The Weekly Brief: Mexico


May 21, 2018 edition—Petrofac is out; BHP’s drilling; and NAFTA’s deadline.




Last Week in a Minute or Less


Renewables & Electricity. CFE Fibra E bond prices are up.


Natural Gas & Liquid Fuels. The CRE okayed changes in Pemex’s pipeline open season; Enco will invest in GNV stations; and CFE passed on the LNG supply terminal auction.


Oil & Gas Upstream. Round 1.4 secured US$869m for exploration; Petrofac is selling its Mexican oil fields; and BHP hit the gas on drilling.


Money & Power. The NAFTA renegotiation missed the US Congress’ deadline; inflation dropped; and candidates are expected to change the energy sector.


Déjà vu all over again. Last week’s readers were particularly interested in the fears of a “zombie” NAFTA deal (Reuters – English); investments in natural gas combined cycle (El Economista – Spanish); and the construction of refineries (El Universal – Spanish).



NAFTA Negotiation


US Congress is left waiting on NAFTA. Paul Ryan said Congress needed notice of a NAFTA deal by May 17 if they were going to vote on it (Bloomberg – English) (El Economista – Spanish). NAFTA negotiators missed the deadline, as they were not scheduled to meet in person that week (Bloomberg – English).


Mexico does not want to be rushed into a bad deal. Mexico’s Economy Minister Ildefonso Guajardo said “the quality of the agreement and the balance” must be maintained without sacrificing quality for time (Reuters – English). Guajardo said “all the issues” are on the table (Reuters – English) as negotiation talks continue between Canada, Mexico, and the US.


Automakers are concerned about the new NAFTA. The head of Magna, the biggest auto parts supplier, said automakers will move more production offshore if changes to NAFTA complicate production (Bloomberg – English). The goal is to make NAFTA competitive compared to the global industry, where every country is trying to attract auto industry investment.


Uncertainty surrounding NAFTA hits the peso… Investors are concerned about a peso rout (Bloomberg – English) if a NAFTA deal is not reached and if AMLO wins the presidential election. Strategists warned that even the announcement of a NAFTA deal will only help the peso momentarily, before traders turn their attention back to the elections.


…and Canada and Mexico downplayed any urgency. Canada’s and Mexico’s NAFTA negotiators said they are not in a rush (Bloomberg – English) to reach an agreement by mid-May. Canadian Foreign Minister Chrystia Freeland said there is still a long “to-do” list to finish (Reuters – English) the renegotiations, but talks are making progress.



The Road to Reform


The CRE okayed changes in Pemex’s pipeline open season. The Energy Regulatory Commission (CRE) approved changes to the open season for Pemex Logística’s pipelines and storage terminals (Reforma – Spanish). Changes were made to the Juárez, Cadereyta, and Pacific zones.


Mexico makes progress on its oil hedges. Mexico asked Wall Street banks and operators for estimates for next year’s oil hedges (El Financiero – Spanish). Pemex plans to cover a third of next year’s production at an average price of US$51 per barrel (El Financiero – Spanish).


Round 1.4 secured US$869m for exploration. Seven contract winners in Round 1.4 pledged investments for US$869m to explore for oil in the next four years, including the drilling of six wells in the Cinturón Plegado Perdido and the Cuencas Salinas (El Economista – Spanish).


CFE passed on the LNG supply terminal auction. CFE withdrew from an auction to supply LNG and a floating regasification and storage unit. CFE was going to buy the LNG supply along with Pemex, but Pemex will continue with the auction via Mex Gas Supply (Platts – English), its gas marketing subsidiary.


The CRE will publish jet fuel tariffs in May. According to the deputy ministry of transportation, the Energy Regulatory Commission (CRE) will publish jet fuel supply tariffs this month, opening up the fuel market for planes. In Mexico, the jet fuel price is MXN10,321 per cubic meter (El Universal – Spanish), while worldwide it is MXN9,984.



Political Economy


Inflation dropped to a 16-month low. Mexican consumer prices reached 4.55% (Excelsior – Spanish), its lowest level since late 2016. Month-on-month, inflation fell 0.34% in April (Reuters – English) thanks to summer electricity subsidies.


