November 8, 2021 edition—Pemex’s gas production and refining; Alsea’s power; and Mexico’s growth.
Last Week in a Minute or Less
Electric Power & Renewables.
The power reform put La Comer and Chedraui’s green energy contracts on hold; CFE cut its losses by 80%; and CFE provides 50% of Alsea’s power.
Liquid Fuels Mid-Downstream. LP gas prices increased again; and Pemex increased refining activity but could not reach its goal.
Natural Gas Mid-Downstream & LNG. Mexico is concerned with the natural gas market.
Oil & Gas Upstream. Pemex ups natural gas production; and Mexico is after its 2022 oil hedge.
Government & NGO. Mexico suffered a US$2.3bn trade deficit in September; the World Bank warned Mexico against fossil fuel dependency; and the Finance Ministry forecasts 6.3% growth.
Déjà vu all over again. Last week’s readers were particularly interested in MPL’s LNG project (Natural Gas Intel – English); CFE’s new plants (El Economista – Spanish); and CFE’s investment in Querétaro (Excelsior – Spanish).
Geopolitics & Trade
North American natural gas storage is running short. Natural gas storage inventories in the US have crept within 5% of the five-year average and Canada is pushing even higher (Platts – English). If North America suffers a colder than normal winter and inventories drop below 1 Tcf, prices are expected to surpass US$10/MMBtu.
Biden asked Mexico to strengthen supply chains. President Joe Biden and 16 other world leaders discussed actions to make supply chains more resilient to future health crises and climate change (El Economista – Spanish). As the global economy recovers from COVID-19, problems in the supply chain have appeared, threatening the recovery.
Mexico suffered a US$2.3bn trade deficit in September. Mexico exported 8.2% more in September 2020 than in the same month in 2021 and imported 39.1% more, reaching a cumulative US$9.2bn deficit so far in 2021 (Forbes – Spanish). Non-oil exports going to the US increased 7.5%.
Mexico also opposes the US EV tax plan. Minister Tatiana Clouthier complained about the US lawmakers’ plan to provide tax breaks to electric vehicles built in the US in 2026 (Forbes – Spanish). Clouthier considers the proposal to be against the USMCA rules.
Mexico’s remittances remain high. According to Banxico, Mexico’s remittances continue to increase, although they did not break historical records (Forbes – Spanish). Remittances in September reached US$4.4bn, 23.3% more than in September 2020.
Oil income grew 64.6%. Mexico got MXN686.9bn between January and September through oil income, a 64.6% increase compared to the same period in 2020 (El Economista – Spanish). However, income remained below government estimates.
…and BBVA and Citibanamex have contrasting opinions. BBVA expects a good year for Mexico’s economy and a good trend for 2022 (Forbes – Spanish). However, Citibanamex cut its growth forecast from 5.9% to 5% in 2020 as the bank considers Mexico’s recovery to be unstable (Forbes – Spanish).
The World Bank warned Mexico against fossil fuel dependency. The World Bank warned Mexico that as the energy transition progresses, oil, gas, and coal values will go down between 13% and 18% by 2050 (El Financiero – Spanish).
The OECD warned Mexico’s FDI is down. According to the Organization for Economic Co-operation and Development (OECD), Foreign Direct Investment in Mexico reached US$18.4bn in the first half of 2021, a 23.2% drop compared to the same period in 2020 (El Financiero – Spanish).
The Finance Ministry forecasts 6.3% growth. After an 8.2% contraction in 2020 of the Mexican economy, the Finance Ministry expects 6.3% growth in 2021 (El Financiero – Spanish). In the third quarter, the Mexican economy’s growth slowed by 0.2%.
Mexico brags about sustainable funding. Mexico advertised itself as a sustainable funding pioneer (El Financiero – Spanish). The Finance Ministry’s representatives shared their experience on sustainable finance policy, specifically on issuing bonds connected to Sustainable Development Goals.
Legal & Regulatory
The NREL forecasts an increase in carbon emissions with the power reform… The National Renewable Energy Laboratory (NREL) of the US Energy Department said the risk to increase carbon emissions will reach 65% and power costs could increase 54% if Mexico approves the power reform (El Economista – Spanish).
