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May 11, 2020 edition—CENACE’s decision; natural gas capacity; and Repsol’s discovery.
Last Week in a Minute or Less
Electric Power & Renewables. CENACE’s decision caused a political crisis and could delay 28 renewable plants, but the IEA thinks renewables are the safest option after the COVID-19 crisis.
Natural Gas Mid-Downstream & LNG. Mexico made more pipeline capacity available.
Liquid Fuels Mid-Downstream. Pemex is looking for fuel storage.
Oil & Gas Upstream. Repsol made two discoveries in Mexico’s deepwaters; the Energy Ministry and CENACE will remain under lockdown until May 30; and Mexico hit the gas on production and refining in March.
Government & NGO. AMLO expects to meet Trump by the USMCA start date; Mexico’s stimulus program may fall short; and Mexico’s inflation is expected to fall in April to its lowest level.
Déjà vu all over again. Last week’s readers were particularly interested in the trade agreement between the European Union and Mexico (EC – English); Mexico’s plans to cancel US fuel imports (El Financiero – Spanish); and CRE’s answers to PROY-NOM-001-CRE/SCFI-2017 comments (DOF- Spanish).
Geopolitics & Trade
Mexico and the US will maintain their sugar agreement. The US will keep the agreement regulating Mexico’s sugar exports into the US for five more years (Reuters – English). The US imposed duties on imports of Mexican sugar in 2014.
Trade between the US and Mexico dropped. Trade between both nations suffered the negative effects of COVID-19 with a 1.9% drop, the biggest fall in the first quarter since 2009 (El Financiero – Spanish). During the first quarter, Mexico and the US’ trade exchange amounted to US$147bn.
AMLO expects to meet Trump by the USMCA start date… President López Obrador said that a possible meeting with President Trump would probably be set in July, celebrating the start of the USMCA deal (El Financiero – Spanish). Mexico will wait for the US to set a date.
…and they could discuss reopening. The meeting could also commemorate the reopening of key sectors of the economy after the COVID-19 lockdown, including carmaking and tourism (Reuters – English). AMLO said that the meeting could have that purpose.
Political Economy
Credit Suisse expects a 9.6% contraction… Credit Suisse cut Mexico’s economic outlook to a 9.6% contraction in 2020, the worst economic contraction since 1932 (El Economista – Spanish). The second quarter of the year is expected to be even worse, with an 18.4% contraction.
…and JP Morgan and BBVA changed their forecasts too. Investment bank JP Morgan reduced its forecast for Mexico’s economy to a 8.4% contraction from a 7.5% contraction in 2020 (Reuters – English). BBVA forecast a 12.8% contraction in the second quarter of 2020 (El Financiero – Spanish).
Mexico’s stimulus program may fall short. BNP Paribás warned that Mexico’s stimulus package to fight the COVID-19 effect on the economy is not as strong as others in the region (El Economista – Spanish). Specialists warn that the economic crisis could last longer due to Mexico’s stimulus package (El Economista – Spanish).
Moody’s cut Mexico’s GDP forecast to -7%. The international rating agency reduced its forecast for Mexico’s economy to a 7% contraction from a 3.7% contraction (Reuters – English). Moody’s expect Mexico’s economy to take longer to recover from the COVID-19 crisis.
Mexico’s inflation is expected to fall in April to its lowest level. According to a Reuters poll, Mexico’s inflation rate in April is forecasted to fall to its lowest level since 2015. The average forecast from 14 analysts was an inflation rate of 2.20% compared to 3.25% in March (Reuters – English).
Legal & Regulatory
CENACE’s decision caused a crisis… The National Center of Energy Control (CENACE) suspended the preoperative test of renewable plants (El Financiero – Spanish) (Bloomberg – English). The Mexican Association of Wind Energy (AMDEE) (El Economista – Spanish), and the Spanish Chamber of Commerce in Mexico (Camescom) condemned CENACE’s decision (El Economista – Spanish).
