The Weekly Brief: Mexico


May 28, 2018 edition—Pemex’s open season; Talos’ plans; and NAFTA’s auto deal.




Last Week in a Minute or Less


Renewables & Electricity. Coahuila leads on solar power; and two-thirds of the first power auction’s winning projects are stalled.


Natural Gas & Liquid Fuels. The first natural gas storage open season is ready; ExxonMobil will expand its deliveries; and Pemex plans to import crude.


Oil & Gas Upstream. The CRE okayed changes in Pemex’s exploration plans; regulation slowed drilling; and Talos Energy sent its Zama drilling plans.


Money & Power. The US and Mexico pushed for auto rules; the UN trusts Mexico’s growth; and Moody’s is concerned over Pemex’s future.


Déjà vu all over again. Last week’s readers were particularly interested in CFE’s withdrawal from the LNG terminal auction (Platts – English); CRE’s jet fuel tariffs (El Universal – Spanish); and BHP’s first well (Reforma – Spanish).



NAFTA Negotiation


Mexico and Canada feeling pressured over deadlines. Canada, Mexico, and the US have an agreement on the table, according to Canada’s Prime Minister Justin Trudeau, but they are rushed by short electoral times (El Economista – Spanish). President Donald Trump is more focused on reaching a “good deal” (Bloomberg – English), according to Treasury Secretary Steven Mnuchin.


US lawmakers encouraged Trump to remain in the NAFTA negotiation. US lawmakers urged the Trump administration to stay at the table to negotiate NAFTA after the top US negotiator said the countries are still far from a deal (Bloomberg – English) (El Financiero – Spanish). Paul Ryan extended the deadline to present the final agreement in the US Congress.


Morgan Stanley and Moody’s talk about NAFTA. Moody’s said if the NAFTA negotiations extend beyond 2018, it may add uncertainty about the final outcome as key elections will be held in all three countries (Reuters – English). Morgan Stanley said Mexico’s peso and Canada’s dollar are vulnerable as NAFTA talks drag on (Bloomberg – English).


US and Mexico negotiate a NAFTA car deal. Senior US and Mexican officials met in Washington to discuss auto production rules (Bloomberg – English) in the NAFTA renegotiation. Mexico’s Economy Minister Ildefonso Guajardo said that the remaining issues on the table could be handled with “creativity and flexibility” (Reuters – English).



The Road to Reform


The CRE okayed changes in Pemex’s exploration plans. The National Hydrocarbons Commission (CNH) approved Pemex’s changes in the two development plans, achieving savings of US$1.1bn and a surprise discovery from a demarcation well (El Economista – Spanish). Pemex will look to maintain its assignments with eight exploratory plans.


Only one-third of the first power auction winners are making progress. Only 35% of the projects from the first long-term auction show any progress. The first projects should start supplying power by next September (El Financiero – Spanish).


The first natural gas storage open season is ready. Pemex launched an auction to transport and store fuel through 13 pipeline sections along with 10 storage terminals in the north and six more in the Pacific (Reforma – Spanish). The Energy Regulatory Commission (CRE) authorized the relaunching of Pemex’s open season (El Financiero – Spanish).


The energy reform is being slowed by regulation… Oil firms that won drilling rights have made little progress developing two-thirds of the projects because of the nation’s regulatory regime (Reuters – English) (El Financiero – Spanish). In Canada and the US, it takes two to three weeks to obtain drilling permits (O&G Magazine – Spanish), while in Mexico it takes more than a year.


…and gas station owners complain of regulation too. Gas station businessmen questioned the amount of regulation in the sector. The Energy Regulatory Commission (CRE) said regulations must be improved (El Universal – Spanish) and details will be agreed with gas station owners.



Political Economy


Pemex does not believe new refineries are profitable. Pemex Industrial Transformation said the best option is to upgrade and add a plant to an existing refinery (El Universal – Spanish) rather than to build a new one due to costs. The recommendation goes against Andrés Manuel López Obrador’s proposal to build two refineries in the country.


Pemex’s gas production dropped by 9.7%. The state-owned company’s natural gas production dropped by 9.7% in April compared with the previous year, with an average of 4,816 million cubic feet per day (El Financiero – Spanish). Pemex did send more oil to be processed in its refineries in April.


