March 23, 2020 edition—Natural gas open seasons are off; drilling is up; and Canada’s USMCA ratification.
Last Week in a Minute or Less
Electric Power & Renewables. CFE works on Nuevo León’s new transmission line; and the CRE published the NOM-017-CRE-2019.
Natural Gas Mid-Downstream & LNG. Iberdrola has no gas to power its Tuxpan plant; and the CRE canceled natural gas pipeline and storage open seasons.
Liquid Fuels Mid-Downstream. With low oil prices, the Sener bets on refining; and Querétaro will count on more gas stations.
Oil & Gas Upstream. Drilling in Mexico is increasing; the government will invite private companies to energy projects, but rounds are off; and the Sener has Talos and Pemex info on Zama.
Government & NGO. Canada finally okayed the USMCA; AMLO said Mexico will stay away from deficit in 2020; and analysts expect a huge cut from Banxico.
Déjà vu all over again. Last week’s readers were particularly interested in AMLO’s energy investment plan (El Financiero – Spanish); the plan for biorefineries (El Financiero – Spanish); and Enel’s clean energy for Heineken (Forbes – Spanish).
Geopolitics & Trade
COVID-19 hit Mexico’s imports. The economic impact of COVID-19 on imports affiliated with the manufacturing industry program (IMMEX) is estimated at between 15% and 20% of its volume, between US$1.5bn and US$2bn (El Financiero – Spanish). The IMMEX program formed a multidisciplinary approach to mitigate the effects of the virus.
Canada finally okayed the USMCA… Canada’s House of Representatives and Senate approved the new NAFTA (El Economista – Spanish) (USTR.gov – English). The decision was made before cancelling activities due to the coronavirus.
…and Mexico should enjoy it. Banxico’s governor said that Canada’s ratification will bring benefits in the long run, but now the markets are focusing on the effects of COVID-19 (El Financiero – Spanish). The Finance Minister said Mexico should take advantage of the trade deal immediately (Reuters – English).
US Senator Grassley has doubts about the USMCA start date. US Senate Finance Committee Chairman Charles Grassley said the Trump administration’s proposed date for the USMCA implementation (June 1) could pressure the US automaker industry further while it is suffering supply chain disruption due to the coronavirus crisis (Reuters – English).
The US and Mexico discussed how to tackle COVID-19. Mexico’s Foreign Minister Marcelo Ebrard and US Secretary of State Mike Pompeo discussed how to respond to the coronavirus (Reuters – English). President López Obrador said that his administration has a “very good relationship with the government of the US.”
AMLO said Mexico will not have a deficit in 2020. Before a major annual banking conference in Acapulco, President López Obrador said that the country will not run up a deficit in public finances in 2020 (Reuters – English). AMLO also pledged that the government will respect the autonomy of the central bank.
Analysts forecast a recession in Mexico. Four banks and financial consultancies forecast a recession in the country in 2020. The fall in oil prices will hit public finances, and Pemex’s financial situation increases the risk of a new rating cut (El Economista – Spanish).
IMEF cut Mexico’s GDP outlook to 0.6%. The Mexican Institute of Finance Executives (IMEF) reduced its growth outlook to 0.6% due to the effects of COVID-19 in the country (El Economista – Spanish). The estimate does not consider the effect on tourism.
FocusEconomics lowered Mexico’s GDP outlook. Several investment banks expect Mexico’s growth to be below 1% in 2020 due to the impact of coronavirus and government measures to limit contagion (El Economista – Spanish). They don’t expect the GDP to reach 2% as the government forecasts in its budget.
Legal & Regulatory
The CRE canceled natural gas pipeline and storage open seasons. The Energy Regulatory Commission (CRE) temporarily stopped the agreement that allowed open seasons or capacity transfer activities for natural gas pipelines and storage (DOF – Spanish). The CRE plans to develop a secondary market to speed up capacity transfers.
With low oil prices, the Sener bets on refining. Energy Minister Rocío Nahle said that Mexico should increase refining, considering the fall in oil prices (El Financiero – Spanish). President López Obrador asked the whole team to speed up work on the Dos Bocas refinery.
