The Weekly Brief: Mexico


March 9, 2020 edition—Shell’s wells; contrary compressors; and Puebla’s power.




Last Week in a Minute or Less


Electric Power & Renewables. Petacalco delayed buying coal because gas is cheap; and the CRE published the Mexican Official Norm Project.


Natural Gas Mid-Downstream & LNG. The Sur de Texas increase in exports may signal the Cempoala compressor reversal; Sempra will make FIDs for its US-Mexico LNG export plants; and Puebla launched an energy plan boosting natural gas infrastructure.


Liquid Fuels Mid-Downstream. Gasoline retail is growing in Querétaro and elsewhere; Mexico may look for gas in Asia; and India may be an example for Dos Bocas.


Oil & Gas Upstream. Amexhi said 24 companies will produce hydrocarbons in 2020; Shell is making progress on its Mexican wells; and Mexico should focus on its reserves.


Government & NGO. The OECD cut Mexico’s growth outlook to 0.7%; CFE increased its profits by 16% in 2019; and Moody’s said Pemex made “good progress.”


Déjà vu all over again. Last week’s readers were particularly interested in AMLO’s investment in Baja California (El Economista – Spanish); New Fortress Energy’s LNG Terminal (Business Wire – English); and Elecnor’s wind project (Energía Limpia para Todos – Spanish).



Geopolitics & Trade


Mexico’s exports increased by 3.2% in January. According to the National Institute of Statistics and Geography (Inegi), the value of goods exported was US$33.6bn in January, a 3.2% increase (El Financiero – Spanish). The number is the highest increase since August 2019.


The agri-food sector sees the USMCA as a threat. The agri-food sector is concerned with the USMCA chapters regarding environmental care, labor rules, and controversy resolution agencies (El Financiero – Spanish). Agro-food exports may reach a surplus of US$10.3bn.


USMCA forces Canada to be Mexico’s labor watchdog. The last changes made to the USMCA place Canada in the role of assessing whether Mexico’s manufacturing operations comply with the newly set labor standards (Canada Autonews – English). The USMCA boosts labor standards and oversight at Mexican plants.



Political Economy


The OECD cut Mexico’s growth outlook to 0.7%. The Organization for Economic Development and Cooperation (OECD) cut Mexico’s economic growth forecast from 1.2% to 0.7% (El Financiero – Spanish). The OECD expects a gradual recovery in many emerging market economies for 2020-2021.


JPMorgan cut Mexico’s growth forecast… JPMorgan reduced Mexico’s growth outlook from 0.9% to 0.7% (El Financiero – Spanish). The reason is slower growth in the US and how it could impact the Mexican economy. March and April will be critical.


…and so did Goldman Sachs. Goldman Sachs cut their 2020 economic growth forecast for Mexico due to the impact from coronavirus (Reuters – English) (El Economista – Spanish). The economists cut Mexico’s GDP growth outlook from 1% to 0.6%.


CFE increased its profits by 16% in 2019… The state-owned company had gross profits increase 16% in 2019, reaching MXN$48.5bn (El Economista – Spanish). CFE will review its workers’ collective contract, which expires on April 30 (El Financiero – Spanish).


…while Pemex doubled its loss. The state-owned company doubled its losses in the first year of the AMLO administration, with a MXN346.1bn loss (Forbes – Spanish) (Reuters – English). Pemex revenue during the October-December period totaled MXN320bn.



Legal & Regulatory


The CRE published the official Mexican Power Sector Norms. The Energy Regulatory Commission (CRE) published the Mexican Power Sector Norms regarding electric energy connections, interconnection, transmission, distribution installations, and security specifications (DOF – Spanish). The CRE answered the comments received regarding PROY-NOM-017-CRE-2018 (DOF – Spanish).


India may be an example for Dos Bocas. Energy Minister Rocío Nahle visited Reliance’s refinery to learn about the dynamic teams and experiences involved in the project and to compare technical decisions (El Economista – Spanish). Nahle said that Reliance will not invest in the Dos Bocas refinery.


Braskem Idesa was in the eye of the storm. While President López Obrador said his administration is considering the cancellation of the supply contract between Pemex and Braskem Idesa, the company defended the contract (El Financiero – Spanish) and did not receive a credit note worth US$26m from Pemex’s failure to supply an agreed amount of ethane (Platts – English).


Petacalco delayed a tender for coal considering how cheap gas is. The Petacalco coal-powered plant delayed one of its coal tenders due to cheap gas prices, but the decision could increase oversupply in the seaborne coal market above 1 million mt (Platts – English).


