The Weekly Brief: Mexico


May 6, 2019 edition—The Dos Bocas resolution is close; Pemex’s mature fields; and CFE’s new projects.




Last Week in a Minute or Less


Renewables & Electricity. CFE will push power generation with five projects; Mexico shines with 100,000 solar roofs; and Nuevo León and Chihuahua bet on the sun.


Natural Gas & Liquid Fuels. The Dos Bocas operator will be decided on May 9; Pemex bought 612 tanker trucks in a “bad” deal; IEnova announced two long-term contracts.


Oil & Gas Upstream. Pemex will go after mature fields; oil producers want new upstream rounds; and AMLO disagrees.


Money & Power. Mexico’s country risk dropped; public spending and the economy shrank; and the end of special economic zones will hit investment.


Déjà vu all over again. Last week’s readers were particularly interested in the Empalme I and II plants (Reforma – Spanish); LNG imports (Houston Chronicle – English); and Talos’ new plans in Mexico (Offshore Energy Today – English).



NAFTA Negotiation


Mexico is still concerned with border trade delays. Mexico sent a note to the US embassy due to delays in border crossings affecting the commerce between both nations (El Financiero – Spanish). The document insists that Mexico wants to maintain good bilateral relations with the US.


Mexico passed labor law required by USMCA… Mexico’s Senate okayed an overhaul to the labor code, a condition demanded by the new NAFTA. The changes allow workers to vote on unions and labor contracts anonymously (Bloomberg – English).


…and AMLO urged the US to ratify USMCA. President López Obrador asked US lawmakers to ratify the new NAFTA after the Mexican Senate passed a bill strengthening trade unions’ rights (Reuters – English). AMLO described the labor reform approval as one of the “commitments” made with the US government.



The Road to Reform


Pemex will go after mature fields. The state-owned company plans to speed up the development of recent discoveries and oil recovery from mature fields (El Financiero – Spanish) through Exploration and Extraction Integral Services Contracts (CSIEE) with private companies. The first stage of tenders would include 21 oil and gas contracts.


Oil producers asked for more rounds… The National Association of Hydrocarbons Producers wants to continue with upstream rounds. The association estimates that if by 2032 those contracts have not been assigned, oil production will be short by 1.125 million barrels per day (El Financiero – Spanish).


…and AMLO disagrees. President López Obrador said oil production from private companies is still too low to justify the restart of rounds (El Financiero – Spanish). AMLO pledged no current contracts will be cancelled, assuring investment and production.


CFE will push power generation with five projects. The general director of the state-owned company, Manuel Bartlett, will strengthen its energy generation through five projects, recuperating around 13,000MW (El Economista – Spanish). Bartlett said CFE had financial difficulties and an inefficient administrative organization.


Experts asked AMLO to solve the pipeline issues. Experts asked the López Obrador administration to solve the problems that have blocked pipelines’ operations to save the country from big expenses (El Norte – Spanish). CFE announced its plan to purchase liquified natural gas that is five times more expensive than the continental gas.


The Dos Bocas operator will be decided on May 9. The Energy Ministry will publish the decision on the construction project for the Dos Bocas refinery by May 9 (El Economista – Spanish). The four companies selected to participate in the contest sent their proposals on March 30.



Political Economy


Finamex is concerned with Pemex’s mature field plans. According to Finamex, Pemex’s strategy to increase recovery in mature oil fields could increase the state-owned company’s debt (El Financiero – Spanish). Although the plan will increase production in the long term, the strategy is not sustainable in the medium term.


Some recommend Pemex to look into clean energy. The former deputy secretary of California’s state Treasury advised the state-owned company to invest in clean energies (El Economista – Spanish). Pemex is going against the international trend in pushing for coal and refineries.


Mexico’s country risk dropped. The Finance Ministry said that Mexico’s country risk was lowered two points, remaining at 194 basis points, the third lowest level since October 19, 2018 (El Economista – Spanish). The country risk reflects the possibility of the country not paying its foreign debt.


