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November 11, 2019 edition—Imbalanced CELs; new faces at the CRE; and less fuel trade.
Last Week in a Minute or Less
Renewables & Electricity. The new CELs regulation will imbalance the market; CFE’s plants are not profitable; and the CFE said no to cheap energy.
Natural Gas & Liquid Fuels. Pemex is losing the gas station market little by little; Pemex cut both exports and imports; and LP gas prices went down in October.
Oil & Gas Upstream. The CRE let 20 people go after the new head came in; and AMLO’s picks for the CNH were approved.
Money & Power. AMLO said Mexico’s economy is doing “very well”; the IMF had some advice for Pemex and the reform; and rating agencies are concerned with public finances.
Déjà vu all over again. Last week’s readers were particularly interested in FEMSA’s bet on renewables (El Financiero – Spanish); Engie’s investment (El Financiero – Spanish); and the CNH’s changes (DOF – Spanish).
NAFTA Negotiation
Pelosi is optimistic regarding USMCA. Speaker Nancy Pelosi said the US House of Representatives is close to approval of the new NAFTA (Reuters – English); however, she did not discard the possibility of a vote on the USMCA in 2020 (Reuters – English).
The timetable to pass the USMCA is tightening up. A senior Mexican trade official said the timetable towards ratification of the new NAFTA slipped (Reuters – English). However, the pact could still be ratified before the end of the year.
AMLO and Trudeau talked about trade. President López Obrador and Prime Minister Justin Trudeau agreed to work to achieve ratification of the new NAFTA deal (Reuters – English). Both leaders will work on convincing US lawmakers to ratify the USMCA.
The Road to Reform
The new CELs regulation will bring imbalance to its market… The Energy Ministry’s new regulation for clean energy certificates will produce an excess of offers of US$50m. By 2020, CELs demand will reach US$25m, and the current offer covers approximately 90% of what will be needed in a year (El Financiero – Spanish).
…and CFE’s plants are not profitable. Among the 161 power plants owned by the CFE, 57 are not profitable, according to the Federal Audit Office (ASF) (El Financiero – Spanish). The ASF reached that conclusion after analyzing CFE’s performance in 2017 and 2018.
Cenagas and the private sector agree on charges. The National Center of Natural Gas Control (Cenagas) and the business sector reached an agreement on a fair system to charge for imbalances generated during the April to August period (Reforma – Spanish).
The CRE let 20 people go under the new head. In the past two weeks, the Energy Regulatory Commission (CRE) has let go almost 20 workers who led the commission’s directorates (El Financiero – Spanish). Their resignation coincided with the start of Leopoldo Melchi’s administration.
AMLO’s picks for the CNH got approval. President López Obrador’s three nominees to lead the National Hydrocarbons Commission (CNH) were approved by the Senate Energy Commission. The full Senate will vote on the nominees next (El Financiero – Spanish).
Political Economy
Analysts lowered Mexico’s growth outlook to 0.26%. According to Banxico’s survey, Mexico’s economic growth outlook was lowered from 0.43% to 0.26% (El Financiero – Spanish). In 2020, analysts expect Mexico’s GDP to reach 1.21%, down from 1.35% in the previous forecast. Citibanamex’s survey lowered the growth forecast to 0.1% (El Financiero – Spanish).
AMLO said Mexico’s economy is doing “very well.” President López Obrador said the economy is doing “very well” (Reuters – English) (El Economista – Spanish). AMLO also said there is no recession after data for the third quarter was published showing minimal growth.
The CEESP said Mexico’s economy is at a standstill. The Center of Economic Studies of the Private Sector (CEESP) also noted that the modification of the CELs rules risks the state of numerous investments and increases uncertainty (El Economista – Spanish). CEESP urged the government to take coherent political decisions (El Financiero – Spanish).
Inflation remained steady in October. According to a Reuters poll, Mexico’s annual inflation is expected to remain stable in October, reinforcing expectations of further interest rate cuts by Banxico later in November (Reuters – English). Consumer prices were expected to increase by 0.53% compared to the previous month.
The IMF had some advice for Pemex and the reform. The International Monetary Fund (IMF) recommended Mexico’s government sell Pemex’s non-strategic assets and speed up structural reforms to promote solid growth in Mexico (El Financiero – Spanish).
Market Trends
Rating agencies are concerned with public finances. Moody’s reduced Mexico’s economic growth outlook to 0.2%, but it can be even lower. HR Rating said Mexico’s economic growth puts the country’s finances at risk (El Financiero – Spanish).
Pemex cut exports and imports. Gasoline imports fell to its lowest level in the last five years in September (El Financiero – Spanish). Pemex’s crude exports fell to 994,656 barrels per day, the lowest amount since 1980 (El Financiero – Spanish), when the state-owned company sent 830,000 barrels abroad.
LP gas prices decreased in October. The price of LP gas was down by 11.45% in October (El Financiero – Spanish). LP gas has registered several price drops during the year. Since January, LP gas prices have decreased by 9.7%.
The IMF advised public spending to go to capital investments. The International Monetary Fund found problems in the budget published by President López Obrador and recommended a reassignment of expenditure towards capital investments and education (El Financiero – Spanish).
Strategy & Operations
Experts believe Mexico is falling behind on energy. According to energy experts, the federal government is discouraging investment in renewable energies and getting further away from its international climate promises, such as the Paris Agreement, by modifying the clean energy certificates’ rules (Reforma – Spanish).
The CFE says no to cheap energy. The state-owned company prefers to deal with the high generation costs of its plants than to have access to cheap energy from the private sector. The CFE could buy power from renewable sources at US$17.7 per megawatt-hour, but chooses to acquire it at over US$30 (Reforma – Spanish).
Punishment for a crooked gas station lasted 24 hours. The consumer protection agency (Profeco) said the gas station that was closed in Acapulco for stealing 10% in all of its fuel pumps reopened 24 hours later (El Financiero – Spanish). Profeco returned to report the crime of removing the seals on the fuel pumps.
Pemex is losing the gas station market little by little. From January to August 2019, Pemex sold 27,764 million liters of gasoline, 7.6% less compared to the same period in 2018 (El Financiero – Spanish). Pemex is losing market in favor of companies such as Orsan in alliance with ExxonMobil or G-500.
Old School Social
Events in the world beyond your screen—go see and be seen!
Summit Petroleum & Energy is scheduled for November 15-17 at Hotel Moon Palace in Cancún, Quintana Roo.
Encuentro Internacional de Energía México 2019 will be held November 20-21 at Espacio Virreyes in Mexico City.
Lateral Thinking
A megalodon tooth was found in Mexico. Teeth of several species of shark, including the megalodon, were discovered in the Xoc cenote in the city of Maderia (Fox News – English). The city was underwater millions of years ago.
Quote of the Week
“…tenía ya los ojos llenos de ese líquido que sale del alma, se convierte en brillantes y resbala por las mejillas, no sólo de los desgraciados que sufren, sino de los amantes felices que gozan.”
“…I had my eyes full of that liquid that pours out of the soul, turns into diamonds and slides down the cheeks, not only of the unhappy that suffer, but also of happy lovers that rejoice.”
– Manuel Payno (1810-1894), Mexican writer, journalist, and politician.
We hope you have a productive week. Please send any news, comments, or really old teeth to MexicoWeekly@energynarrative.com.
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