The Weekly Brief: Mexico

March 20, 2017 edition— Gas pipeline capacity was a hit; 15 more Rounds may be needed; and CFE’s storage capacity for all.




Last Week in a Minute or Less


Renewables & Electricity. Semarnat ponders Yucatán’s wind farm and Nuevo León energy cluster suffers from high electricity tariffs.


Natural Gas & Liquid Fuels. Demand exceeded supply in the gas pipeline capacity auction; CFE will offer storage capacity; and Glencore goes into the fuel retail business.


Oil & Gas Upstream. 15 more Rounds could be needed and Trion’s production may use the Great White field’s pipeline into the US.


Money & Power. CFE bets Fibra E will draw MXN10bn and Mexican and US trade officials met; and the Pacific Alliance backs Mexico.


Déjà vu all over again. Last week’s readers were particularly interested in the three new rounds (Spanish); the new increase in industrial electricity tariffs (Spanish); and the increase in US gas exports to Mexico (English).



The Road to Reform


Mexico needs 15 more Rounds. Analysts predict 15 Rounds equivalent to Round 1 are required  to achieve Mexico’s potential output of 3.4 million barrels per day by 2040, as forecast by the IEA (Spanish). Approximately US$26.6bn are needed annually to reach that level; US$14.3bn could come from Pemex and US$12.2bn from private companies.


Demand for gas pipeline capacity exceeded supply. The National Center of Natural Gas Control (Cenagas) received 759 bids for 2.7 million GJ/d, exceeding the available capacity by 30% (English) (Spanish). The bidders included Compañía Mexicana del Gas, Eco Gas Mexico, Macquarie Energy Mexico, Pemex, and Shell Trading.


The first open season for storage and pipeline systems will have a do over. Due to a mistake in the methodology, the auction for the first open season for nine Pemex storage systems and four pipeline systems will have to be repeated (Spanish) (English). Applicants submitted their financial proposals on March 10.


CFE will offer storage capacity to private partners. The state-owned company could offer storage capacity of up to 10.7 million barrels of liquid fuels in 60 terminals (Spanish) (English). CFE will publish between March 21 and 24 the first terms of reference for the auctions to seek experienced partners in this type of storage infrastructure.


Trion may have direct access to the US market. The CNH hinted that the Great White field’s pipeline could be used to transport Trion’s production to the US (English). The Great White field has 50% of its capacity available in a line connected to the US only 39 kilometers distant from Trion.



Political Economy


New bribery scandals and layoffs in Pemex. The state-owned company demanded new investigations of its personnel after seven workers were barred from rehiring due to corruption (Spanish). The US Securities and Exchange Commission found that Key Energy’s Mexican subsidiary paid MXN9m in bribes to obtain extensions on contracts for Pemex wells (Spanish) (English).


Sonora revives energy-saving program. The northern state reactivated an energy-saving program with a budget of MXN112m for households to replace old air conditioning systems and fridges (Spanish). The program resumed operations in December 2016, and received 164 requests for air conditioning systems and 115 request for fridges in Hermosillo alone.


Pemex goes to court over environmental damages due to illegal taps. The state-owned company filed for injunctions to avoid paying remediation for the contamination of soils caused by illegal taps (Spanish). The Supreme Court finding on responsibility for damages will affect future resolutions about private companies’ pipelines and plants.


IMF says fiscal consolidation is imperative for Mexico. Due to the uncertainty surrounding commercial relations with the United States, the International Monetary Fund (IMF) urged Mexico to make progress on fiscal consolidation and debt sustainability (Spanish). Mexico can achieve this goal by increasing the number of taxpayers or reducing public spending.



Market Trends


Mexico and US trade officials met… Economy Minister Ildefonso Guajardo and US Commerce Secretary Wilbur Ross met to discuss the bilateral agenda in Washington D.C. (English). While considering how to respond to US tax and tariff proposals, Finance Minister Meade affirmed Mexico has less room to negotiate fiscal reforms than the US (English).


…and the Pacific Alliance Partners support Mexico. Finance ministers from the Pacific Alliance worry the effect of “the Trump-Mexico theme” can spill over beyond the binational relations to impact other countries (English). The ministers expressed backing for Mexico and stressed the need to continue trade talks with the Asian region.


Mexico’s inflation reached a 7-year high. In the year since February 2016, Mexico’s annual inflation rose to 4.86 percent, the highest since March 2010 (English). The reasons for inflation to rise above the central bank’s ceiling was the government’s increase of gasoline prices and, in the February price index, jumps in the price of cars and tortillas.


CFE bets MXN10bn from Fibra E. The state-owned company will launch in 2017 this new energy and infrastructure investment trust to test market response, aiming to attract MXN10bn in private investment  (Spanish). Less than 10% of CFE’s transmission assets will be placed in the trust and Board approval remains pending.



Strategy & Operations


BP will open 1,500 gas stations. The oil giant will open in the Estado de México the first gas station in Mexico operated by a multinational company  (Spanish). The decision to open 200 gas stations in Mexico this year came after liberalization of the gasoline market in January 2017 (Spanish).


Glencore sets sights on Mexico. Glencore is entering Mexico’s fuel supply sector with a 15-year supply agreement and a US$200m investment in the next two years in gas stations  (English) (Spanish). Through a joint-venture, Glencore will supply 180,000 fuel barrels per day to 1,400 stations and create a new franchise brand with G500 Grupo Gasolinero.


Semarnat is assessing Yucatán’s wind farm. The Environmental and Natural Resources Ministry is conducting an environmental impact study of the Progreso Wind Farm project of Energía Renovable de la Península funded with Chinese and Mexican capital (Spanish). The 90-MW capacity project for 36 wind turbines, costing US$162m, requires a change in land use.


The Economy Ministry rewards energy cluster with MXN25m. The Energy Cluster of Nuevo León will receive MXN25m from the Economy Ministry to map the needs of small and medium businesses in the hydrocarbons and electricity sectors (Spanish). The major concern of those businesses is the cost of electricity, gas, and liquid gas.



Old School Social


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


The Pecom Petroleum Exhibition & Conference of Mexico is March 28-30 in Villahermosa, Tabasco.


The 2017 Mexico Energy Assembly is April 8-9 in Mexico City.



Lateral Thinking


Guadalajara is Mexico’s Silicon Valley. In the last decade, the capital of Jalisco has attracted 15 corporations, including HP, IBM, Motorola, and Oracle, that work alongside 600 small and medium companies (English) (Spanish). Some companies keep their financial and sales divisions in Silicon Valley and set up their research and development departments in Guadalajara.



Quote of the Week


“La libertad individual es un fin en sí mismo, y a la vista de la historia de nuestros días, el más apremiante.”


“Individual freedom is an end in itself, and considering the history of our days, the most urgent.”


-Daniel Cosío Villegas (1898-1976), Mexican historian, diplomat, and economist.




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