The Weekly Brief: Mexico


March 5, 2018 edition—Iberdrola is growing; Upstream Round 3.1 values are out; and NAFTA’s Round 7 went smoothly.




Last Week in a Minute or Less


Renewables & Electricity. Iberdrola bets US$2.8bn in Mexico; Durango and Telmex go into the solar business; and the CFE bought expensive wind power.


Natural Gas & Liquid Fuels. Pipeline delays propelled natural gas prices; the CRE is considering a maximum LP gas price; and Pemex lost MXN1.9bn due to Odebrecht.


Oil & Gas Upstream. The CNH published the Round 1 white books; Round 3.1 values were published; and Pemex’s production improved in January.


Money & Power. Interest rates are almost certain to increase in June; Trump asked Mexico to be harsh on illegal migrants; and NAFTA Round 7 is going strong.


Déjà vu all over again. Last week’s readers were particularly interested in Mexico’s country risk (El Economista – Spanish); NAFTA’s effects in rural US (Bloomberg – English); and BHP Billiton’s drilling in Trion (Reuters – English).



NAFTA Negotiation


Round 7 could speed up negotiations. During Round 7, complex themes such as rules of origin, the sunset clause, conflict resolution, and investment security chapters were discussed (El Economista – Spanish). The better regulatory practices chapter was closed in Round 7, representing a major step forward (El Economista – Spanish).


The US auto negotiator is back from NAFTA. The US Trade Representative’s office called the chief negotiator for NAFTA’s auto issues back to Washington from the ongoing NAFTA talks in Mexico City (Bloomberg – English). Canada, Mexico, and the US planned to schedule extra discussions on trade rules for auto production (Reuters – English).


Canadian companies don’t like the US solar panel tariffs. Three Canadian companies that produce solar panels opposed the customs duty on solar panels imposed by President Trump (El Economista – Spanish), arguing that the Trump administration attacked the US Trade Decree and the NAFTA Implementation Decree (The Star – English).


CEOs pledged to bring jobs home if NAFTA ends. Many US CEOs played down risks from the trade pact, assuring that the end of NAFTA could be handled (Bloomberg – English). Fiat Chrysler has announced that Ram production will move to Michigan (El Financiero – Spanish).



The Road to Reform


The CRE is cracking down on LP gas distributors. The Energy Regulatory Commission (CRE) found anticompetitive actions in the LP gas market distribution (El Economista – Spanish) after a 42% increase in prices. The Federal Commission of Economic Competition (Cofece) began investigating possible monopolistic practices (Excelsior – Spanish), and the CRE could impose a maximum price (El Economista – Spanish).


The CFE bought expensive wind energy. The state-owned company bought wind energy 3.7 times more expensive (El Financiero – Spanish) than the cost of production between 2014 and 2016. CFE’s own wind energy had an average cost of 386.2 pesos per MWh, while wind energy it acquired from private generators had an average price of 1,440 pesos per MWh.


The delay in pipelines pushed natural gas prices up. Natural gas prices increased 53% from November 2017 until January 2018 compared to the same period last year. The radical increase was explained by the low national production and the delay in opening new pipelines (El Economista – Spanish).


The CNH published the white books on Round 1. The National Commission of Hydrocarbons (CNH) published and presented the white books of Round 1’s four tenders ( – Spanish). There were no challenges or protests from the participating private companies to the 91 contracts.


Round 3.3 values were published. The Finance Ministry established the minimum and maximum values for the assignment of variables for Round 3.1 (El Financiero – Spanish). The first tender will include 35 contractual areas in shallow waters in the Gulf of Mexico.



Political Economy


Illegal taps multiply every day. The Mexican army detected an average of 16 illegal fuel taps per day, with most of them in eight states (Excelsior – Spanish). Estado de México, Guanajuato, Jalisco, Puebla, Sinaloa, Tabasco, Tamaulipas, and Veracruz suffered 23,187 illegal taps, 75.6% of the total.


Pemex splurged on computer systems and CFE lost MXN9.9bn. Pemex secured almost MXN20bn in the last four years (El Universal – Spanish) to modernize computer systems to improve operations and reduce the technology gap. CFE lost MXN9.9bn in 2017, a significant improvement compared to the MXN84.8bn loss in 2016 (El Economista – Spanish).


The Baker Institute fears elections could disrupt energy reform. The Baker Institute expects Mexico’s presidential elections to disrupt the nation’s ongoing oil and power reforms (OGJ – English). Lourdes Melgar, Mexico’s former undersecretary of energy, said different perceptions surround energy reform, inside and outside of the country.


