The Weekly Brief: Mexico

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March 28, 2016 edition— Pemex raises gas price; Monterra Energy enters the oil pipeline business; and the Energy Cluster of Nuevo León gets underway.

 

 

 

 

Blind Spots

 

Gulf Coast cities suffer with oil slump. Hoteliers, restaurateurs, truckers, builders, and airlines operating in Campeche, Tabasco, and Veracruz face an economic crisis following the cancellation of several contracts between Pemex and engineering firms responsible for coastal projects (Spanish). Jobs for employees and businessmen in the coastal oil region will also collapse.

Pemex vs Mancera over Tula’s pollution. Mexico City mayor Miguel Ángel Mancera called emissions from the Pemex Tula refinery “highly polluting” and said the gases make tightened restrictions on circulation of automobiles inadequate for controlling the capital’s pollution emergency. Pemex denies the accusation and declares its second largest refinery meets environmental standards (Spanish).

Pemex plans to abandon platforms. As part of its budget cutting, Pemex will eliminate 66% of its contracts for platforms, principally drilling rigs (Spanish). Pemex Exploration and Production (PEP) started the year with 30 contracts, and will cancel most of them by September, leaving only 10 platforms active.

Not much to celebrate at the Oil Expropriation Anniversary. Today, 78 years after seizing the oil fields, Pemex is saddled with a heavy debt burden, massive losses, a continuing decline in oil and gas production, and an increasing dependency on foreign imports. The company today depends on capitalization from the state (Spanish).

 

 

The Road to Reform

 

Green gasoline project postponed until 2017. Due to low oil prices, Pemex will postpone its plans to sell gasoline with an ethanol additive until the end of 2017. The suppliers contracted by Pemex will delay deliveries because it is not profitable to produce ethanol in the current price environment (Spanish).

Fermaca wins Laguna-Aguascalientes pipeline bid. The CFE awarded the Mexican company the contract to build, operate, and maintain the La Laguna – Aguascalientes natural gas pipeline, with an offer of US$372.5m (English). The pipeline will have a capacity of 1,189 Mcf/D, a diameter of 42 inches, and an approximate length of 600km (Spanish).

CNH backs firedamp natural gas allocation. Following the CNH’s approval of the guidelines and rules, the Energy Ministry will be able to hand out the first direct allocation of a contract of firedamp natural gas exploitation to Minsa (Spanish). The company already extracts coal from its mining concessions in Coahuila.

Mining rules issued. The CNH approved the rules to determine whether coal mining companies have the capacity to extract and market natural gas found with coal (Spanish). The companies will apply to the Energy Ministry for allocation of contracts, and the CNH will be consulted for the final decision.

Mx Oil abandoned three Round 1 oil fields. The British company sold its Round 1 fields in Veracruz to the Mexican company, Geo Estratos, its partner in the biddings. Both companies won four contracts in the Round, and Mx Oil had a 55% participation in the projects, worth US$1.8m (Spanish).

 

 

Political Economy

 

Banxico’s surplus could reach MXN450bn. The excess reported by Banxico for the 2015 fiscal year may amount to between MXN250bn and 450bn, according to the Mexican Institute of Public Accountants (IMCP) (Spanish). The surplus should be handed over to the Finance Ministry, and could be used to capitalize Pemex.

…and the funds could help Pemex. The governor of the Bank of Mexico does not consider as a “perverse incentive” the use of the surplus to capitalize Pemex (Spanish). The funds are extraordinary resources and the Finance Ministry decides their use, but they should not be applied to recurring expenses.

Financial stability may be temporary: Banxico. The Bank of Mexico believes that favorable financial conditions may shift, especially given the variety of external risks (Spanish) (English). Uncertainty over China’s growth and the possible slippage in the oil price are risk factors which can increase volatility.

Some Pemex suppliers still waiting for payment. Big companies, suppliers of goods and services to the state-owned company, await word on the scheme for money they are owed. After Pemex paid MXN15bn to cancel debt with 1,300 small and medium businesses, the company still owes MXN127bn to big businesses (Spanish). 

 

Market Trends

 

Fibra E will get more attractive. Beginning April 1, the Fibra E fiscal regime will be more flexible, according to the Finance Minister (English). Modifications will allow tax deferral on some profits and adjust criteria for assets eligible for Fibra E, control of holdings, and repurchase of stock-market certificates (Spanish). 

Pemex’s rating in freefall: S&P’s. The international agency forecasts that the rating of the state-owned company will keep falling despite support from the sovereign. Pemex’s rating will continue to be lowered if it does not receive the help of the government and implement significant reform (Spanish).

Pemex raises the price of natural gas. The Energy Ministry announced that beginning in March industrial users of natural gas will pay 13.6% more than they paid in February (Spanish). The CRE authorized a change in the Pemex pricing methodology to allow the increase, according to Sener’s Unit of Industrial Transformation Policies. 

 

Strategy & Operations

 

Fuel import business on rails. The Energy Minister reported that five business groups are interested in importing gasoline using the railway (Spanish). Two firms plan to build polyduct pipelines: a $500m investment by Howard Energy Partners and an Invex Group project for a pipeline that could carry 100,000 barrels a day barrels from Veracruz to central Mexico.

Nuevo León lures US$4.7bn in bets on energy. The Energy Cluster of Nuevo León launched with US$4.7bn in investment commitments which will be exercised during the next 15 months  (Spanish). Government and companies, including Iberdrola, Arendal, Ternium, and Onexpo, will promote generation of a potential 3,729 MW of electricity.

Monterra Energy goes into the oil pipeline business. The company announced plans to construct an oil pipeline to transport refined imported products from Tuxpan, Veracruz, to the center of the country (Spanish) (English). The pipeline will be 18 inches in diameter and have  capacity to transport nearly 165,000 barrels per day.

Ienova may issue shares to finance energy projects. The company may make the follow-on offering in the second semester of the year on the Mexican Stock Exchange. The aim will be to finance the acquisition of 50% of the Pemex share in Gasoductos de Chihuahua (Spanish).

 

 

Lateral Thinking

 

Dinosaur fossils found in northern Mexico. Marine invertebrate animal fossils aged between 70 and 95 million years were found in 17 different areas in cities in Chihuahua. With these findings, the National Institute of Anthropology and History could determine the limits of the sea during the Cretaceous period (English).

 

Quote of the Week

 

“Y todo lo que decimos no es sino una minúscula parte, inexpresiva, de lo que no decimos. Y todo lo que queremos, es inalcanzable. Y todo lo que anhelamos es imposible.”

 

“And everything we say is only a small, inexpressive part of what we don’t say. And everything we want is unreachable. And everything we long for is impossible.”

 

  • Jaime Sabines (1926-1999), Mexican poet.

 

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