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May 18, 2020 edition—Shell’s transfer to Total; Sener’s plan for renewables; and Pemex’s force majeure.
Last Week in a Minute or Less
Electric Power & Renewables. A legal storm is expected after Cenace’s decision; the Sener plans more bad news for renewables; and Cofece warns that the halt in renewables will increase power tariffs.
Natural Gas Mid-Downstream & LNG. Naturgy will supply natural gas for free to 60 hospitals in May and June; and US gas exports to Mexico may face a harsh summer.
Liquid Fuels Mid-Downstream. Pemex declares partial force majeure.
Oil & Gas Upstream. The CNH okayed Shell’s transfer to Total; the CNH said Zama is shared by Pemex and Talos; and Mexico offered oil companies more time for permits.
Government & NGO. Banxico is expected to cut interest rates; the OECD expects a fall in tax revenues; and the US ambassador in Mexico is concerned with Mexico’s supply chains.
Déjà vu all over again. Last week’s readers were particularly interested in the Cenace scandal (El Financiero – Spanish); the increase in natural gas capacity in pipelines (Platts – English); and CCE’s legal measures to fight the Cenace’s decision (El Financiero – Spanish).
Geopolitics & Trade
Landau is concerned with supply chains… The US Ambassador in Mexico, Christopher Landau, said he is concerned about the way the Mexican government is managing the issue of supply chains during the COVID-19 pandemic (Reforma – Spanish).
…and with the changing rules in the energy sector. Landau also said that Mexico’s federal government should respect the rules established for the energy sector as they cannot be changed repeatedly when there are private investments (El Financiero – Spanish). The US has been in communication with the current Mexican administration regarding this issue.
Mexico’s car exports and production plummeted in April. Due to the COVID-19 shutdown, Mexican auto production and exports dropped 98.8% and 90.2%, respectively, in April. According to the Mexican Automotive Industry Association, the auto business represents 4% of the country’s GDP, generating 1 million direct jobs (Reuters – English).
Mexico asked for information about the US “Fast and Furious” operation. President López Obrador said his government will send a diplomatic note to ask for information on the 2009-2011 operation known as “Fast and Furious,” considering US-Mexico cooperation on security and corruption under previous administrations (Reuters – English).
Political Economy
The IMF has some advice for Mexico. The International Monetary Fund (IMF) said that Mexico could increase its public debt and prepare a fiscal reform to provide confidence to the markets (El Financiero – Spanish). The IMF also recommended state-owned companies improve their administration and attract private investment (El Financiero – Spanish).
BBVA warns that Mexico could lose its investment grade. Carlos Serrano, chief economist of BBVA in Mexico, warned that if the government does not change its management of Pemex, the country will lose its investment grade next year (El Financiero – Spanish). Serrano recommended stopping the Dos Bocas refinery.
The OECD expects a fall in tax revenues. According to the Organization for Economic Cooperation and Development (OECD), Mexico will experience a sharp fall in tax revenues due to the COVID-19 crisis and the economic contraction (El Economista – Spanish).
The COVID-19 crisis will take away money from states. The Finance Commission of the House of Representatives warned that the fall in federal revenue in April, and what is expected in the following months due to the COVID-19 crisis, will greatly affect states and municipalities (El Financiero – Spanish).
Legal & Regulatory
The CNH said Zama is shared by Pemex and Talos. The National Hydrocarbon Commission (CNH) determined that the finding in the Zama field is shared by the state-owned company and Talos Energy (El Economista – Spanish). Pemex and Talos Energy would have to decide who will become the operator of the Zama field.
Cofece warns that the halt in renewables will increase power tariffs. The Federal Commission of Economic Competition (Cofece) sent its opinion regarding the agreement published by the Cenace. The Cofece said the agreement goes against free competition procedures and would generate an increase in power tariffs (El Economista – Spanish).
Mexico offered oil companies more time. The National Hydrocarbon Commission (CNH) will extend the period for companies to secure permits and plan approvals until the end of this month due to the COVID-19 pandemic (Reuters – English) (DOF – Spanish). The commission has been holding virtual sessions to prevent project delays.
A legal storm is expected after Cenace’s decision… Nuevo León’s energy cluster, energy specialists, and legal experts expect many writs of amparo against the Cenace’s decision to stop the incorporation of renewable plants into operation (El Economista – Spanish) (El Financiero – Spanish). They argue that the decision will affect short- and medium-term investment.
…and the Sener gave renewables more bad news. The Energy Ministry published a new agreement to limit the issuing of permits for renewable energy plants and a ban on building new plants where others already exist (El Financiero – Spanish) (DOF – Spanish). The new agreement will limit permits to regions where there is demand.
Market Trends
Pemex abandons its production goal for the year. The state-owned company will not maintain its production goal due to low oil prices and the worldwide uncertainty generated by the COVID-19 pandemic (El Financiero – Spanish). Pemex also has to follow the agreement made with OPEC+ regarding crude production.
US gas exports to Mexico may face a harsh summer. US gas pipeline exports declined this month to the lowest level since late 2018 (Platts – English). Some COVID-19-related disruptions are expected to continue during the summer when cooling demand in Mexico normally increases US gas exports.
Banxico is expected to cut interest rates. According to a Reuters poll, Mexico’s central bank is expected to cut interest rates to 5.50%, which would be the lowest level since November 2016 (Reuters – English). Banxico is expected to respond to the economic effect of COVID-19 and reduce pressure on inflation.
Strategy & Operations
Pemex declares partial force majeure. The state-owned company declared force majeure for certain fuel cargos, delaying others, as the COVID-19 lockdown lowers demand (El Financiero – Spanish). Certain deliveries would be postponed to the second half of the year. Maintaining shipments after the delivery date is costing US$25,000 per day.
COVID-19 hit Pemex and CFE’s workers. Pemex has registered 70 dead workers, 568 confirmed cases of COVID-19, and 3,461 suspected cases (El Economista – Spanish). CFE informed that 47 workers are infected with COVID-19 and 897 employees are working from home.
Naturgy will supply natural gas for free to 60 hospitals in May and June. The company will provide 60 medical units in Mexico City, Nuevo León, Coahuila, Guanajuato, and Tamaulipas with free natural gas in May and June. Naturgy will also donate MXN1m to the Mexican Red Cross to purchase medical supplies (El Economista – Spanish).
Experts recommend Pemex change to survive. In a webinar organized by UDLAP Jenkins Graduate School, experts agreed that Pemex should change its business model, pointing to the need to move into renewable energy and forget Pemex’s role in the ’80s (El Financiero – Spanish).
The CNH okayed Shell’s transfer to Total. Shell will relinquish its share in a contract shared with Total in shallow waters in Mexico (El Economista – Spanish). Shell had 40% of the field and Total, with 60%, was the operator.
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
The slave trade also brought diseases to Mexico. DNA of three men from western or southern Africa excavated near a Mexico City hospital showed that when they were taken to Mexico, they carried a strain of hepatitis B virus and a yaws strain. The three men lived sometime between 1436 and 1626 (Science News – English).
Quote of the Week
“Sólo el desarrollo armónico y congruente de un grupo humano constituye un progreso cierto. Porque cuando el desarrollo obedece a una importación imprevista, súbita y transitoria, su nombre es otro. Es colonización.”
“Only the harmonious and coherent development of a human group is certain progress. Because when the development is produced by an unexpected, sudden, and transitory import, it has another name. It is colonization.”
– Jaime Torres Bodet (1902-1974), Mexican writer, poet, and diplomat.
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