The CRE published the NOM-017-CRE-2019. The Energy Regulatory Commission (CRE) published the methods of variable measuring for estimating the percentage of fuel-free energy (NOM-017-CRE-2019) (DOF – Spanish). The rule considers cogeneration, hydroelectric, hydrogen, and clean energy plants.
The government will invite private companies to energy projects, but rounds are off. Mexico will soon announce the plan to invite private companies to invest in oil, gas, and power projects. Rounds and farmouts will not be considered due to the fall in oil prices (Forbes – Spanish).
The Sener has Talos and Pemex info on Zama. The Energy Ministry has the projections made by Talos Energy and the state-owned company on the Zama field. If Talos and Pemex do not reach an agreement, the Energy Ministry will decide which one will be the operator (Forbes – Spanish).
Moody’s and S&P warned Mexico over its credit rating and recession… Moody’s said that the fall in oil prices increases the risks to Mexico’s sovereign credit rating (Reuters – English). S&P warned that the coronavirus propagation is bringing recession a step closer (El Financiero – Spanish).
…and the effect of COVID-19. Moody’s Analytics said that the Mexican economy will not escape recession this year if the coronavirus outbreak gets worse (El Economista – Spanish). At the time of the announcement, Mexico reported 15 cases, but by Thursday, March 19, there were 118 infected and one death (El Financiero – Spanish).
Analysts expect a huge cut from Banxico. Mexico’s central bank is expected to follow the US Federal Reserve decision and cut 100 points off the reference interest rate in the next meeting (El Financiero – Spanish).
Banxico carried out a US$2bn auction. After the peso reached a new low, the bank carried out a currency auction worth US$2bn to promote better liquidity conditions (Reuters – English) (El Economista – Spanish). The currency auction is the second in a week.
Strategy & Operations
CFE is working on Nuevo León’s new transmission line. The state-owned company started the construction of a new transmission line to broaden the grid in Nuevo León and satisfy regional electricity demand and industrial development (El Financiero – Spanish).
Querétaro will count on more gas stations. After the reactivation of sessions by the Energy Regulatory Commission, the state expects an increase in the number of gas stations, with more permits being approved for them than in the previous year (El Economista – Spanish). In 2019, only 12 permits were approved.
Pemex will cut expenses, but no expensive fields. As a response to the fall in oil prices, the state-owned company will cut administrative expenses and contracts (Reuters – English). Despite the news, Pemex will invest US$87m in the Perdiz onshore field, where the cost of extraction is US$24 dollars, reaching US$50 per barrel after adding taxes (El Economista – Spanish).
Iberdrola has no gas to power its Tuxpan plant. Iberdrola continues to have difficulties securing natural gas supply for its new power plant in Tuxpan. A pre-agreement signed with CFE has been halted (El Economista – Spanish). Iberdrola agreed to pay MXN3.1m for a 15-year contract.
Drilling in Mexico is increasing. Pacific Drilling was awarded a contract in Mexico for the Pacific Sharav drillship by Murphy in Mexico (World Energy Trade – Spanish). The contract will start in November this year and will be finished in February 2022.
Old School Social Goes Viral
(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Don’t forget to stay six feet apart!)
2nd Edition of Shallow and Deepwater Mexico was postponed due to coronavirus. Date TBD.
Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.
Mexico Assembly was postponed due to coronavirus. Date TBD.
The Mexican Energy Forum is scheduled for April 29-30 in Mexico City. It is probable that the event will be postponed to later in the year.
The Mexican Petroleum Congress is scheduled for June 24-27 in Monterrey and may be postponed until September.
Oaxaca’s mountains were hiding a 3,400-year-old ballgame. While the excavation of the Mexican site of Etlatongo started in 2015, scientists have now concluded that the mysterious structure found was a court used in a ballgame played in Mesoamerica (Science Mag – English). The court was built between 1443 and 1405 B.C.E. and was used for about 175 years.
Quote of the Week
“Las revoluciones se tragan a sus hombres.”
“Revolutions swallow their men.”
– Jesús Silva Herzog (1892-1985), Mexican writer, journalist, and economist.
We hope you have a productive week. Please send any news, comments, or really old games to MexicoWeekly@energynarrative.com.
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