The Weekly Brief: Mexico

May 8, 2017 edition—More farm-outs on the way; third electricity auction launched; and Ek and Balam contracts migrated.






Last Week in a Minute or Less



Renewables & Electricity. Sener published the third long-term electricity auction and the industrial sector enjoys more favorable power tariffs in May.


Natural Gas & Liquid Fuels. Pemex and congressmen fret over illegal taps; Tesoro won the open season for Pemex pipelines; and Cydsa will build an underground LP gas storage facility.


Oil & Gas Upstream. The CNH approved onshore fields for farm-outs; Ek and Balam contracts were migrated; and an OPEC production cut is almost certain.


Money & Power. Moody’s maintains Mexico’s sovereign rating; Banxico will raise rates again by 50 points during 2017; and CFE increased salaries by 3.10%.


Déjà vu all over again. Last week’s readers were particularly interested in the third electricity auction (Spanish); the new long distance transmission lines (Spanish); and CFE’s control of the market (Spanish).



The Road to Reform


Pemex will partner up for onshore fields… The National Hydrocarbons Commission (CNH) approved bidding terms which, for the first time, allow Pemex to seek a joint venture for onshore  fields (Spanish) (Spanish). The state-owned company will look for partners to operate the Cárdenas-Mora and Ogarrio mature fields with a 50% share in each project (Spanish) (English).


…and there will be more farm-outs. The state-owned company plans 10 farm-out processes in deep-water fields in the Gulf of Mexico between 2017 and 2018 (Spanish). Seven of the fields will be located in the Perdido Fold Belt and three in the Catemaco Fold Belt and the southern mountain chain.


Sener launched the third electricity auction. The Energy Ministry and the National Center of Energy Control (Cenace) published the third long-term electricity auction (English) (Spanish). Explanatory meetings will be offered from May 26 to June 19 and the final version of the terms of the auction will be published on June 27.


Pemex migrated the Ek and Balam contracts. The state-owned company signed with the National Hydrocarbons Commission (CNH) a contract for extracting hydrocarbons under a production-sharing arrangement in the deep-water fields of Ek and Balam in the Sound of   Campeche (Spanish) (English). The fields contain approximately 500 million barrels in 2P reserves.



Political Economy


Illegal taps will be punishable with jail. Congress approved reforms aimed at punishing hydrocarbons theft,  mandating jail terms of up to 10 years for stealing more than 300 liters of fuel (Spanish). Some 130 Pemex workers and former employees have been detained or investigated for fuel thefts in the last decade (Spanish).


CFE and its union agree on a 3.10% salary rise. The state-owned company and the union agreed to increase workers’ salaries by 3.10% since May 1 (Spanish). Retirement pensions will increase by 3.36% following modifications agreed to last year that require 30 years of service for retirement benefits.


IEPS dropped by 20.6%. During the first quarter, Mexico’s government cashed in 20.6% less income from the special tax on gasoline compared to the same period in 2016 (Spanish). The federal government received 3.5% less income in real terms overall compared to the first quarter in 2016, for a total of MXN732bn.


Pemex income rises, investment drops. The state-owned company achieved a net profit of MXN87.9bn in the first trimester of 2017, recovering from losses in the same quarter in 2016 (Spanish). Pemex and CFE reduced investments by MXN17.6bn in the first quarter, halting construction and maintenance projects and purchase of capital goods (Spanish).


China and Mexico get closer. After years of tension, China and Mexico are strengthening their ties with energy, highway, and telecommunication projects developed and funded by the Asian country’s companies in Mexico (English). Progress in this relationship is dependent on the  renegotiation of NAFTA and its impact on Chinese investments in Mexico.



Market Trends


Everyone thinks OPEC will extend its crude oil production cutbacks. Analysts expect agreement between OPEC and non-OPEC producers to reduce oil output is “near certain” and the OPEC general secretary believes the oil market is reaching an equilibrium (English). The extension is expected to be agreed at the OPEC ministerial meeting on May 25.


Moody’s ratifies Mexico’s rating. The rating agency affirmed the issuer rating for Mexico’s government of on Moody’s de México domestic rating scale and the A3 issuer rating on its global scale (English) (Spanish). Moody’s recommends Mexico and the US include the energy sector in the renegotiation of NAFTA (Spanish).


Lower electricity tariffs offered for the industrial sector. Electricity tariffs for the industrial sector will be reduced by between 9.2% an 12.5% in May, compared to April (Spanish). For the commercial sector, tariffs will be lowered by between 4.8% and 8.2%.


Banxico will only raise rates by another 50 basis points in 2017. Mexico’s central bank will increase interest rates by an additional 50 basis points this year, specialists predict (Spanish). Rate increases by Banxico in 2017 would total 125 basis points, analysts project, a drop from previous estimates of 225 basis points.



Strategy & Operations


Cydsa backs Veracruz with US$100m. The Monterrey-based chemical and energy producer will invest US$100m to finish the LP gas underground storage facility in a salt cavern in Veracruz (Spanish). This project will be the first LP gas underground storage project in Latin America and could be a model for competitors.


Tesoro will use Pemex pipelines. For the first time, Pemex will share its infrastructure with a private company, and the US firm won the pipeline capacity for three years offering tariffs above the minimum established by Pemex (Spanish). Offers were placed for all the capacities offered, including pipelines and storage (English).


Peña Nieto thanks ENI. President Peña Nieto met with the CEO of the Italian company, Claudio Descalzi, to discuss the success of the first well drilled by a private company in Mexico (Spanish). Descalzi emphasized that the reserves found in the Amoca-2 well surpassed the original estimates (English).


Chiapas is looking for new projects. The governor of Chiapas announced 16 energy, logistics, and transportation projects in the special economic zone of Puerto Chiapas (Spanish). The projects aim to modernize roads, ports, railroads, create a special customs regime, and complete the Salina Cruz-Tapachula pipeline by 2018 which requires an investment of MXN8bn.



Old School Social


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


The Renewable Energy Congress Mirec Week is May 8-12 in Mexico City.


The Mexico Business Forum is May 11 at the Sheraton Maria Isabel.


The 3rd Mexico Gas Summit is May 24-25 in San Antonio, Texas.



Lateral Thinking


Mexican students designed a solar-powered wheelchair. National Polytechnic Institute students developed a solar-powered electric wheelchair, naming it “Chair Goes”. The wheelchair (powered by two motors) has three retractable solar cells which can charge three batteries per day and includes built-in turn signals, night-lights, and a charger for mobile devices (English).



Quote of the Week


“El pasado está escrito en la memoria y el futuro está presente en el deseo.”


“The past is written in the memory and the future is present in desire.”


-Carlos Fuentes (1928-2012), Mexican diplomat and novelist



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