…and the CCE and the opposition party criticized it. The private sector will take legal measures to defend the operation of renewable plants against CENACE’s decision (El Financiero – Spanish). Lawmakers from the PRI opposition party asked for the rights of renewable energy generators to be respected (El Financiero – Spanish).
The Energy Ministry and CENACE will remain under lockdown until May 30. The Energy Ministry and the National Center of Energy Control (CENACE) will maintain the suspension of deadlines and legal terms until May 30 as a measure to combat the spread of COVID-19 (DOF – Spanish) (DOF – Spanish).
Mexico made more pipeline capacity available. The National Center of Natural Gas Control (CENAGAS) will make natural gas pipeline capacity available in five states, connected to the freeing of capacity by the start of the Sur de Texas-Tuxpan pipeline (Platts – English). CENAGAS said it had more than 380,000 GJ/d (360.2 MMcf/d) of new available gas capacity.
Market Trends
Mexico hit the gas on production and refining in March. Mexico’s state-owned company produced 1.745 million barrels per day in March and processed more fuel at its refineries (Reuters – English) (El Financiero – Spanish). Mexico agreed to cut production by 100,000 barrels per day during May and June.
Pemex’s bonds caught a break. After two weeks of declines and a downgrade to junk level, the state-owned company’s bonds recovered with a 2.8% return due to the increase in Brent crude prices (El Financiero – Spanish). Pemex’s debt has lost almost a third of its value this year.
Some at Banxico pushed for deeper rate cuts. According to minutes from the latest policy meeting, some members of Mexico’s central bank back deeper reductions in the interest rate to protect the economy from the COVID-19 pandemic’s effect (Reuters – English).
Strategy & Operations
Pemex is looking for fuel storage. The state-owned company is considering using saline caves and sealed wells to increase its storage capacity. Pemex faces the dilemma of having too much fuel and no immediate plans to slow production (El Norte – Spanish).
Repsol made two discoveries in Mexico’s deepwaters. The Spanish company made two oil discoveries in the Polok-1 and Chinwol-1 exploration wells in Block 29 in the Salina basin (OGJ – English) (El Financiero – Spanish). The discoveries were made 88km from Tabasco’s coastline with Maersk’s Valiant deep-water drillship.
CENACE’s decision could delay 28 renewable plants. CENACE’s measures canceling critical proofs for new renewable projects will delay the operation of 28 wind and solar plants (El Financiero – Spanish) (EV Wind – English). This year, 17 renewable energy projects were expected to be in operation and 11 more in 2021.
Renewables appear to be the safest option after the COVID-19 crisis. According to the International Energy Association, only solar power is expected to grow in 2020 (PV Magazine – Spanish) (Forbes – English). Analysts expect the fall in oil prices and the COVID-19 crisis to boost the transition toward renewables (PV Magazine – Spanish).
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!)
The XXIX La Jolla Energy Virtual Conference is scheduled for May 18-22.
2nd Edition of Shallow and Deepwater Mexico was postponed due to the coronavirus. Date TBD.
MIREC Week has been postponed from June 2-4 to October 8-10 at Centro Citibanamex.
Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.
Mexico Assembly was postponed due to the coronavirus. Date TBD.
The Mexican Energy Forum is rescheduled for November 17-18 in Mexico City.
The Mexican Petroleum Congress is scheduled for June 24-27 in Monterrey and may be postponed until September.
Lateral Thinking
CFE will use Pemex’s surplus oil. Mexico will use the state-owned company’s fuel to fire old power plants operated by CFE (Mexico News Daily – English). As Pemex’s production increases and no buyers purchase it, CFE could burn the excess fuel at its plants.
Quote of the Week
“La dedicación de las ciencias, las letras y las artes, participa de cierta condición de heroísmo y es levadura del saber, la sensibilidad y la conciencia del pueblo.”
“The dedication of sciences, literature, and arts share a certain condition of heroism and grows wisdom, sensitivity, and conscience among people.”
– Agustín Yáñez (1904-1980), Mexican novelist and politician.
We hope you have a productive week. Please send any news, comments, or uses for surplus fuel to MexicoWeekly@energynarrative.com.
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