The Weekly Brief: Mexico

May 29, 2017 edition— Pemex’s open season postponed; next Rounds loaded; and CFE promotes 16 new pipelines.






Last Week in a Minute or Less


Renewables & Electricity. The Sener will light up low-income communities with solar panels and the CFE promotes 16 new natural gas pipelines to generate power.


Natural Gas & Liquid Fuels. The open season for the second region is postponed; TransCanada started the Texas-Tuxpan pipeline; and Gas Natural Fenosa will deliver natural gas in Tabasco.


Oil & Gas Upstream. The next Rounds will contain more areas; the Zoque community fights Round 2.2 in Chiapas; and Talos drills Zama-1.


Money & Power. The Finance Ministry forecasts 2.5% economic growth; the OPEC cutback extension is a reality; and the IMF has confidence in Mexico.


Déjà vu all over again. Last week’s readers were particularly interested in the extension of Round 2.1 (Spanish); the accusation of delays by CFE on solar panel connections (Spanish) (Spanish); and Pemex’s interest in launching a Fibra E (Spanish).



The Road to Reform


The CRE assigned Tabasco’s natural gas distribution. The Energy Regulatory Commission (CRE) decided Gas Natural Fenosa will distribute natural gas in Tabasco (Spanish). The Spanish company expects to supply the state with a connection to the 24-inch pipeline which belongs to the National Center of Natural Gas Control (Cenagas).


The Zoque community opposes Round 2.2. The Zoque people resist awarding contracts to foreign companies for blocks 10 and 11, encompassing the municipalities of Chapultenango, Francisco León, Ixtacomitán, and Tecpatán (Spanish). The National Hydrocarbons Commission (CNH) estimates an investment of US$330m and extraction of 437.8 million barrels of crude in both blocks.


The coming rounds will be loaded with areas. The Energy Ministry and the National Hydrocarbons Commission (CNH) are considering an exponential increase in the number of areas offered in the next upstream Rounds (Spanish). The Energy Regulatory Commission (CRE), the CNH, and the National Agency of Industrial Security and Environmental Protection are developing a program to simplify administrative procedures.


CFE encourages construction of 16 pipelines. The CEO of the state-owned company, Jaime Hernández, said CFE promotes the construction of 16 new natural gas pipelines for various regions (Spanish). With this infrastructure, power plants could receive the natural gas supply needed to generate power.


Pemex’s pipeline open season was postponed. The open season for the second region – which includes Coahuila, Durango, Nuevo León, and Tamaulipas – previously scheduled for a June 15 launch will be postponed for three or four months (Spanish). The open seasons for the third, fourth, and fifth regions have been announced (Spanish).


The CRE goes easy on fuel quality. An Energy Regulatory Commission (CRE) resolution excuses private fuel transportation and distribution companies from presenting fuel quality test results that would show compliance with standards (Spanish). The agreement can only be challenged through an indirect writ of protection.



Political Economy


IMF says that Mexico fits FCL criterion. The International Monetary Fund assessed Mexico’s strength to endure financial market volatility and reaffirmed Mexico’s eligibility for up to $86bn in Flexible Credit Line resources (English) (Spanish). Mexico’s resilience proves the effectiveness of the country’s strong policies and the exchange rate’s role in absorbing shocks.


The Finance Ministry boosts Mexico’s economic growth. The Finance Ministry forecasts the GDP will grow by 1.5% to 2.5% in 2017, above the previous estimate of 1.3% to 2.3% (Spanish). The revised forecast follows the National Institute of Statistics and Geography (INEGI) announcement that growth during the first quarter was 2.8% annualized.


Oxxo Gas accused Pemex of limiting private transportation. Oxxo Gas executives asked Guillermo García Alcocer, president of the Energy Regulatory Commission (CRE), to intervene with the Pemex union which is maintaining control of fuel transport, blocking private sector participation (Spanish). The CRE stated it cannot intercede until the company files a complaint.


NAFTA renegotiation was formally announced. The Trump administration gave notice to Congress of his intent to start talks with Canada and Mexico to renegotiate NAFTA on August 16 (English) (Spanish). A 90-day consultation period opens, and US Trade Representative Robert Lighthizer affirmed all three countries are “entering the process in good faith.”


The Sener will light up low-income communities. The Energy Ministry will install 10,000 photovoltaic panels in low-income communities not connected to the grid (Spanish). The project will benefit 45,000 people in 898 communities in 11 states with an investment of MXN438m.



Market Trends


Seven banks in Mexico are under investigation. Mexico’s antitrust regulator (Cofece) investigates possible collusion to manipulate prices of government and public companies’ bonds among seven banks, including BBVA, Banco Santander, Barclays, Bank of America, Citigroup, HSBC, and JP Morgan (English). No bank has been accused of wrongdoing, but they have received requests for information.


Interest rate to remain unchanged. Mexico’s central bank will hold the interest rate steady after five consecutive hikes despite above-target inflation (English). Goldman Sachs analyst, Alberto Ramos, expects the central bank to leave the benchmark rate unchanged until after the expected US Federal Reserve hike in June.


LP gas prices take off. Following the Jan. 11 liberalization of LP gas prices, prices have increased by  7.2%, on top of the hikes in early January that ranged between 13 and 30% (Spanish). The goal of the liberalization was to stimulate competition in the market to lower prices for consumers.


OPEC will extend output cuts another nine months. OPEC and non-OPEC producers are ready to extend supply cuts, the Saudi energy minister said (English) (Spanish). Saudi Arabia and Iraq agreed to prolong by nine months the production cuts and oil inventories are expected to drop to their 5-year average (English).



Strategy & Operations


Nuevo León rides the LP gas wave. According to the CFE, Nuevo León will receive investments of MXN212.3m in the next few months for projects related to LP gas (Spanish). Transportation projects will absorb MXN197m, while supply and distribution projects will receive MXN3.9m and MXN10.7m, respectively.


TransCanada started Mexico’s first underwater pipeline. The Canadian company commenced officially construction of Mexico’s first underwater gas pipeline which will connect southern Texas with Tuxpan, Veracruz (English) (Spanish). Costing US$2.1bn, the pipeline will transport 2.6bn cubic feet per day, 32% of current domestic demand for natural gas.


IEnova puts down roots in Tamaulipas and Veracruz. The Sempra subsidiary has invested US$1.4bn in energy projects located in Tamaulipas and Veracruz (Spanish). Both states are important for IEnova, with projects including Mexico’s first private ethanol pipeline and the Ramones 1, Ramones 2, and San Fernando natural gas pipelines.


Talos drills Zama-1. The US company drilled the exploratory well on Block 7 in shallow waters and is expected to take 90 days to be finished with Zama-1 and Zama Deep (English) (Spanish). The Zama structure is estimated to contain 100-500 million barrels of resources.



Old School Social


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


The XXVIII Congreso Annual SNM/ 2017 LAS/ ANS Symposium is June 18-21 at the Gran Hotel Ciudad de México, Mexico City.


The CWC World LNG& Gas Series 15th Americas Summit is June 20-23 in Houston, Texas.



Lateral Thinking


A young Mexican fights the gasolinazo with biofuel. Moisés Flores transformed his father’s recycling business into a company that produces biodiesel, generating 400 gallons per day (English). Smart Recycling has grown by more than 150% since January, after the Pemex monopoly ended, becoming an industry leader.



Quote of the Week


“La verdadera grandeza, no necesita la humillación del resto.”


“True greatness does not require the humiliation of others.”


-Amado Nervo (1870-1919), Mexican poet who belonged to the Modernist movement



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