The Weekly Brief: Mexico

March 6, 2017 edition— All eyes set on Round 2.1; the Electric Power Capacity Balancing Market is here; and wind energy will grow 170%.




Last Week in a Minute or Less



Renewables & Electricity. Wind energy will get US$12bn and grow 170% and the Electric Power Capacity Balancing Market is operating.


Natural Gas & Liquid Fuels. Pres. Peña Nieto opens the Ternium natural-gas fired plant and Pemex allied with Air Liquide at the Tula refinery.


Oil & Gas Upstream. Crude production dropped; 23 big oil giants are interested in Round 2.1; and Mexico may build a refinery with private financing.


Money & Power. Banxico lowers Mexico’s growth forecast; NAFTA might now include energy; and remittances and exports grew.


Déjà vu all over again. Last week’s readers were particularly interested in the anomalies of Round 1 (Spanish);  border factories’ fears (English); and the winners of the importation pipeline auction (English).



The Road to Reform


The Electric Power Capacity Balancing Market is up and running. The National Center of Energy Control announced the imminent launch of the Electric Power Capacity Balancing Market to avoid generation shortages (Spanish). Unlike the Wholesale Electricity Market, this market will compensate generators for capacity that was available during peak hours in the previous year.


Big oil giants have Round 2.1 in sight. According to the National Hydrocarbons Commission (CNH), 23 companies have registered for the 15 shallow-water fields of Round 2.1 (Spanish). Companies including BP, Chevron, Eni, Inpex, Noble Energy, Repsol, Shell, Sierra, Statoil, and Total have paid US$440,000 each to access seismic data.


Pemex signed its first deep-water joint venture. The state-owned company, Chevron, and INPEX inked a joint venture for deep-water exploration in 1,687 square kilometers in the Gulf of Mexico (English) (Spanish). The contract is a result of Round 1.4 and will require an investment of US$100m (Spanish).


The Sener launches a contest on clean technology. The Energy Ministry (Sener) published for the second time the Prodetes contest for research centers, universities, and the private sector to develop and market clean technology projects to reduce carbon emissions (Spanish). Proposals focused on renewable energies, energy efficiency, and biofuels are eligible.


Conago wants a piece of the energy reform. The National Conference of Governors (Conago) wants to be taken into consideration in energy reform projects given states’ roles in ensuring their viability (Spanish). Conago’s president called for accelerating diversification of energy sources through using sugar cane based ethanol and natural gas in transportation (Spanish).



Political Economy


NAFTA may include Mexico’s energy sector… Mexico is considering inclusion of opportunities in the energy sector in the NAFTA renegotiation (Spanish). When NAFTA was created, Mexico’s energy sector was closed for private investment and Mexico was a net exporter. Now, the energy sector is open and Mexico imports fuels from the US.


…but if the US proposes tariffs in NAFTA, Mexico is out. Ildefonso Guajardo, Mexico’s Economy Minister, said that Mexico will walk out on the NAFTA renegotiation if the United States insists on imposing tariffs on Mexican products (English). Mexico expects President Trump will not succeed in setting harsh trade barriers.


Pemex cut its losses and CFE is in the black. The state-owned oil company’s fourth-quarter loss was reduced to US$1.5bn, thanks to higher crude oil prices, and Pemex plans to reduce its oil production costs by one dollar per barrel (Spanish) (English). CFE posted a net profit of MXN85.5bn in 2016 after slashing long-term liabilities (Spanish).


Half of the CRE’s budget goes to salaries. Between 2012 and 2016, the Energy Regulatory Commission (CRE) more than doubled its workforce to 462 employees from 176 workers (Spanish). In 2016, the CRE budget reached MXN647m and 48%, approximately MXN310.5m, was used to pay salaries.


Oil hedges were hit by exchange volatility. Oil hedges contracted by the federal government in 2015 and 2016 cost MXN103m more than what Mexico’s government expected (Spanish). The increase was due to exchange rate volatility, but buying the hedges was still favorable, protecting government revenues and easing the impact of low oil prices.



Market Trends


Banxico cut Mexico’s forecast growth for 2017. The Bank of Mexico reduced its forecast of Mexico’s economic growth in 2017 to between 1.3% and 2.3% from 1.5% and 2.5% (Spanish). In 2018, Banxico expects GDP growth of between 1.7% and 2.7%, instead of the previous forecast range of 2.2% to 3.2%.


More money came into Mexico and more products went out. According to Banxico, Mexican nationals living abroad -mainly in the US- sent home US$2.05bn in January, a 6.3% increase compared to January 2016 (English) (Spanish). Mexico’s exports jumped 11.4%, to US$27.49bn, in January, pushed by oil, farming, and manufacturing exports (Spanish) (English).


Crude production hit rock bottom. The state-owned company produced 2.019 million barrels per day in January, a 10.5% fall, or 15,000 fewer barrels, compared to December production (Spanish). Ten years ago, the Cantarell field produced 51% of total domestic output and Cantarell’s production has fallen 88% since 2007.


OPEC attained 94 percent compliance in oil cuts. According to a Reuters survey, OPEC complied with 94% of its pledged output cuts in February and the IEA was impressed with OPEC’s observance (English). Saudi Arabia and its Gulf allies hope the cuts will make oil prices climb above US$60 per barrel.



Strategy & Operations


Wind energy will get US$12bn. The president of the Mexican Wind Energy Association (Amdee) announced that the wind energy sector will receive US$12bn in investments between 2017 and 2018 (Spanish). By 2021, the wind industry is expected to have a generation capacity of 12,000MW located in 17 states.


Solar and wind energy will soar, increasing 170% in three years. Solar and wind infrastructure will grow by 170% in Mexico in the next three years with 34 companies investing US$6.6bn and building 52 new plants (Spanish). The Energy Ministry also announced it has mapped the areas with greatest potential and new projects.


Pemex and Air Liquide join forces at the Tula refinery. The state-owned company and the French company will operate a hydrogen plant and build a second plant at the Tula refinery in a joint venture (English). Air Liquide will supply hydrogen to the Miguel Hidalgo refinery for 20 years (Spanish).


Mexico may build a refinery with private financing. Mexico’s government is considering different schemes to build a new refinery with a processing capacity of 275,000 barrels per day of crude oil in the south-southeastern region (Spanish). The expansion of refineries and the new complex could increase production by 84,000 barrels per day after 2023.


Pres. Peña Nieto opens the Ternium thermoelectric plant. President Enrique Peña Nieto  inaugurated the Ternium Electric Plant in Pesquería, Nuevo León, a 900 MW capacity plant that required a US$1bn investment (Spanish). The combined-cycle thermoelectric plant, fed with natural gas, will supply the Ternium and Tenaris industrial plants.



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.



Lateral Thinking


Mexicans researcher uses hibiscus against harmful bacteria. Javier Castro Rosas, chemistry researcher, developed products prepared with hibiscus flowers to attack harmful bacteria resistant to antibiotics. The products are registered under 10 patent requests and are designed to be used in food and medicine for humans and animals (Spanish).



Quote of the Week


“La corrupción no vive del ambiente, la difunde como peste el mal gobernante.”


“Corruption does not live off the atmosphere; it is spread like the plague by a bad leader.”


-José Vasconcelos (1882-1959), Mexican lawyer, politician, writer, and educator.




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