The Weekly Brief: Mexico


March 25, 2019 edition—Four for the new refinery; Pemex’s 506 wells; and Sener delayed because of delays.




Last Week in a Minute or Less


Renewables & Electricity. The Sener canceled the fourth power auction because the projects of previous winners are delayed; wind will power up rum and tequila; and the CFE may require tons of coal from Coahuila.


Natural Gas & Liquid Fuels. Only four will fight over the new refinery; AMLO may go to court over pipeline contracts; and Mexico’s refineries will operate at 70% this year.


Oil & Gas Upstream. Pemex will drill 506 wells; the Mexican oil market has room for all; and the Senate may reject the CRE candidates.


Money & Power. Fitch lowers its GDP forecast; the fight against fuel robbery continues; and Mexico’s market attracted foreign investors.


Déjà vu all over again. Last week’s readers were particularly interested in the possible restart of rounds (Platts – English); the future of the Huexca thermoelectric plant (El Financiero – Spanish); and the renewable energy limits (Zócalo – Spanish).



NAFTA Negotiation


Democrats questioned USMCA labor standards. The US trade negotiator opened a campaign to obtain support for the new NAFTA, but Democrats did not respond to it well. A closed-door meeting did not ease the Democrats’ concerns on labor and biological drugs (Reuters – English).


Is the new NAFTA creating jobs? President Trump claimed the USMCA is already bringing investments and creating jobs, citing Toyota’s announcement that it will invest US$749m in five US plants (CNN – English). Although its future is uncertain, the USMCA does pressure automakers to increase production in the US.


Mexico and Brazil have a free trade deal on autos. Mexico agreed to a free trade deal with Brazil on light vehicles, with a 40% regional content requirement (Reuters – English). The high rule of origin is due to Mexico’s high trade concentration with North America (El Economista – Spanish).



The Road to Reform


AMLO may go to court over pipeline contracts. If negotiations fail, President López Obrador could take natural gas pipeline companies to court, no matter the length of the process (Reuters – English). AMLO said that Mexico is not going to make any arbitrary decisions.


Only four will fight over the new refinery. The Energy Ministry invited four companies to bid in the Dos Bocas refinery tender (Reuters – English) to avoid another case like Odebrecht (El Financiero – Spanish). The chosen consortia have proven their technical and financial capacities (El Economista – Spanish).


Over-optimistic power auction bidders ruined it for everyone. The Energy Minister (Sener) explained that one of the reasons for the cancellation of the fourth power auction was due to the delay in previously auctioned projects (El Financiero – Spanish). The government plans to decentralize the energy system (El Financiero – Spanish) (Reuters – English).


The Senate rejected AMLO’s CRE candidates. Different parties in the Senate voted against the Energy Regulatory Commission (CRE) nominees proposed by President López Obrador (El Financiero – Spanish). The time period to name CRE nominees ends on March 26.


The Sener plans to give CFE’s subsidiaries a makeover. The Energy Ministry proposed restructuring CFE’s generation subsidiaries before the National Commission of Improved Regulation. The ministry argued that the current structure complicates effective communication between different areas (El Financiero – Spanish).



Political Economy


Did Nahle hide information on the new refinery’s viability? The political party PRI said Energy Minister Nahle Rocío denied federal lawmakers access to technical documents (El Financiero – Spanish) regarding the viability of the construction of the Dos Bocas refinery. The technical, legal, and financial studies are still being developed.


The fight against fuel robbery continues. Actions to fight LP gas theft are insufficient to stop illegal stations (El Financiero – Spanish). The Navy detained four former Pemex workers involved in fuel robbery in Nuevo León (El Financiero – Spanish) and located two containers with 48,000 liters of hydrocarbons (El Financiero – Spanish).


AMLO vows not to seek a second term. The Lower House approved a constitutional reform that allows for shortening the six-year presidential term (Reuters – English). President López Obrador promised not to fight for a second term and to retire in 2024, after being criticized (Reuters – English).


Yucatán expects 30 companies for its special economic area. Around 30 companies from the science and technology sector are waiting to start operations in the area devoted to the Progreso special economic zone (El Financiero – Spanish). One company has already invested US$90m to settle in the area.



Market Trends


Fitch lowers Mexico’s GDP forecast. The international rating agency cut its economic growth outlook from 2.1% to 1.6% (El Economista – Spanish) (Reuters – English). Fitch said public spending had decreased more than usual in the first months of a new administration.


The Finance Ministry raised the fuel subsidy. The Finance Ministry published the new percentages and amounts of the tax stimulus and the cut in the special tax on gasoline (DOF – Spanish) (El Economista – Spanish). The tax subsidy for gasoline reached 15.72%, 1.95% above the amount announced the previous week.


The IMEF warned of disappointing GDP growth. The Mexican Institute of Finance Executives (IMEF) expects the Mexican economy to grow less than 2% in the first quarter of 2019 (El Economista – Spanish). Even though the year started with fuel shortages and strikes, an economic recession is not expected.


Mexico’s market attracted foreign pockets. Foreign investors introduced US$1.1bn in February, the best result for February since 2010 (El Economista – Spanish). Risk assets, cheap valuations, and the difference with US interest rates boosted investment.



Strategy & Operations


Mexico’s refineries will work harder. The Energy Minister said Mexico’s refineries will operate at 70% this year (English). The Mexican Petroleum Institute is working on catalytic units to enhance Pemex’s existing refining plants to reduce the sulfur content in its products (Platts – English).


Pemex will speed up drilling… Pemex CEO Octavio Romero announced that Pemex plans to drill 506 new wells in 20 fields (Reuters – Spanish). The goal is to obtain more than 300,000 barrels per day in new oil output by 2022 (Platts – English).


…but the Mexican oil market has room for all. More than half of the territory that could be valuable for oil exploitation is abandoned, without exploration (Pulso Energético – Spanish). There are 213,000 km where there is no activity planned.


Wind will power up rum and tequila. Barcardi Limited signed an agreement to purchase wind energy for its plants in Estado de México and Jalisco (El Financiero – Spanish) to cut carbon emissions while producing rum and tequila. Bacardi covers 99.96% of its power needs with renewable sources.


AMLO will not touch mining concessions. President López Obrador pledged not to revoke concessions for mining companies, but requested Canadian companies to follow the same “clean standards” they adhere to at home (Reuters – English). The goal is for the companies to pay correct taxes and salaries without affecting the environment.


CFE will require tons of coal from Coahuila. According to Senator Armando Guadiana Tijerina, the state-owned company requested 360,000 tons of coal to distribute between two power plants located in Coahuila (El Financiero – Spanish). The head of the CFE later denied the information via Twitter the information (El Financiero – Spanish).



Old School Social


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


Expo Oil & Gas Mexico 2019 will be held March 26-28 at the Centro de Convenciones Tabasco 2000 in Villahermosa.


Mexico Energy Assembly is scheduled for April 3-4 at St. Regis Mexico in Mexico City.




Lateral Thinking


Engineers plan a green US-Mexico zone instead of a wall. University of Notre Dame’s engineers joined 28 scientists in a proposal to build an energy-and-water-producing industrial corridor in the US-Mexico border, instead of a wall (ND – English). The goal is to develop an industrial zone, reduce illegal immigration, and create jobs.



Quote of the Week


“La democracia es el equilibrio de poderes.”


“Democracy is the equilibrium of powers.”



– Jesús Silva Herzog (1892-1985), Mexican economist and historian.



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