May 16, 2016 edition— Six Round 1.3 fields were abandoned; the debate about Mexican gasoline quality burst; and 128 power plants will be retired.
Blind Spots
New competitors in the energy business: Mexican cartels. Organized crime groups worldwide have diversified their activities to include the illegal sale of cultural goods, human organs, and even gold, according to the United Nations Office on Drugs and Crime (Spanish). For Mexican cartels, the preferred options are oil and gold.
Risky business: fracking in the Tampico region. The Tampico-Misantla region concentrates 57.8% of the hydrocarbons fields in the country. The study, “Hydraulic fracking in the northern mountains of Puebla”, points out the risks the technique could cause for public health in 13 municipalities in the area (Spanish).
Pemex’s losses skyrocketed… In 2015, the state-owned company lost MXN712.5bn, according to the report delivered to the Senate. The value of assets decreased by 73.4% compared with 2014, due to lower oil prices and higher sales costs (Spanish).
…and so did CFE’s debt. Last year, the company’s total debt rose to MXN432.4bn, an 18% increase from 2014, according to the annual report submitted to the Senate. The CFE reported its documented debt and debt financed by the private sector totaled MXN281.8bn, a 13% increase over the previous year (Spanish).
Déjà vu all over again. Last week’s readers were particularly interested in the gasoline certificates needed in the import process (Spanish), the postponement of Round 1.5 due to the lack of fracking regulation (Spanish), and the CFE’s losses in the first quarter of the year (Spanish).
The Road to Reform
History is made: private contracts for oil extraction signed… After May 10, Pemex is no longer the sole hydrocarbon producer in Mexico. Round 1.3 contracts for 19 onshore and offshore fields were signed with investment commitments of US$124m in the first years and US$989m during the life of the concessions (Spanish).
…and as anticipated, six Round 1.3 fields were abandoned. Of the 25 concessions, six of the winning companies did not hand over to the CNH the necessary corporate guarantees and compliances (Spanish). This caused a decline in the royalties expected from mature oil fields, falling to 47.2% from 55.2% (Spanish).
14 oil companies will fight the Round 1.4 war. The Energy Ministry announced the names of the companies that prequalified for Round 1.4 of deep water fields (Spanish). Among the companies figure BP Exploration México, Chevron Energía de México, ExxonMobil Exploración y Producción México, Pemex, and Statoil E&P México.
CFE lost its biggest fish to self-sufficiency schemes. The state-owned company recognized the reduction in annual sales to the big industry sector (Spanish). The reason is the 19% increase in local and remote self-sufficiency strategies and a drop in consumption of the steel industry.
Political Economy
North American leaders will meet in June. On June 29, Presidents Peña Nieto and Obama and Prime Minister Justin Trudeau will meet and focus talks on climate change, clean energy and the environment, and other trilateral issues (Spanish). The Mexican president will also speak with representatives of the business sector.
CFE and Suterm’s new relationship is complicated. In negotiations of the collective contract, CFE proposes strict application of productivity clauses and would restrict automatic promotions for union personnel. Union leaders consider CFE’s offer “radical” because it requires workers with less than 20 years of seniority to switch to individual pension accounts (Spanish).
Lower oil prices dug a MXN51bn budget hole… The slump in oil prices created a budget hole of MXN51.5bn in the first quarter. Pemex transferred to the Treasury MXN61.1bn, MXN28bn less than the MXN89.4bn anticipated in congressional programming (Spanish). The public sector received MXN135.4bn in oil revenues against the MXN186.9bn programmed.
…but budget cuts hit investment, not personal services. Due to the necessary cuts for this year, investment projects registered a 0.8% annual decrease. Meanwhile, federal expenses for personal services, such as salaries, per diem, or benefits, increased 0.5%, or MXN5.8bn more than the first quarter of 2015 (Spanish).
Market Trends
The debate over gasoline quality burst. The Sener insisted that fuel sold in Mexico meets regulations; meanwhile, government and the private sector are developing new quality standards (Spanish) (Spanish). Since 40% of Mexico’s gasoline is high in sulfur, the automobile industry has not introduced emission reduction equipment (Spanish) (Spanish).
Moody’s weighs Mexico’s economy. The credit rating agency said that government support for Pemex will protect banks with high exposure to the company (Spanish). The general director of Moody’s Mexico, Alberto Jones, asserted that significant levels of investment will keep coming into Mexico’s stable economy (Spanish).
Pemex’s real business is selling gasoline and diesel… The state-owned company earned MXN101.9bn on gasoline and diesel sales in the first quarter, more than double its oil export revenues (Spanish). Earnings from exports of crude totaled MXN48.2bn, due to the fall in international oil prices and Pemex’s decline in oil production.
…but gasoline sales fell 20% with Mexico City’s traffic restrictions. Gas stations in the capital have sold 4 million gasoline liters less per day—a 20% drop—due to pollution-induced driving prohibitions. The rules keep 20% of cars off the road each day, producing MXN50m in losses daily for gas stations (Spanish).
Strategy & Operations
Mexican companies set up shop in the United Arab Emirates. Due to the low cost of oil production (under ten dollars per barrel), Mexican companies have found new business opportunities in the UAE. Nine large companies are now operating there in oil infrastructure construction, shipping, production of valves, and specialized equipment and services (Spanish).
CFE will finance 30,000 green homes. The National Housing Commission (Conavi) is preparing a program to fund conversion of 30,000 houses of low-income families to make them sustainable. The MXN1bn program will be supported by CFE, and the loans would be granted by the Electrical Energy Saving Trust (Spanish).
128 power plants will be retired. Sener’s electricity development plan calls for stopping production of 15,364 MW from 128 older power plants that CFE will close by 2030. The director of the Citizen Energy Observatory (OCE) pointed to the need to open production to the private sector to accelerate power output (Spanish).
Lateral Thinking
Follow the stars to Mayan cities. A 15-year-old boy discovered a Mayan city by reading Mayan constellations and finding linear features in satellite images of the jungle (English). Mexican archeologists say the Mayans did not align their cities with the stars but with available sources of water and arable land (Spanish).
Quote of the Week
“La igualdad no existe, ni puede existir. Es mentira que todos podamos ser iguales; hay que darle a cada quien el lugar que le corresponde.”
“Equality does not and cannot exist. It is a lie that we all can be equal; every person needs to be where they belong.”
- Francisco Villa (1878-1923), one of the most prominent Mexican Revolutionary generals
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