Tax stimulus to IEPS reached a new high. In May, the tax stimulus for the price of gasoline surpassed 60% (El Economista – Spanish), reaching a new record to soften the increase in international oil prices. The Deputy Finance Minister said the government cannot return to subsidizing gasolines (El Economista – Spanish).


Candidates could transform the energy reform. Certain foreign companies expect AMLO to hit the brakes on the upstream tenders (El Financiero – Spanish). The PAN candidate, Anaya, pledged to update the refinery in Ciudad Madero (El Financiero – Spanish) and develop clean energies in Aguascalientes (El Financiero – Spanish).


Pemex and Tlaxcala fight fuel thieves. The state-owned company will strengthen its actions to stop fuel thieves in Tlaxcala, where thefts are up almost 300% (La Jornada – Spanish). In the first quarter, 90 illegal taps were located and closed, compared to the 23 illegal taps registered in the same period in 2017.



Market Trends


Oil reserves replacement increased in 2017. Pemex’s estimated replacement rate of proven oil and gas reserves rose in 2017, compared to the previous year. Pemex replaced 17.5% (Reuters – English) of the oil and gas amount produced last year.


CFE’s Fibra E bond prices are up. According to Barclays, the state-owned company’s Fibra E bonds offer a potential 28% increase this year (El Economista – Spanish), while aiming for a fixed price of 24 pesos per unit for 2018. The CFE collected MXN16bn with the launch of the first Fibra E bonds to invest in transmission.


The south needs more natural gas, and production dropped. The southern regions and the Yucatan peninsula show an imbalance in natural gas supply, with local supply and imports reaching 2,084 million cubic feet per day, 17% below the previous year’s level (El Financiero – Spanish). Pemex’s natural gas production is still low, with a 14% fall in March (Reforma – Spanish) compared with the same month in 2017.


Banxico admits it suffered a cyberattack and takes measures. Mexico’s central bank will take new measures to protect SPEI transfers (El Financiero – Spanish). Banks can no longer immediately hand out cash or checks from transfers equal to or above MXN50,000. Customers must now wait until the next day.



Strategy & Operations


Enco will bet on GNV stations. Enco will invest MXN130m in new natural gas stations (El Financiero – Spanish) in Mexico. From the investment, MXN40m will be sent to Nuevo León to construct a charging service center and a self-service center in Monterrey.


Petrofac is selling its Mexican oil fields. Petrofac hired Barclays and HSBC (Reuters – English) to help with the sale of its oil fields in Mexico. Petrofac is scaling back its oil and gas production (El Financiero – Spanish) operations, after expanding into production projects during the oil price boom.


BHP hit the gas on drilling. The Australian oil giant will speed up the drilling process of the first well in 2018 (Reforma – Spanish). BHP is a partner with Pemex in the Trion block.


BP will be open for business with 10 gas stations in Tabasco. The British oil giant opened 10 gas stations in Tabasco and broadened its gas station network to 15 states in Mexico. The goal is to have 1,500 gas stations in Mexico by 2021 (Forbes – Spanish).



Old School Social


Events in the world beyond your screen—go see and be seen!


MIREC will be held May 21-24 at the World Trade Center in Mexico City.


The La Joya Energy Conference is scheduled for May 23-24 at the Hilton La Jolla in California.


The Energy Briefing Mexico City 2018 will be held May 30 at the St. Regis in Mexico City.


The 4th Mexico Gas Summit is scheduled for June 7-8 at the St. Anthony Hotel in San Antonio, Texas.



Lateral Thinking


A map with dengue hot spots can predict zika outbreaks. After analyzing eight years of data from Merida (EurekAlert! – English), Emory University published findings identifying dengue fever “hot spots” that can provide a predictive map for outbreaks of chikungunya and Zika. Merida had 40,000 reported dengue cases between 2008 and 2015.



Quote of the Week


“Sólo merece llamarse hombre el que sabe y puede y quiere ayudar al hombre.”


“The only one who deserves to be called man is someone who knows how to and can and wants to help man.”


-Jaime Torres Bodet (1902-1974), Mexican politician and writer who served in three executive cabinets.


We hope you have a productive week. Please send any news, comments, or predictive maps to


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