The Weekly Brief: Mexico


March 26, 2018 edition—Acciona’s biggest solar plant yet; rules for farmouts are out; and NAFTA is on a good path.




Last Week in a Minute or Less


Renewables & Electricity. Acciona Ingeniería will open Mexico’s biggest solar plant; Colima will use waves to generate power; and Galt Energy expects to double solar panel installations.


Natural Gas & Liquid Fuels. Pemex’s open season for storage and transport was declared void; Ciudad Madero’s refinery will be up and running; and Gulf opened two gas stations in Yucatán.


Oil & Gas Upstream. The Sener published rules for farmouts.


Money & Power. AMLO will try to stop 46 crude contracts; Trudeau will speed up the NAFTA renegotiation and Trump is enthusiastic about it; and Fitch is worried about NAFTA and AMLO.


Déjà vu all over again. Last week’s readers were particularly interested in the nine blocks of Round 3.1 (Onexpo – Spanish); the stop of the Guaymas-El Oro natural gas pipeline (Platts – English); and the Tepeyahualco solar park construction (El Economista – Spanish).



NAFTA Negotiation


Trudeau will speed up the NAFTA renegotiation… Prime Minister Justin Trudeau said he could accelerate NAFTA talks to avoid the US and Mexico election pressures (Bloomberg – English). Trudeau is optimistic, downplaying the impact of negotiations on business investment with a win-win-win deal on NAFTA.


…and Trump is “enthusiastic” about a NAFTA deal. Canada’s Prime Minister Justin Trudeau said President Donald Trump is “enthusiastic” about coming to an agreement on NAFTA (Reuters – English). The US has abandoned the rules of origin demand (El Economista – Spanish) for the auto industry.


Trump disagreed with oil and gas leaders over NAFTA. President Donald Trump disagreed with oil and gas executives about the arbitration language and settlement procedures (Bloomberg – English) in the NAFTA negotiation. US Trade Representative Robert Lighthizer does not support continuing the investor-state dispute settlement provisions.


Mexico’s election may threaten NAFTA negotiations. The dynamic of the NAFTA renegotiation may change with Mexico’s presidential elections. Andrés Manuel López Obrador leads the polls by 14%, and his platform calls for the suspension of NAFTA talks until a new president is elected (CBC – English).


If NAFTA ends, Russia and China will fill in. China and Russia will take the US’s place covering Mexico’s energy needs if the country abandons NAFTA (El Economista – Spanish), according to former ambassador John D. Negroponte. Analysts said the possible US withdrawal could increase Mexican resentment towards the US.


The US considers NAFTA Telecom proposal. The Trump administration is considering promoting telecommunications competition to help close the AT&T issues in Mexico (Bloomberg – English). The US Trade Representative’s office and Mexican regulators are weighing the proposal.



The Road to Reform


The CRE launched the fourth long-term power auction. The Energy Regulatory Commission (CRE) took over from the Sener to publish Mexico’s fourth long-term power auction. The results will be announced on November 2 and the contracts will be signed by February 19, 2019 (El Economista – Spanish).


The CRE expects US$100bn for power generation. In the next 15 years, the Energy Regulatory Commission (CRE) anticipates US$100bn will be invested in renewable power generation. So far, 35 companies from 12 countries are developing 65 new power generation parks with US$8.6bn in investments (El Financiero – Spanish).


The Sener published rules for farmouts. The Energy Ministry (Sener) published the rules to exploit fields between two or more companies and the agreement to unify them (Reforma – Spanish). The Sener will have to implement the rules and ensure their compliance (DOF – Spanish).


Nobody wanted Pemex’s storage and transport capacity. The state-owned company declared the open season for storage and transport capacity offered for the North Area to be void. The bidding included storage terminals in Coahuila, Monclova, Nuevo Laredo, and Sabinas (El Financiero – Spanish) and transportation capacity in the Satélite-Monclova-Sabinas poliduct.



Political Economy


Campeche and Tabasco will have Special Economic Zones. The Special Economic Zones for Tabasco and Campeche were approved. The development programs of Coatzacoalcos, Lázaro Cárdenas-La Unión, and Puerto Chiapas (El Economista – Spanish) consider a territorial code, infrastructure construction, public policies, and complementary actions.