Public spending and the economy shrank… Mexico’s GDP contracted by 0.2% in the first quarter of 2019 from the previous quarter (El Financiero – Spanish). Public spending fell 6.1% in the first quarter of 2019, saving MXN65.4bn (El Financiero – Spanish).


…but the Finance Ministry still has high hopes. The Finance Ministry maintained the growth outlook between 1.1% and 2.1%, after the drop in GDP growth in the first quarter of 2019 (El Economista – Spanish). The Finance Ministry will follow the evolution of economic activity to modify the range.


Mexico blocks Odebrecht. Mexico banned the Brazilian company from participating in public federal contracts in the country (Reuters – English). The prohibition includes receiving proposals from the firm for the next three years.



Market Trends


The end of special economic zones will hit investment. Mexico’s Business Confederation (Coparmex) warned there is a risk of losing more than US$10bn if special economic zones disappear (El Economista – Spanish). HR Ratings is concerned that the end of the special economic zones could financially pressure certain states and municipalities (El Economista – Spanish).


AMLO increased the gasoline subsidy. The Finance Ministry increased the subsidy for the special tax on regular and premium gasoline and diesel (El Financiero – Spanish). The goal is to protect final users from facing international fuel reference prices.


Foreign investments reach US$6.5bn with the new administration. During the first four months of President López Obrador’s administration, foreign investors have enjoyed interest rates and low share prices (El Financiero – Spanish). In the same period in 2018, US$617m left the Mexican market, according to Banxico.



Strategy & Operations


IEnova announced two long-term contracts with fanfare. The Sempra subsidiary will sign two long-term contracts to use storage and delivery terminals for refined products in Manzanillo, Colima, and Guadalajara, Jalisco (El Financiero – Spanish). In Colima, a marine terminal to receive fuel tankers will be developed.


Pemex bought 612 tanker trucks in a “bad” deal. The state-owned company bought 612 tanker trucks to transport gasoline, adding 11% of additional capacity to pipeline transportation (El Economista – Spanish). Pemex paid US$99.7m in total, US$7.7m more than previously planned (Reforma – Spanish).


Nuevo León has a renewable future. Solar energy use could live a golden age in Nuevo León, as it represents a 65% saving in power tariffs (El Financiero – Spanish). Private companies in the state, such as Alfa, have invested in cutting CO2 emissions (El Financiero – Spanish) and the state is leading in solar energy’s growth (El Financiero – Spanish).


Mexico shines with 100,000 solar roofs. The Mexican Association of Solar Energy said Mexico has 100,000 solar roofs, 40,000 more than in June 2018 (Forbes – Spanish). The reason is that solar technology costs have dropped 80% since 2010.


Mexico will fall short of the clean energy goal. The National Center of Energy Control (Cenace) said the country does not have the economic resources needed to comply with the 35% clean energy goal (El Financiero – Spanish) established for 2024. The Cenace estimates Mexico will reach only 20%.


Chihuahua will shine brighter. The Fund of Universal Power Services in Chihuahua will invest MXN153m to install solar panels in 109 communities of 16 municipalities (El Economista – Spanish). The Energy Ministry approved the program in 2017.



Old School Social


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



MIREC Week is scheduled for May 20-22 at the World Trade Center in Mexico City.


XXVIII La Jolla Energy Conference will be held May 22-23 in La Jolla, California.


The 5th Mexico Gas Summit is scheduled for May 29-30 at the Marriott Riverwalk in San Antonio, Texas.



Lateral Thinking


Seaweed may be a new power source. Researchers are studying how to transform seaweed into biogas (Technology Review – English). The sargassum invading Mexico’s Caribbean coast come from the waters between Brazil and West Africa, where pesticide and fertilizer from the Amazon and Congo Rivers, together with higher ocean temperatures produced by climate change, make the algae bloom.



Quote of the Week


“El periódico es el vehículo del contagio en una multitud esparcida.”


“The newspaper is the infection vehicle in a scattered crowd.”


– Emilio Rabasa Estebanell (1856-1930), Mexican writer, diplomat, and politician.



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