The Weekly Brief: Mexico


March 12, 2018 edition—Pemex looks into Burgos; Tabasco’s new refinery planned; and Iberdrola’s wind in Guanajuato.




Last Week in a Minute or Less


Renewables & Electricity. Oaxaca and Guanajuato invest in wind; ABB will go after Mexico’s power market; and Chihuahua will have a new solar project.


Natural Gas & Liquid Fuels. Tabasco plans to build a new refinery; Profeco impounded LP gas cylinders; and imported gasoline prices increased in the last six months.


Oil & Gas Upstream. Pemex will bet on Burgos; Mexico will tender extra-heavy fields; and Pemex is looking for partners.


Money & Power. NAFTA negotiations will continue after the elections; Kushner met EPN; and S&P ratified Mexico’s rating.


Déjà vu all over again. Last week’s readers were particularly interested in the Baker Institute’s opinion on the Mexican elections (OGJ – English); CFE’s wind energy choices (El Financiero – Spanish); and Iberdrola’s investment in Mexico (El Financiero – Spanish).



NAFTA Negotiation


Trump’s trade threat menaced NAFTA talks… President Trump announced steel and aluminum tariffs in the middle of the NAFTA talks (Bloomberg – English). The announcement gave Mexico and Canada reason to intensify their negotiating positions (El Financiero – Spanish) against the US, and both demanded to be exempted (El Financiero – Spanish).


…and Trump suggested a way out. President Trump suggested that Canada and Mexico could be exempted from the new steel and aluminum tariffs if a “new and fair” NAFTA is signed (El Financiero – Spanish). Trump also demanded that Canada treat new farmers better and Mexico stop drugs from crossing the border.


NAFTA talks closed the Good Regulatory Practices chapter. Kenneth Smith said the good regulatory practices chapter was closed (El Financiero – Spanish), with plans to promote transparency and create a committee to promote cooperation. The NAFTA talks will continue to an eighth round, when agreement on three chapters is expected (El Financiero – Spanish).


The NAFTA renegotiation will continue after the elections. The negotiation and ratification of the new NAFTA will coincide with the electoral processes in Canada, Mexico, and the US (El Economista – Spanish). Mexico will choose a president, congressmen, and senators by July 1; Ontario and Quebec will hold elections; and the US will hold mid-term elections.



The Road to Reform


Pemex will take part in the Burgos shale tender. The state-owned company will participate in Mexico’s first shale tender (El Economista – Spanish). Pemex is also looking for partners for two deepwater blocks it recently won (El Economista – Spanish).


Mexico will tender extra-heavy fields. Mexico plans to offer four extra-heavy fields (El Financiero – Spanish) to big oil companies to attract investment as it tries to reverse the decline in oil production, which fell under 2 million barrels per day in 2017.


The CNH got 72 oil contracts signed. The National Hydrocarbons Commission (CNH) had 72 oil contracts approved (El Economista – Spanish) in the new regime since 2015. Most contracts (56) are licenses and 16 are shared production.


CFE plans to sell CELs to users. The state-owned company is considering selling clean energy certificates (CELs) to transfer the tariff benefits to users (El Economista – Spanish). The challenge for clean energies in Mexico will be determining how many CELs are required.


Profeco cracked down on LP gas cylinders. The Federal Prosecutor for Consumers (Profeco) took 120 LP gas cylinders in Guerrero out of circulation, along with 24 in Veracruz and 15 in Sinaloa (Forbes – Spanish). The reasons were gas leaks, inaccurate weight, and a lack of commercial information.



Political Economy


The special tax on gasoline collected less. In January, the government collected MXN12.6bn, 33.9% less on the special tax on gasoline and diesel (El Economista- Spanish) compared to January 2017. In February, gasoline prices increased with the special tax, despite the 4.5% drop in international oil prices (El Economista – Spanish).


Pemex paid for non-working union workers. The Superior Federal Auditor (ASF) noticed that for years, Pemex paid the salary of 343 trade unionists (Reforma – Spanish) from Union of Oil Workers of the Mexican Republic (STPRM). The trade unionists were assigned to eight drilling teams that were inactive between 385 and 2,831 days (Xeu – Spanish).