AMLO will try to stop 46 crude contracts. The National Hydrocarbons Commission has programmed two tenders after the presidential elections for 46 onshore and shale fields. Andrés Manuel López Obrador said he will stop the tendering of oil contracts, although members of his cabinet have qualified the assertion (El Economista – Spanish).


For its 80th anniversary, Pemex is producing like it’s 1980. The state-owned company celebrated its 80th anniversary with a production of 1.9 million barrels per day (El Financiero – Spanish), as much as it produced in May, 1980. Analysts point to the lack of investment as the reason for Pemex’s low productivity.


Mexico’s poor population increased by 3.9 million. According to the National Board for the Evaluation of Social Development Policy (Coneval), in the last eight years, extreme poverty dropped by 2.9 million people (Spanish), but the number of poor people increased by 3.9 million. In 2018, 44.4% of Mexico’s total population lived in poverty.



Market Trends


Fitch is worried over NAFTA and AMLO. The international rating agency ratified Mexico’s long-term debt ratings in foreign and local currency to “BBB+” with a stable perspective (El Economista – Spanish). Fitch pointed to the results of the NAFTA renegotiation and the slow implementation of the energy reforms by López Obrador as possible risks.


Fed increases rates and Banxico is expected to follow. The US Federal Reserve will increase its reference rate 25 basis points, leaving it in a range between 1.5% and 1.75% (El Financiero – Spanish). Mexico’s central bank could increase interest rates to 8% this year (El Economista – Spanish), in response to US Federal Reserve pressure.


LP gas prices are down at last. The Energy Regulatory Commission (CRE) said LP gas prices have dropped 10%, benefiting consumers, due to a seasonal factor (El Financiero – Spanish). In Mexico, 76% of homes use LP gas.


The CCE will invest MXN4.1bn. The business sector in Mexico pledged to invest more than MXN4.1bn in 2018. The new investments will focus on three sectors: new energy, manufacturing, and farming (El Economista – Spanish).



Strategy & Operations


Gulf starts working in Yucatán. The US oil giant opened two gas stations in Yucatán. The goal is to conquer 20% of the national market with 2,000 gas stations in five years (Spanish), slower than previously planned due to administrative delays.


Colima will power up with waves. Eco Wave Power México will develop a wave energy generation plant in Manzanillo, the first wave energy plant (El Financiero – Spanish) for commercial purposes in Mexico and Latin America. The plant will have a 4.8MW installed capacity and estimated production will be 18,200MWh per year.


Pemex has high hopes for Ciudad Madero’s refinery. Pemex expects its refinery in Ciudad Madero to process 130,000 barrels per day in April, after a long stop due to maintenance (El Economista – Spanish). The Francisco Madero refinery, with a 190,000 barrels-per-day capacity, began a progressive stop in August 2017 and halted operations completely in December.


Acciona Ingeniería will invest in Sonora’s sun. Acciona Ingeniería will invest US$450m in its biggest solar power project (El Financiero – Spanish) in Latin America. The project will create 750 jobs and will generate 317MW (Energía Limia – Spanish).


Galt Energy expects to double solar panel installations. Galt Energy will double the number of operating solar panel systems by the end of 2018 with 1,700 systems (El Financiero – Spanish). In Mexico, there are approximately 35 million home users and 60,000 solar installations.



Old School Social


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


The North American Digital Commodities Summit will be held March 26 at Crowne Plaza Times Square in New York.


The 33rd Annual Global Power Markets Conference is scheduled for April 9-11 at The Wynn Las Vegas, in Las Vegas.



Lateral Thinking


Mexico’s 2017 earthquake surged from a subduction zone. Mexico is positioned over a flattened area of subduction (Eurekalert – English) upon the Cocos Plate and the North American Plate. The combination created a fault that explains the September 19 earthquake that struck 55 kilometers south of Puebla.



Quote of the Week


“El poder es peligroso pero necesario. Su ausencia deriva en caos, su exceso en tiranía.”


“Power is dangerous but necessary. Its absence leads to chaos, its excess tyranny.”


-Jesús Silva Herzog (1892-1985), Mexican economist, journalist, and writer.



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