bad deal with Braskem Idesa. According to the Federal Audit Office (ASF), Pemex Transformación Industrial lost MXN3.6bn between 2016 and 2017 selling ethane to Braskem Idesa’s Etileno XXI (El Financiero – Spanish). This division spent MXN3.4bn producing ethane and MXN1.2bn on its transportation.
Tabasco fills up with power clusters. This year, two new clusters grouping 66 local companies have been created to satisfy the needs of announced new energy sector projects (El Financiero – Spanish). The state’s Energy Development Minister met with 30 international companies that won fields in previous rounds.
Pemex limited natural gas consumption. Pemex Transformación Industrial asked the industrial sector in the Central region to cut its natural gas demand by 27% (El Financiero – Spanish). The Business Coordinator Board (CCE) warned that reduced supply of natural gas could menace industrial sector productivity (El Financiero – Spanish).
CFE will plan new combined-cycle plants. The state-owned company will promote the construction of new combined-cycle plants to meet the country’s urgent need for new generation (Platts – English). Mexico would add a total of 18.95GW in new combined-cycle capacity.
Old School Social
Events in the world beyond your screen—go see and be seen!
The Outlook for Mexico’s Energy Sector under the AMLO Administration will be held March 5 at the Wilson Center in Washington, D.C.
Unlocking Mexico’s Offshore Potential is scheduled for March 6-7 at the Marquis Reforma Hotel & Spa in Mexico City.
Solar Power Mexico will be held March 19-21 at Centro Banamex in Mexico City.
The asteroid did not kill the dinosaurs—volcanoes did. The meteor that made the Chicxulub impact crater on the Yucatan Peninsula triggered volcanic eruptions. Scientists set precise dates for the impact and eruptions, but are not certain how these simultaneous natural disasters drove the mass extinction (The Conversation – English).
Quote of the Week
“La corrupción no vive del ambiente, la difunde como peste el mal gobernante.”
“Corruption does not live in a vacuum; it is spread around like the plague by a bad leader.”
– José Vasconcelos (1882-1959), Mexican writer, philosopher, and politician.
We hope you have a productive week. Please send any news, comments, or volcano damages to MexicoWeekly@energynarrative.com.
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