…and AMLO disagrees. After the NREL of the US Energy Department assured the power reform will increase electricity costs and carbon emissions, President López Obrador said Mexico is working to protect the environment (Forbes – Spanish).
If the power reform is approved, the CFE will increase investment. According to the Mexican Institute for Competitiveness (IMCO), if the state-owned company has a greater percentage of the system’s share, it will be necessary to increase its budget in investments to avoid blackouts (El Financiero – Spanish).
The power reform put La Comer and Chedraui’s green energy contracts on hold. These grocery shop chains powered up 70% of their shops with wind and solar power. Considering the power reform proposed by the government, the companies will restructure their plans (El Financiero – Spanish).
Pemex will have a lower tax burden. Mexico’s government reduced the tax rate that the state-owned company will pay in 2022 from 54% to 40% (Platts – English). The cut is part of President López Obrador’s efforts to strengthen Pemex.
LP gas prices increased again. According to the Energy Regulatory Commission (CRE), the average price for LP gas was 26.66 pesos per kilogram between October 31 and November 6. LP gas prices were 0.4% more expensive than in the previous week (El Financiero – Spanish).
Mexico is after its 2022 oil hedge. Mexico has started hedging its 2022 oil production in the world’s most notorious and largest oil hedge (El Financiero – Spanish) (Oil Price – Spanish). The Mexican government was buying put options at prices between $60 and $65 per barrel.
Mexico is concerned with the natural gas market. Although specialists expect better weather conditions this year, there is no guarantee that US natural gas prices will remain stable (El País – Spanish). The US economic recovery will increase demand while the lack of workers limits production.
Pemex ups natural gas production. The state-owned company is planning to limit flaring and increase natural gas production (Natural Gas Intel – English). Pemex is working to add an additional 1 Bcf/d in the upcoming years.
Strategy & Operations
CFE cut its losses by 80%. The state-owned company reported a loss of MXN28.8bn, a cut of 80% compared to the same period in 2020, which was MXN142.9bn (Forbes – Spanish). In the third quarter, CFE’s income increased 7.1%, reaching MXN148.8bn, compared to the same quarter in 2020.
CFE provides 50% of Alsea’s power. Alsea said its conglomerate pays more than half of its power generation to the state-owned company. Alsea is looking to reduce its kilowatt hour demand in its 2,159 restaurants (Forbes – Spanish).
Pemex lost MXN62.7bn in the third quarter. For the first three-fourths of the year, the state-owned company lost a total of MXN100.2bn, an improvement compared to the accumulated loss of more than MXN605.1bn in the same period in the previous year (El Economista – Spanish).
Pemex increased refining activity but could not reach its goal. The state-owned company reached 702,250 daily barrels of processed crude in six refineries between January and September 2021, using 42.8% of its refining system. Energy Minister Rocío Nahle assured refineries will reach 90% of use of its installed capacity in the third year of the administration (El Economista – Spanish).
CFE does not want to talk about Acciona Energía’s contract. The state-owned company refused to disclose information on the contracts signed with the Mexican subsidiary of Acciona Energía, a Spanish company partner of Odebrecht (Animal Político – Spanish). CFE answered that the contracts were not found.
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 Solar Power conference is scheduled for November 9-11 in Mexico City.
Mexico Assembly will be held in May 2022 in Mexico City.
An illegal tap caused an explosion on a Pemex pipeline. One person died and 15 were injured due to an explosion on a Pemex gas pipeline caused by an illegal tap in San Pablo Xochimehuacan (El Economista – Spanish). The governor promised to compensate the families and rebuild their homes.
Quote of the Week
“Eso no tiene la menor importancia.”
“That is not important at all.”
– Arturo de Córdoba (1907-1973), Mexican actor.
We hope you have a productive week. Please send any news, comments, or dangers of illegal taps to MexicoWeekly@energynarrative.com.
Tell your friends and colleagues about the Weekly Brief! They can sign up for a free one-month trial here.[/vc_column_text][/vc_column][/vc_row]