Jared Kushner met President Peña Nieto. Jared Kushner, Trump’s son-in-law, met with President Peña Nieto and Foreign Relations Minister Luis Videgaray (El Financiero – Spanish) to discuss themes from the bilateral agenda. The meeting was meant to soothe tensions between Mexico and the US (The New York Times – English).


Banxico blames corruption and insecurity for Mexico’s slow growth. The Mexican central bank’s deputy governor said corruption and insecurity discouraged investment (El Economista – Spanish) and economic growth. To make Mexico more attractive and to achieve long-term growth, public policies should offer appropriate incentives, with the goal of investing in infrastructure.



Market Trends


Imported gasoline prices rose 21% in six months. The estimated price of Pemex’s gasoline imports increased almost 14 dollars per barrel, propelling Magna and premium gasoline prices (El Universal – Spanish). The president of the Mexican Association of Gasoline Businessmen (Amegas) said that gasoline prices are tied to the daily oil price estimates.


Pemex olefins production is up but still down. In 2018, Pemex started the year with a slightly higher olefins (mostly ethylene) production, totaling 44,299 mt in January (Platts – English). Although the figure was 0.7% above December 2017 production, it was still 9.9% below January 2017 levels.


S&P ratified Mexico’s rating. The international rating agency Standard & Poor’s ratified Mexico’s sovereign grade at BBB+/stable perspective (El Economista- Spanish), but warned that a negative change in the political economy after the elections could downgrade the rating. S&P said none of the presidential candidates propose major changes to current fiscal policies (El Economista – Spanish).


The IMF is happy with Mexico’s oil hedges. The International Monetary Fund (IMF) said Mexico’s oil hedge can support the country’s finances (El Economista – Spanish) when hydrocarbon income falls. In a report, the IMF explored how hedging can reduce income volatility (IMF – English) and reduce risks on sovereign debt.



Strategy & Operations


Tabasco wants to build a new refinery and needs help. The government of Tabasco is looking for investors to construct a modular 100,000 barrels per day refinery (El Financiero – Spanish). Seed capital investors from the US and Saudi Arabia have committed 10% of the US$2.1bn that the project requires.


Mitsubishi and Siemens bet on Oaxaca’s wind. Mitsubishi, Electricite de France, and Siemens will invest more than US$2bn in three wind projects (El Financiero – Spanish) in Oaxaca. The three wind parks will generate at least 2,000MW of clean energy to be sold in Mexico’s central and southeast states.


Grupo Carso will invest big in energy. Grupo Carso will invest MXN9bn, of which 66% will go to Carso Energy (El Financiero – Spanish). The goal is to invest in hydrocarbon exploration and production, as well as potential geothermal power fields.


ABB wants in on Mexico’s power market. ABB will participate in six planned auctions to modernize and broaden the transmission grid (El Financiero – Spanish), projects for which the Energy Ministry expects US$6bn in investment. ABB is interested in the tender to connect Baja California with the national system and the Tehuantepec Isthmus line.


Iberdrola will have a wind park in Guanajuato. The Spanish company announced an investment of US$160m to install a wind energy plant in San Felipe. The new plant will generate 700 direct jobs and will have 105MW of capacity (El Financiero – Spanish).


Chihuahua will shine with a solar project. Uriel Renovables presented a solar project named San Jerónimo Solar that will begin operations in 2019. The plant will generate power for 100,000 homes with 113,000 panels and a 35.5MW capacity (El Economista – Spanish).



Old School Social


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



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


Mexico’s energy sector is opening up for women. Pemex is above the international average in gender equality and keeps growing, with women being between 25 and 27% of its personnel (Pulso Energético – Spanish). In total, 198 women are in executive positions.



Quote of the Week


“El liberalismo es falso, pero la libertad es verdadera.”


“Liberalism is false, but liberty is true.”



– Antonio Caso (1883-1946), Mexican philosopher and UNAM dean from 1921 to 1923.



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