Trump asked Mexico to block Salvadorian migrants. President Donald Trump demanded Mexico cooperate to stop “violent illegal immigrants” from El Salvador from entering the US (El Economista – Spanish). Trump insisted on the need to build a border wall between both nations (Reuters – English).


Pemex lost MXN1.9bn due to Odebrecht’s ethane. Pemex provided ethylene to the Etileno XXI Complex, controlled by Odebrecht in Veracruz, losing MXN1.9bn (Reforma – Spanish). The Superior Federal Auditor found that Pemex paid MXN237m but received no ethane in two months in 2015-2016 (La Jornada – Spanish).



Market Trends


Mexico grew slowly in 2017. Mexico’s GDP closed 2017 with a 2% annual expansion, the lowest in the past four years (El Economista – Spanish). The reasons were low industrial activity and a small deceleration of the service sector.


Cars and energy are big among investors. The auto and energy industry attracted the most capital to Mexico in 2017. Transportation equipment manufacturing brought in US$6.9bn in foreign direct investment (El Financiero – Spanish), a fourth of Mexico’s total for the year.


Interest rates may increase in June. Inflation seemed to go down but not enough to stop the rate increase in June (El Economista – Spanish). Inflation is expected to slow from 5.55% to 4% by the end of the year.


The peso survived Powell’s announcement. The peso remained stable (El Economista – Spanish) after the US Federal Reserve president, Jerome Powell, announced gradual increases in interest rates. The market is waiting to hear the details of the seventh round of the NAFTA renegotiation to react.


Banxico warned over the economy’s risks. Mexico’s central bank pointed to four risks for the Mexican economy: the NAFTA renegotiation, US monetary policy, Mexico’s electoral process, and difficulties for Mexico’s economic competitiveness (Spanish). Banxico highlighted two positive elements for the economy: an end to NAFTA uncertainty and implementing structural reforms.



Strategy & Operations


Iberdrola bets US$2.8bn in Mexico. The Spanish company plans to build eight projects that will add 2,000 MW (El Financiero – Spanish) to its current capacity. Iberdrola has progressed 36% in the installation of 656,000 solar panels in the Santiago, San Luis Potosí plant (Spanish).


Durango will shine brighter… Eosol started building the La Trinidad I solar plant in Durango with a MXN 2bn investment (El Financiero – Spanish). The solar plant will generate 108MW and 1,200 direct and indirect jobs.


…and Coahuila will enjoy a wind energy lab. Coahuila is counting on the Research Center of Renewable Energies to develop renewable energy and a Wind Energy Laboratory (El Economista – Spanish). The goal is to train renewable energy professionals at the Specialized Unit in Renewable Energy at the Technological Institute of La Laguna.


Telmex goes into the solar business. Telmex will finance and install solar panels in Mexico (El Financiero – Spanish). The service, which includes modifying the customer’s contract and meter with CFE, is available in Estado de México, Hidalgo, Mexico City, Puebla, and Querétaro.


Pemex’s production picked up in January. The state-owned company’s production reached 1,929 million b/d in January, a 3% increase compared with December, but fell 4.5% year over year (Platts – English). Pemex said that its additional production came from offshore fields, where output increased to 1,593 million b/d in January.



Old School Social


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


CERAWeek will be held March 5-9 at the Hilton Americas-Houston in Houston, Texas.


The Renewable Energy Finance Forum Latin America is scheduled for March 12 at Hotel South Beach in Miami.


The 12th Annual Latin American Energy & Infrastructure will be held March 13-14 at Hotel South Beach in Miami.


The Pecom Petroleum Exhibition & Conference of Mexico is scheduled for March 13-15 at Parque Tabasco, Villahermosa.


The CLER Forum 2018 is scheduled for March 14-16 at the Intercontinental Buenos Aires.



Lateral Thinking


Michoacán kids will attend the World Robotic Forum. After winning the national contest, 7-year-old children from Michoacán will represent Mexico in the Robotic World Festival in the US April 18-21 (Brunoticias – Spanish). The children won the contest “First Lego League Jr,” proposing improvements to make the most of water.



Quote of the Week


“Un pueblo que pierde la fuerza necesaria para sacudirse el yugo acaba por venerarlo.”


“People who lose the necessary strength to shake the yoke end up worshiping it.”


-José Vasconcelos (1882-1959), Mexican writer, philosopher and politician.



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