Senators named the new CRE members and CFE’s independent adviser. Hermilo Ceja Lucas and Guadalupe Escalante Benítez were named by the Senate as new members of the Energy Regulatory Commission (CRE) (El Economista – Spanish). Lawmakers also approved the designation of Maria del Rosío Vargas Suárez as an independent adviser.



Market Trends


Amexhi said 24 companies will produce hydrocarbons in 2020. The Mexican Association of Hydrocarbon Companies (Amexhi) announced that 24 companies will contribute to national hydrocarbons production this year (El Economista – Spanish). For the first time, Pemex published its production with partners and without them.


Moody’s said Pemex made “good progress”… The international rating agency said the state-owned company has made “good progress” in its goal of stabilizing production (El Financiero – Spanish). Moody’s described Pemex’s financial results from 2019 fourth quarter as relatively stable.


…but is concerned with the coronavirus’ effect on Mexico’s recession. According to the international rating agency, Mexico could be at risk of recession due to the impacts of COVID-19 (El Financiero – Spanish). There is a 20% possibility that the coronavirus will negatively impact China’s economy due to the dissemination of the disease.


Analysts expect Banxico to cut 50 points. After the surprise US Federal Bank cut, analysts expect similar measures from Mexico’s central bank, such as 50 points on interest rates (El Financiero – Spanish). Analysts expect three additional cuts this year.


Mexico may look for gas in Asia. With lower fuel demand in China due to the coronavirus crisis, Chinese and South Korean retailers are considering the Mexican market (El Financiero – Spanish). Mexico could purchase cheaper cargos just when US prices have increased.



Strategy & Operations


Gasoline retail is growing in Querétaro and elsewhere. Gas station suppliers have high hopes for 2020 in Querétaro, where fuel demand keeps increasing (El Economista – Spanish). New brands have ousted Pemex in 1,337 gas stations (Forbes – Spanish) and control 20% of gasoline imports (El Financiero – Spanish).


Alfa put its US assets up for sale. In order to improve the efficiency of its subsidiaries, Grupo Alfa will continue with the sale of US assets to leave that market (El Financiero – Spanish). The company wants to exit the oil business.


Sempra will make FIDs for its US-Mexico LNG export plants. Sempra said final investment decisions (FID) to build two new liquified natural gas export plants will be made this year (Reuters – English). For the Mexican plant, the FIDs will take place in the first quarter and for the US plant, in the third quarter.


Tamaulipas is all about the drilling. Grupo Jaguar Exploración y Producción will broaden its operations in the Northern state, while Repsol chose the Tampico port as a logistic operations center for six contractual areas located on Tampico’s coast (El Economista – Spanish).


Shell is making progress on its Mexican wells. The British-Dutch company is making progress in its drilling plan in Mexico’s deep waters with the goal to drill four wells in 2020 (El Financiero – Spanish). The drilling plan includes between 10 and 13 wells.


The Sur de Texas increase in exports may signal testing to reverse a compressor. The high volumes on the Sur de Texas-Tuxpan Pipeline in February may indicate that testing has started on the Cempoala Phase II compressor station reversal (Platts – English). On February 15, receipts reached 950MMcf/d, their highest on the pipeline.


Puebla launched an energy plan that will help natural gas infrastructure. The government of Puebla presented its energy strategy to attract investments of MXN38.9bn in the next five years (El Financiero – Spanish). Most of the investment would be focused on power generation, approximately MXN29bn, and the rest devoted to natural gas infrastructure.


Mexico should focus on its reserves. Pulso Energético analyzed the stranded assets and the need to develop Mexico’s reserves which, at the current pace, will last nine years (Pulso Energético – Spanish). The value of Mexico’s future resources is 85,539MM barrels of oil equivalent (Pulso Energético – Spanish).



Old School Social


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


Mexico Assembly will be held April 1-2 at the Hyatt Regency in Mexico City.


The Mexican Energy Forum is scheduled for April 29-30 in Mexico City.




Lateral Thinking


A company from Guadalajara developed solar energy software. Through the Ctrl+Sun software created in Guadalajara, solar energy companies will be able to make improved estimations based on energy demand from clients – either residential clients or industrial clients – through CFE bills (El Economista – Spanish).



Quote of the Week


“Solo lo absoluto merece el acompañamiento de la eternidad.”


“Only the absolute deserves the company of eternity.”



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




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