The Weekly Brief: Mexico

May 1, 2017 edition—Pipeline open season pushed back; second farm-out under way; and the third electricity auction is readied.






Last Week in a Minute or Less




Renewables & Electricity. Hydroelectric and geothermal projects will be the focus of the third auction; Mexico will develop its grid; and growth of solar installations may face technical limitations.


Natural Gas & Liquid Fuels. The first pipeline open season was postponed; the second, paused; and Mexico’s oil is not going to the US.


Oil & Gas Upstream. The second farm-out is on the way; Pemex bought oil output hedges; and OPEC’s extension of oil cuts is almost certain.


Money & Power. Inflation peaked; Mexico’s peso could strengthen further; and Mexico’s falling production may push it out of the global ranking.


Déjà vu all over again. Last week’s readers were particularly interested in Trump’s fight with Canada over dairy products (English); private investment in energy (Spanish); and the use of gasoline import permits (Spanish).



The Road to Reform


Pipeline open season on hiatus. Again, the first open season auction for capacity on Pemex’s pipelines was postponed from April 26 to May 2 (Spanish). The Energy Regulatory Commission (CRE) suspended the calendar for the second phase of the open season, which includes pipelines and storage terminals in northeastern Mexico (Spanish).


Pemex plans a second farm-out. The state-owned company plans a second deepwater farm-out joint venture in the Maximino and Nobilis areas near the US in the Gulf of Mexico (English) (Spanish). People familiar with the matter said that in June Pemex would seek approval from the National Hydrocarbons Commission (CNH) to tender for partners.


The third electricity auction will focus on hydroelectric and geothermal projects. The third long-term electricity auction will look to promote renewable technologies, especially firm power sources. The government is studying several incentive schemes to increase geothermal and hydropower generation (Spanish).


Mexico wagers on electrical grid. Mexico plans five tenders in two years to develop long-distance transmission lines (Spanish). Three transmission projects could bring US$6bn in private investment and two more submarine lines are planned. At least 5MW of current solar and wind generation await new lines to sell into the energy market, and a further 2 GW of wind projects could be constrained by transmission limitations.


Technical limitations cast a shadow over Mexico’s solar. Mexico’s Solar Energy Association (ANES) expects slower growth in rooftop solar installations in 2017 due to technical limitations and lack of attractive financing (English). Rooftop solar capacity increased to 247MW (29,500 installations) from 667kW (231 installations) between 2010 and 2016.



Political Economy


Trump believes in NAFTA…for now. After a call with Pres. Peña Nieto and Prime Minister Trudeau, Trump asserted that “relationships are good” and insisted if negotiations are not fair, NAFTA will be terminated (English) (Spanish). The calls took place after the White House finished a draft for an executive order to withdraw from the agreement.


CFE will keep most of the electricity market for a decade. Analysts estimate that it will take almost 15 years for the state-owned company to lose 50% of the market to private companies (Spanish). In Italy and Spain, it took between 15 and 20 years before competitors took over 50% from the main operator.


Inflation peaked at 5.6%, an eight-year high. Mexico’s annual inflation accelerated in April reaching 5.62% annualized, the highest level in almost eight years (English) (Spanish). Mexico’s central bank governor Agustin Carstens stated that inflation has stabilized and that the bank’s actions prevented a generalized price increase (English).


Pemex hedged its oil output. The state-owned company announced oil output hedged from May through December, a first in 11 years, guaranteeing 42 dollars per barrel for 409,000 barrels per day (English) (Spanish). The hedge protects the Pemex balance sheet, costs US$133.5m, and is separate from the Finance Ministry’s oil price hedge.


LP gas stoves will be distributed to 13,000 low-income households. The Social Development and Energy Ministries signed an agreement to help substitute coal and firewood stoves in marginal areas with 13,000 LP gas stoves (Spanish). According to the Energy Minister, five million families still burn firewood for cooking.



Market Trends


The oil cut extension is on the table. A technical panel of OPEC members and non-members recommended extending for six months from June the global agreement to cut crude oil supplies (English) (Spanish). Russia will reach its commitment to reduce crude oil output by 300,000 b/d by the end of April (English) (Spanish).


GMD has its sights set on hydrocarbon storage. Grupo Mexicano de Desarrollo (GMD) disclosed that it is analyzing a multi-million-dollar investment in hydrocarbon storage projects in Mexico (Spanish). According to GMD’s report to the Mexican stock exchange, partnerships with domestic and foreign companies are under study for an investment that could reach US$50m.


Mexico’s peso took a hit after NAFTA questioned. The peso remains vulnerable to US policy, as shown by its drop to 18.9 after leaks that the White House considered exiting Nafta (English). Just before, Finance Minister José Antonio Meade said Mexico’s peso could strengthen further after falling to a record low in January (English).


Crude oil production plummets and Mexico may fall from the global ranking. Pemex’s production of crude in March is expected to drop below 2 million barrels per day. At that level, Mexico will rank 12th in  OPEC’s World Ranking, but it could be surpassed by Kazakhstan in the coming months (Spanish).



Strategy & Operations


Puebla will premiere its first solar farm by the end of 2018. The first of eight solar farm projects planned for Puebla will be ready by the end of 2018. The goal is to satisfy the obligation of industrial companies to use renewable energy sources for 5% of its power consumption by 2018 (Spanish).


Mexico’s oil doesn’t get around much anymore. Mexico’s crude shipments to the US fell to a new low, continuing a longstanding trend (English). The reasons for falling export volume are an increase in refinery rates, Mexico’s steadily declining production, and increasing use of crude by Mexican refineries.


Mexico City will count on a new energy plant. The Mexico City Government announced the go ahead for the Bordo Poniente Etapa IV biogas power generation plant (English). The project will produce methane from a city dump and requires private investment of MXN3bn to secure Mayor Miguel Ángel Mancera’s  legacy (Spanish).


Nuevo León counts on US$2.1bn in electricity generation projects. Nuevo León is the highest consumer of electricity in Mexico, with 7.4% of domestic demand. Today, power generation projects worth US$2.1bn are under construction in the state and plants valued at an additional US$2bn will be started soon (Spanish).


Iberdrola bets US$3bn in Mexico. The Spanish company plans to invest US$3bn in various projects to increase its installed capacity in Mexico (Spanish). Iberdrola generates 16% of the total energy consumed in Mexico and is building four new combined-cycle plants in Ensenada, Nuevo León, and Sinaloa.



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


Machine learning points to mass graves. Researchers are using machine learning to identify the counties in Mexico most likely to have hidden graves which may contain bodies of the disappeared (English). The research has created a database with every report of a hidden grave, and is a fundamental source for locating still hidden graves.



Quote of the Week


“América no es tanto una tradición que continuar como un futuro que realizar.”


“America is not so much a tradition to preserve as a future to realize.”


– Octavio Paz (1914-1998), Mexican diplomat, poet, and Nobel Prize winner



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