May 23, 2016 edition— The second MEM and Round 1.4 modified; Morelos and Guanajuato bet on energy; and Pemex keeps looking for partners.
Energy reform was bad news for mining companies. The reform has delayed 41% of mining licenses (Spanish). Before the reform, obtaining a license took 120 days, nowadays it takes 170 days because the Economy Ministry’s mining coordinator must request information from the Energy Ministry about oil and gas reserves on mining lands.
Oil pipelines operating at full capacity. The storage and transportation infrastructure of LP gas and gasoline is maxed out from Guadalajara and Zacatecas to Oaxaca and Veracruz. The infrastructure can only hold inventories to cover two days of demand and operates at 90% of pipeline capacity (Spanish).
Campeche suffers Pemex’s crisis. In Campeche, the critical financial situation of the state-owned company has resulted in 11,000 jobs lost, businesses closed, and a drop in investments (Spanish). The Finance Ministry announced incentives and tax exemptions for Campeche and Tabasco to reactivate the states’ economies (Spanish).
Ejidatarios blocked the Tula pipeline. Four communities of Atotonilco de Tula, Hidalgo, oppose construction of the pipeline which will supply the CFE’s Francisco Pérez Ríos plant, delaying it for seven months. The pipeline is 15km long and lacks less than a kilometer to be completed (Spanish).
CFE consumed more fuel oil; Pemex is to blame. Although the CFE promised to reduce its use of fuel oil by 90%, its consumption doubled to almost 600 MMcf in the first quarter (Spanish). This is due to interruptions in Pemex’s gas supply caused by reduced production following industrial accidents (Spanish).
Déjà vu all over again. Last week’s readers were particularly interested in the 14 oil companies prequalified for Round 1.4 (Spanish), the increase of Pemex’s losses (Spanish), and the risks of fracking in the Tampico region (Spanish).
The Road to Reform
The second MEM tuned up…The Energy Ministry modified the Wholesale Electricity Market (MEM) in order to interest combined cycle generators and achieve a 5.8% increase in electricity generation capacity by 2019 (Spanish) (Spanish). To avoid mistakes, the offers presented by bidders will be evaluated for eight days (Spanish).
…and the bases of Round 1.4 were modified, too. The Energy Ministry and the National Hydrocarbons Commission (CNH) issued modifications to contract models of deep water licenses of Round 1.4. Among the main changes is the modification of the weighting formula which calculates the variables for deciding allocation (Spanish).
Round 1.3 under the magnifying glass. All the Round 1.3 tenders will be awarded, including the six fields abandoned by the winning companies which will be developed by the second best offers (Spanish). Analysts propose close supervision of the contracts as the fields are located in areas where organized crime operates (Spanish).
Private oil tenders are up for bidding. E&P Hidrocarburos and Pan American Energy launched the first two private auctions for drilling and leasing a self-elevating platform (Spanish). These are the most expensive services for an oil company. Both Argentinean companies (one a subsidiary of BP) won in Round 1.2.
Pemex may be giving up more than half of the game. In its quest for partners, the state-owned company could agree to cede a majority stake in refineries if the partners invest and operate the plants (Spanish) (English). The goal is to make the refineries more efficient by tapping private sector expertise.
Better gasoline and diesel will be sold by the end of the month…or the year. Pemex announced the distribution of ultra-low sulfur fuel will start in June (Spanish). The refineries in charge of producing ultra-low sulfur diesel will not start operations until 2017 at the Cadereyta refinery, and in 2018 at the others (Spanish).
Pemex gets up-to-date paying MXN92bn to suppliers. The state-owned company paid MXN92bn in debt to suppliers and contractors (Spanish). Pemex’s CEO also said the company is “sufficiently solvent” to cover in coming months its outstanding debt of MXN55bn contracted with 450 large companies last year (Spanish) (English).
The World Bank is on board with energy efficient projects. The Energy Minister announced a loan of US$100m from the World Bank to support energy efficiency and sustainability projects in Mexican cities (Spanish) (English). The Energy Ministry will add MXN300m to that amount to upgrade street lighting and water pumps (Spanish).
Oil goes up and so does the market…Oil prices increased almost 3%, propelling a gain of 0.63% at the Mexican Stock Exchange (Spanish). Market analysts said the price of the Mexican oil mix, with stabilization of the market and increases in Middle East and Russian production, may reach 50 dollars per barrel (Spanish).
…and OPEC increased production. The Organization of Petroleum Exporting Countries (OPEC) produced 32.44 Mmbd in April, an increase of 188,000 bdp, or 34% more than the previous month (Spanish) (English). Oil output rose in Iran and Iraq (reaching 4.3 Mmbd), and decreased in Kuwait and Nigeria.
New projects worth US$116bn will propel the energy sector. The Energy Ministry announced a project portfolio for modernization of the electrical sector worth US$116bn (Spanish). The projects will be developed to reach the goal of generating one third of the electricity used in the country by 2024.
Pemex placed 375m Swiss franc bonds. As part of the Annual Financing Program for 2016, the state-owned company issued 225m Swiss franc bonds due June 2018 and 150m due December 2021 (Spanish) (English). Pemex accessed the Swiss franc market for the second consecutive year, reaffirming its commitment to be a recurring issuer.
Strategy & Operations
Morelos launches its first co-generation plant. In Cuautla, the first co-generation plant running on biogas produced by the municipal landfill is up and running. The plant will generate almost 4MW and prevent the emission of 182MCM of greenhouse effect gases (Spanish). Elsewhere in Mexico, fifteen other plants produce electricity with biogas.
Pemex is looking for partners…up north. The CEO of the state-owned company said that the potential partnerships will be announced by the end of the year (Spanish). The Canadian Renaissance Oil Corp. is negotiating possible partnerships with Pemex while executing 25-year license contracts in Chiapas (English) (Spanish).
Guanajuato bets on plants and pipelines. Intergen opened a power plant in Guanajuato with an investment of US$217m and a capacity of 220MW to satisfy the power needs of private companies (Spanish). The last section of the 292-km-long Los Ramones pipeline will be opened in the state before July (Spanish).
ICA Fluor wins again with Pemex. The company won the contracts offered by Pemex to complete clean fuel and reconfiguration projects at the Tula refinery, with a US$3.3bn budget (Spanish). ICA Fluor is also in charge of building the clean energy plant at the Madero refinery for US$737m.
A bad week for marine life in Baja California. Two dozen protected pilot whales ran aground on the peninsula and, despite efforts to move them into deeper waters, they died (English). Moreover, the population of the world’s smallest porpoise, native to Mexico’s Gulf of California, declined to less than 60 specimens (English).
Quote of the Week
“Para ser libre, no basta quererlo, sino que es necesario también saberlo ser.”
“In order to be free, it is not enough to want it, it is also necessary to know how to be free.”
- Venustiano Carranza (1859-1920), leader of the Mexican revolution, politician, military officer, and businessman.
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