Moody’s is concerned over Pemex’s future. According to Moody’s, the change in government places Pemex in an uncertain position (La Jornada – Spanish). Pemex faces more political risk today than any of the big state oil companies in Latin America due to the administration change in 2018.


The UN trusts Mexico’s growth. The United Nations forecast 2.5% growth for this year for Mexico and Central America, a 0.1% reduction compared to the previous prediction. For 2019, the regional growth forecast remained unchanged at 2.6% (El Economista – Spanish).


Mexico’s oil fund is hardened despite the elections. The Mexican Oil Fund assured the fund is not at risk due to the presidential elections. The contracts are changing Pemex’s current assignments and there is no risk for energy reform in the future, whoever wins (El Financiero – Spanish).



Market Trends


Banxico plans a rate increase for June. Mexico’s central bank left the interest rate at 7.5% (El Financiero – Spanish), its highest level since January 2009. Banxico left the possibility open for an increase in June.


Pemex plans to import crude. Pemex analyzed 50 types of crude from different parts of the world to import 100,000 barrels per day of light oil to be processed in refineries (Excelsior – Spanish). Pemex does not plan to make long-term contracts, but will enter the spot market with three-month-long contracts.


Pemex shifts its focus to profit margins. The state-owned company is changing from volumetric goals to profit margins using gasoline refining margins (Platts – English). Pemex will process more crude oil and if it drops, it will favor imports.


Mexico’s GDP is up 1.1%. Mexico’s GDP enjoyed an increase of 1.1% in the first quarter of 2018 (El Economista – Spanish) compared with the fourth quarter in 2017. The first quarter of 2018 was affected by the NAFTA renegotiation and the presidential elections.



Strategy & Operations


Pemex will halt Tula and Salamanca’s refinery for maintenance. The state-owned company plans temporary stops for maintenance in the Tula and Salamanca refineries in 2018. In 2017, the Tula refinery processed 215,000 barrels per day (La Jornada – Spanish), followed by the Salamanca refinery with 156,000 barrels per day.


Talos Energy sent in its Zama drilling plans. Talos Energy submitted the Zama-1 discovery well drilling plans to Mexico’s government. Talos Energy operates Block 7 with a 35% interest (OGJ – English).


ExxonMobil will expand its refined products deliveries. ExxonMobil will expand refined products deliveries supplying the greater Mexico City region and the states of Coahuila, Nuevo León, and Puebla (Platts – English). The markets will be supplied by the Kansas City Southern train system.


Coahuila leads on solar power. Coahuila has close to 1,000 MW of PV projects under construction and operation (El Financiero – Spanish). Coahuila leads solar energy projects with Aguascalientes, Baja California, and Sonora.


Hokchi Energy will bet US$2.5bn. Hokchi Energy will invest US$2.5bn to implement the Hokchi field development plan (Pulso Energético – Spanish). The goal is to produce 147.8 million barrels of oil and 45.4bn cubic feet of gas (Hokchi – Spanish) by the second quarter of 2020 (Reforma – Spanish).


Vista Oil & Gas will join Jaguar in an onshore venture. The Mexican energy investment firm will partner up with Jaguar Exploración y Producción in three onshore projects (Reuters – English). Vista Oil & Gas acquired 50% stake with an initial payment of nearly US$27.5m and a further US$10m.



Old School Social


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


The IHS Markit 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.


The Global Petroleum Show 2018 will be held June 12-14 at the Calgary Stampede Roundup Centre in Calgary.



Lateral Thinking


Mexico students found new properties of coffee. High school students from the University of Monterrey found that coffee can combat the larvae of the mosquitoes that transmit dengue, zika, and chikungunya (Riviera Maya News – English). The discovery won first place in the National Fair of Science and Engineering 2018.



Quote of the Week


“Cuando el gobierno (que no es lo mismo que la ley) comienza a contravenir las leyes, o a desoír los anhelos de reforma que el pueblo expresa, sobrevienen las revoluciones.”


“When the government (which is not the same as the law) starts to disobey the laws, or to ignore the desires of reform that the people express, revolutions come.”


-Alfonso Reyes Ochoa (1889-1959), Mexican writer, diplomat, and philosopher.


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