March 9, 2015 edition:
Pemex retirees, Round 1(part 2), falling oil exports and electricity prices
Safety costs MXN0.41 per kilo. SENER issued new rules (Spanish) for securing at least MXN3.5bn of annual private investment in the LPG distribution industry, seeking to enhance safety of operations (Spanish). Permit holders will have to earmark MXN0.41 per kilogram of LPG sold (Spanish) for equipment replacements, maintenance, and training.
No love for new oil unions. Tensions arose between newly created Sindicato Nacional de Trabajadores de las Empresas Productivas del Estado, Petróleos Mexicanos, Subsidiarias y Filiales (SNTEPE-PEMEX) and the Labor Secretariat (STPS). STPS has refused to acknowledge the new oil union’s representatives (Spanish) alleging non-compliance with registration formalities.
The retired elephant in the room. A total of 24,901 Pemex workers will retire in the coming four years or so (Spanish), which could help the state-run company cope with the planned cuts in personnel. Major concerns remain, however, regarding the soaring pension liabilities (Spanish) which at end-2014 surpassed the MXN1.47tn mark.
The Road to Reform
CFE’s brave new world. CFE will have to purchase energy from private power generators whenever they are more cost-efficient (Spanish), as set by the new wholesale market rules. To this end, system operator Cenace will open auctions every year to ensure an adequate allocation of output. CFE will be able to compete through dedicated subsidiaries.
Round One, take two! SENER, CNH, and SHCP officially launch the second stage of Round One (Spanish), which includes nine blocks for shallow-water development expected to add 124,000 barrels of oil equivalent per day of production by 2017. Bid winners will operate under five production sharing agreements worth nearly US$4.5bn.
ASEA is up and running. The Energy and Environmental Safety Agency (ASEA) officially started operations as a specialized branch of Semarnat (Spanish). From now on, ASEA will regulate and supervise all industrial safety standards and environmental risks (Spanish) along Mexico’s oil and gas supply chain. It will also award permits previously issued by Semarnat, Sener, CNH, and CRE.
Mexico’s shale fades into the distance. Low oil prices may renderMexico’s shale E&P development uneconomic (Spanish). The government may delay tendering up to 58 unconventional oil and gas fields for several years, given the high costs entailed in frontier upstream projects.
Debt is rising, growth not so much. The government’s net internal debt reached MXN4.4tn in January this year (Spanish), representing a 12.4% y-o-y increase and nearly 26% of GDP. Meanwhile, net external debt rose 10% in the same period to US$77.8mn.
The show must go on. In spite of the uncertain oil business climate, the Mexican government cannot afford to slow down its licensing processes (Spanish) given its heavy reliance on oil revenues. Crude oil output could fall below 2 million barrels per day as soon as 2017 if Round One fails to add significant volumes soon.
Natural gas powers economic growth. Switching to gas may lead to a 13% decrease in overall power generation costs in the medium to long term, according to the IMF. This would help industrial output increase by up to 3.6%,leading to an additional 0.2-0.6% increase in real GDP (Spanish).
One in four megawatts is renewable. With over 16.1 GW of installed capacity, renewable energy generation now represents close to 26% of the nation’s total. According to Enrique Ochoa Reza, head of CFE, Mexico is also the second largest wind energy producer in Latin America (Spanish).
Oil export earnings hit 5-year low. In January the value of Mexico’s crude oil exports dropped 47% relative to early 2014—the deepest fall in five years (Spanish). Although oil export volumes increased by 7.6% y-o-y (Spanish), low benchmarks dragged down the Mexican crude basket price affecting overall oil export revenues (Spanish).
Industrials pay a quarter less for electricity. Industrial electricity tariffsdecreased by up to 25.7% over the past year (Spanish). CFE’s March base-hour tariff for the central zone is MXN0.7531 per KWh, compared to MXN1.0146 per KWh a year ago.
Strategy & Operations
Pemex beat its own record, and that’s not good. Pemex reported a net loss of MXN264bn in 2014 and a total debt of nearly MXN3tn, a respective 55% and 29% increase from the previous fiscal year. These are the worst results in the state-owned company’s history (Spanish).
CFE targets geothermal potential. Seeking to expand its renewable energy portfolio (Spanish), CFE will tender contracts for two geothermal power plants worth MXN1.54bn (Spanish). Located in Michoacán and Puebla, these projects will add 50 MW to the national grid.
New belt-tightening measures. After Hacienda’s MXN10bn budget cut, CFE will implement cost-saving measures in order to prevent major layoffs (Spanish). However, CFE’s mid-level workers could still see important changes in their salary base.
Oil union budges on salary cut-offs. Pemex agreed with national oil union to cut recurring spending on workers’ salaries and benefits (Spanish) by MXN10bn. The state-run company will also implement cost-efficient measures aimed at improving productivity.
Keeping a close eye on the pipes. Pemex Gas y Petroquímica Básica is redoubling efforts to improve its gas pipeline monitoring, control and supervision mechanisms (Spanish). The business unit plans to invest MXN1.13bn over the next four years for the maintenance and upgrading of the national gas grid’s SCADA systems.
Tequila power! Scientists from Tecnológico de Monterrey, the Guadalajara University, and private firms Selftec and Safe Environment jointly developed the pre-treatment of residual waters from tequila distillation, or vinasse (Spanish). The process uses an anaerobic reactor to produce clean biogas for heating and power generation.
Quote of the Week
“La autocrítica está muy bien, mientras no tenga que ver con uno mismo”
“Self-criticism is alright, as long as it is not about oneself”
– Carlos Monsiváis
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