The Weekly Brief: Mexico


May 3, 2020 edition—Mexico’s oil output; Enel’s wind park; and the Hydrocarbons Law’s fight.




Last Week in a Minute or Less


Electric Power & Renewables. Scatec will power up Mexican mines; AMLO asked the Supreme Court to okay the power reform; and Enel cut the ribbon on its new wind park.


Natural Gas Mid-Downstream & LNG. IEnova trusts GENSA to build its natural gas plant; and US gas exports to Mexico hit record highs.


Liquid Fuels Mid-Downstream. Lawmakers gave Pemex back its power; Deloitte suspects the Hydrocarbons Law will be harder to challenge; and COVID-19 transformed pipelines of products and services.


Oil & Gas Upstream. Mexico’s oil output is slightly below target;

Coahuila’s energy cluster recommends fracking for AMLO’s finances; and Mexico agreed to keep OPEC+ promises.


Government & NGO. Mexican exports recovered in March; Mexico’s economic activity contracted 0.3% in February; and the Finance Ministry expects fiscal reform to boost the GDP.


Déjà vu all over again. Last week’s readers were particularly interested in illegal tap rules (El Financiero – Spanish); the US natural gas market’s lessons (Natural Gas Intel – English); and AMLO’s oil production limit suggestion (El Economista – Spanish).



Geopolitics & Trade


Mexican exports recovered in March. The value of Mexican exports was US$43bn in March, a 12.15% increase, its highest hike in 29 months (El Financiero – Spanish). Oil exports were US$2.1bn, a 70.8% increase, the highest increase since May 2018.


USMCA will be key for Biden’s foreign policy. President Biden expects the trade agreement to improve wages and create higher-paying jobs for all Americans (Brookings – English). The Biden administration has ordered a review of US supply chains, with the objective of decreasing American dependence on Chinese production of critical inputs.


Kansas City Southern and CN Rail are negotiating. Kansas City Southern is considering a proposal by Canadian National Railway Company with possibly better terms than a Canadian Pacific Railway Limited offer (JWN Energy – English). There is no assurance that talks with the rival bidder would result in a transaction.



Political Economy


Mexico’s income will recover by 2026. According to BBVA Mexico, the country will return to its growth range at the end of 2022, while the GDP per capita will recover in 2026 (Forbes – Spanish).  The GDP in 2021 is expected to reach 4.7%.


AHMSA will pay Pemex back. Altos Hornos de México (AHMSA) agreed to pay damages from the sale of the fertilizer plant AgroNitrogenados to the state-owned company in three years (El Financiero – Spanish). The company will pay US$216m.


Mexico’s economic activity contracted 0.3% in February. According to the National Institute of Statistics and Geography (Inegi), Mexico’s economic activity fell 0.3% in February as certain states still had high rates of COVID-19 contagions (El Economista – Spanish). The Finance Ministry expects a 5.3% recovery for Mexico’s economy in 2021.


The Finance Ministry expects fiscal reform to boost the GDP. The Finance Ministry said the fiscal reform could generate additional income equivalent to three GDP points (El Economista – Spanish). The Finance Ministry plans to collect two GDP points from digital platforms.



Legal & Regulatory


Lawmakers gave Pemex back its power. The House of Representatives agreed to return control of fuel sales and the right to fix prices for major retailers to Pemex (El Financiero – Spanish) (Platts – English). The government claims that the bill targets fuel theft and contraband.


Coahuila’s energy cluster recommends fracking for AMLO’s finances. According to Coahuila’s energy cluster, President López Obrador could finance all the social programs if Mexico approves fracking (Forbes – Spanish). The decision could also eliminate gas imports from the US.


The CCE warned energy changes could hit jobs… According to the Business Coordinating Council (CCE), recent changes to Mexico’s energy legislation undermined investment in the industry and may affect thousands of jobs (Reuters – English). Between 2018 and 2020, negative signals caused a 75% drop in energy sector investment (Forbes – Spanish).


…and Deloitte suspects the Hydrocarbons Law will be harder to challenge. Compared to the new power law, Deloitte expects writs of amparo to be harder for the Hydrocarbons Law because it affects several processes (Forbes – Spanish).


Rules on radioactive limits and controls were out. The Energy Ministry published the limits for radioactive pollution and the controls to minimize the exposure of personnel (DOF – Spanish). The factors to estimate the doses for radiologic protection were published (DOF – Spanish).


The Sener will respect oil contracts. The Energy Ministry and the Mexican Association of the Hydrocarbons Companies assured that 111 exploration and production contracts are progressing with the permission of the government (El Economista – Spanish). The oil companies will continue working with the government.


AMLO asked the Supreme Court to okay the power reform. President López Obrador requested that the Supreme Court review the definite cancellation of the power reform granted by two judges (Reforma – Spanish). The reform gives CFE an advantage over private companies.



Market Trends


US gas exports to Mexico hit record highs. US gas exports to Mexico are expected to keep rising in the next two weeks (Platts – English). Earlier this month, as temperatures in Mexico climbed, modeled power burn hit an estimated 4.6 Bcf/d.


Mexico’s oil output is slightly below target… Energy Minister Rocío Nahle said the country is producing slightly less crude than the target agreed with the OPEC+ oil producers (Nasdaq – English). Pemex produced an average of 1.66 million barrels per day.


…and agreed to keep OPEC+ promises. The Energy Minister said the Mexican government will keep oil production to maintain oil prices (El Economista – Spanish). OPEC+ agreed to increase oil production by 350,000 daily barrels per day in May.


COVID-19 transformed pipelines of products and services. According to KPMG, 68% of Mexican firms say that market disruption under the COVID-19 pandemic is having an impact on their pipelines of products and services over the next three years (BN Americas – English).



Strategy & Operations


IEnova trusts GENSA to build a natural gas plant. The company Gasoductos y Estaciones del Norte (GENSA) was chosen by the Sempra subsidiary to design and build a natural gas station in Mexicali, Baja California (El Financiero – Spanish). The station will be part of the necessary infrastructure to feed the new power plant.


The Economy Ministry wants to include local providers. The Economy Ministry urged Nuevo León’s energy cluster to sign an agreement with the companies to include local providers in projects (El Economista – Spanish). The goal is to develop local small and medium companies.


Scatec will power up Mexican mines. Scatec signed a flexible lease agreement to install an 8.5MW solar plant to power up the Mexican mines of Torex Gold Resources (Renewables Now – English). The PV plant will supply its output to the Morelos Media Luna and El Limon Guajes projects in the Guerrero Gold belt.


Enel cut the ribbon on its new wind park. Enel Green Power started operations at the Dolores wind park in the China municipality in Nuevo León (El Economista – Spanish). The park has a 269MW capacity and an investment of US$290m.


Pemex sent senior staff back to their locations. The state-owned company ordered senior management to return to work in person, except those suffering from diseases that make them vulnerable (Reuters – English). Most of the management at Pemex was not required to work from their locations since the pandemic began.



Old School Social Goes Viral


(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)


XXX La Jolla Energy Virtual Conference will be held on Wednesdays and Fridays throughout May, 2021.


Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.


The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.



Lateral Thinking


Big companies left CFE for renewables. Big Mexican companies have left fossil fuels as a power source for clean energies to reduce power costs (Forbes – Spanish) (El Financiero – Spanish). Power generated by private companies is 26% cheaper than that produced in CFE’s plants.



Quote of the Week


“El periódico es el vehículo del contagio en una multitud esparcida.”


“The newspaper is the vehicle of infection in a spread-out crowd.”



– Emilio Rabasa (1856-1930), Mexican writer, diplomat, and politician.



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