The Weekly Brief: Mexico


May 31, 2020 edition—Pemex’s new refinery; Zama’s debate; and Conagua’s bill.




Last Week in a Minute or Less


Electric Power & Renewables. Conagua and CFE fight over the power bill; the CRE set final power tariffs for May; and the Sener warned wholesale power market participants of changes.


Natural Gas Mid-Downstream & LNG. US natural gas prices will make Mexico happier.


Liquid Fuels Mid-Downstream. Valero has 80 gas stations; the CRE carried out the new Hydrocarbons Law decree; and Pemex bought Shell’s interest in Deer Park refinery.


Oil & Gas Upstream. Pemex will produce around 2 million daily barrels of crude; and Talos disagrees with Zama’s latest assessment.


Government & NGO. Unclear rules hit Canadian investments in Mexico; inflation skyrocketed in May; and Mexico’s GDP is expected to grow.


Déjà vu all over again. Last week’s readers were particularly interested in IEnova’s advice (Platts – English); power plants’ fuel oil (El Financiero – Spanish); and Mexico’s clean energy generation (El Financiero – Spanish).



Geopolitics & Trade


Biden’s administration complained about Mexico’s energy policy. President Biden’s head of trade is concerned with Mexico’s policies hitting US investments, especially in the clean and renewable energy sector (El Financiero – Spanish). Economy Minister Tatiana Clouthier downplayed the allegations.


Unclear rules hit Canadian investments in Mexico. Canadian private investments worth US$130m were stopped due to the lack of clear rules in public policies and the lack of legal certainty in Mexico (El Economista – Spanish). Canadian investments fell 18% in the energy, pharmaceutical, and farming sectors.


Mexico’s exports went up in April. Mexican exports grew 75.6% in April and 16% in the first four months of 2021, showing a recovery of foreign markets (El Economista – Spanish). Imports also showed dynamism, growing 48.4% in April.



Political Economy


Mexico’s FDI was up by 14.8%. During the first quarter of 2020, Mexico attracted US$11bn in foreign direct investment, a 14.8% increase compared to the same period in 2020 (Proceso – Spanish). Nuevo León received US$1bn in FDI, 9% of the country’s total (El Economista – Spanish).


Three names are considered for Banxico’s head. President López Obrador will not renew Alejandro Díaz de León’s contract as Banxico’s governor (Forbes – Spanish). Gerardo Esquivel, Galia Borja, and Arturo Herrera are being considered as possible substitutes.


Inflation skyrocketed in May. Inflation grew in the first two weeks of May, reaching 5.8%, well over the official goal (Forbes – Spanish). Analysts increased Mexico’s inflation outlook by the end of 2021 to 4.87% (Forbes – Spanish). For 2022, the outlook was kept without changes.


Fitch is concerned with AMLO’s reforms. Fitch said the proposed and approved reforms since President López Obrador was named head of the country have caused concern among foreign investors (El Economista – Spanish). Fitch Ratings ratified Mexico’s rating in BBB-.


Mexico’s GDP is expected to grow. Mexico’s economy grew by 0.8% compared to the previous quarter, 0.4% above the April outlook (Forbes – Spanish). The amount is way below the 3.2% growth of the previous quarter.



Legal & Regulatory


The Sener warned wholesale power market participants of changes. The Energy Ministry warned the participants of the wholesale power market of the suspensions of the effects and consequences due to the modification to Annex D of Methodology, Rules, and Terms for Legal Contracts (DOF – Spanish).


The CRE carried out the new Hydrocarbons Law decree… The Energy Regulatory Commission (CRE) published the new decree for the Hydrocarbons Law (DOF – Spanish). The CRE declared 26 LP gas permits as expired (DOF – Spanish).


…and 49 agreements were killed in the process. The Energy Regulatory Commission (CRE) left without purpose 49 agreements that deal with prices and terms of methodologies and conditions of contracts for all the hydrocarbons markets, including natural gas, gasoline, diesel, LP gas, and jet fuel (El Economista – Spanish).


CRE’s permit delays hit investments in the sector. The gas station sector calculated that the halt in CRE’s permits and the hydrocarbons deregulation means a hit of MXN20bn in private investments (Forbes – Spanish). The Onexpo pointed to expenses in image and marketing.



Market Trends


The CRE set final power tariffs for May. The Energy Regulatory Commission (CRE) published the final tariffs for basic supply for May, 2021 (DOF – Spanish). The CRE published the tariffs for the different divisions and included the costs of generation of small power systems from March.


Pemex will produce around 2 million daily barrels of crude. The state-owned company will produce about 2 million daily barrels of crude during the López Obrador administration (El Economista – Spanish). Mexico will boost crude output from 1.7 million barrels per day to 2.4 million barrels per day by 2024 (Platts – English).


US natural gas prices will make Mexico happier. After a jump, US natural gas prices at locations that affect Mexico fell thanks to weather demand uncertainty (Natural Gas Intel – English). Natural gas imports from the United States are holding steady as Mexico enters its peak demand months.


Pemex bought Shell’s interest in Deer Park refinery. The state-owned company agreed to purchase Shell’s 50.5% stake in the 340,000 barrels per day refinery in Deer Park for nearly US$600m (Argus Media – English) (Forbes – Spanish). Pemex would acquire a steady processor of Maya heavy sour crude.



Strategy & Operations


Valero has 80 gas stations. The company has 80 gas stations in operation in 10 states across Mexico and expects to reach 6 million barrels of storage capacity in the country (El Economista – Spanish). The hydrocarbons storage terminal contributes to fuel supply certainty for distributors and final clients.


The Deer Park purchase may not be the best investment. The state-owned company faces a long-term high risk of investment in the purchase of the refinery (Forbes – Spanish). Pemex acknowledged the Deer Park refinery carries a debt of US$980m (Then 24 – English).



Talos disagrees with Zama’s latest assessment. Talos disagreed with the finding of a third-party reservoir engineering firm that concluded Pemex holds 50.4% of Zama and the Talos-led consortium 49.6% (Natural Gas Intel – English). The Block 7 consortium and Pemex have been negotiating the terms of a unitization and unit operating agreement (UUOA).


Conagua and CFE fight over the power bill. The power bill of six pumping plants in Cutzamala represent 23% of Conagua’s expenses. Conagua is evaluating the power efficiency of the Cutzamala system and proposing new alternatives to increase power capacity (Forbes – Spanish).



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 Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.



Lateral Thinking


GWEC said Mexico is no longer a wind leader. The head of the Global Wind Energy Council (GWEC) for Latin America said Mexico fell to fourth place in wind power generation infrastructure (El Economista – Spanish). The fall from second place was explained by changes in the legal framework that are being analyzed by judges.



Quote of the Week


“Nunca pensé que un momento de descanso nos fuese tan funesto.”


“I never thought a moment of rest could be so terrible.”


– Antonio López de Santa Anna (1794-1876), Mexican politician and general.




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