The Weekly Brief: Mexico


November 12, 2018 edition—Cox Energy’s investment; Pemex’s platform; and Sener’s move.




Last Week in a Minute or Less


Renewables & Electricity. Cox Energy and Enel will invest in Mexico’s sun; the CFE is selecting new infrastructure projects; and the Asolmex and the Amdee are concerned with the power sector’s uncertainty.


Natural Gas & Liquid Fuels. Fuel theft caused shortages to Total and BP; US LNG exports may cross the California border; and McDermott has the new refinery in sight.


Oil & Gas Upstream. Pemex’s new offshore platform will be up and running in April; a ban on fracking could hit the market; and Lukoil and Eni will partner up in Mexico’s blocks.


Money & Power. The USMCA allows different levels of GPA; AMLO will cut the states’ budgets; and S&P will wait for Mexico’s 2019 budget.


Déjà vu all over again. Last week’s readers were particularly interested in GE’s plans in Mexico (El Financiero – Spanish); IEnova’s interest in transmission lines (Platts – English); and energy investors’ concerns over Mexico’s airport (Platts – English).



NAFTA Negotiation


The USMCA allows different levels of GPA. Canada, Mexico, and the US will have different minimums to participate in government procurements. Between Mexico and the US, the minimum level to participate will be US$25,000, while between Canada and the US, it will be US$180,000 (El Economista – Spanish).


USMCA’s investor provisions “sufficient,” not ideal. An executive with the American Petroleum Institute said the largest US oil and gas trade group considers the investor-state dispute settlement provisions in the USMCA as “sufficient.” The API does not appreciate that the approach is a precedent for other trade deals (Platts – English).


How might a Democrat victory affect trade policies? Trump is expected to sign the USMCA on the sidelines of the Nov. 30 – Dec. 1 Group of 20 summit in Buenos Aires. Although Democrats will be skeptical of some of the new provisions (including labor rights and environmental protections), they will not want to kill the agreement (Bloomberg – English).


Aluminum trade groups want to exempt Canada and Mexico from US tariffs. The aluminum associations from Canada, Mexico, and the US urged their governments to eliminate US tariffs on aluminum from Canada and Mexico. The end of the tariffs should be agreed upon before the three nations sign the new agreement on November 30 (Reuters – English).



The Road to Reform


The CFE is selecting new infrastructure projects. The state-owned company asked the Deputy Direction of Projects and Construction of the CFE to study and select new locations for development of infrastructure projects (DOF – Spanish). The selection would be evaluated by the National Commission for the Development of Indigenous populations or the appropriate authorities.


A ban on fracking could hit the market. Analysts estimate the ban on the use of fracking in Mexico could hit competition in the oil sector and increase dependency on imports. Analysts estimate 70% of Mexican oil fields could not be exploited without that technique (El Financiero – Spanish).


Lukoil and Eni will partner up in Mexico’s blocks. Lukoil and Eni will become partners in three shallow-water blocks through farmouts. Lukoil will transfer a 40% stake in Block 12 to Eni and Eni will assign 20% interest each in Blocks 10 and 14 (OGJ – English).


McDermott has the new refinery in sight. After building the PB-Abkatun-A2 for Pemex Exploración y Producción, the McDermott company will compete to build the new refinery in Paraíso, Tabasco (El Financiero – Spanish). McDermott has the technology and the willingness to collaborate and create strategic alliances.


The Asolmex and the Amdee are concerned with the new administration’s uncertainty. The Mexican Association of Solar Energy and the Mexican Wind Power Association said there is concern regarding the uncertainty in the power sector (El Financiero – Spanish). President-elect Lópex Obrador will have to review the fourth power auction (Reforma – Spanish).


The AmCham Mexico and the CNH disagree with Morena’s proposal. The Energy Committee of the American Chamber of Commerce of Mexico emphasized the importance of maintaining the independence of the regulatory commissions (El Economista – Spanish). The National Hydrocarbons Commission (CNH) said Morena’s proposal is unviable, although the agencies should coordinate (El Financiero – Spanish).



Political Economy


The Sener will definitely move to Tabasco. According to President-elect López Obrador, the move of the Energy Ministry personnel will be voluntary and only for higher ranking officers (SDP – Spanish). The Energy Ministry will be located in a building that belongs to Pemex in Villahermosa (El Economista – Spanish).


AMLO will manage MXN982.3bn. The president of the Budget Commission of the Chamber of Deputies will count on MXN982.3bn to fulfill its promises, as a result of the adjustment to the scheduled expenditure (El Economista – Spanish). The budget would emphasize programs for the young and the elderly, as well as developing social welfare programs.


AMLO’s team will not touch Mexico’s international reserves. According to the next Finance Minister, the new administration does not plan to tap Mexico’s central bank international reserves (Reuters – English). Local media and analysts speculated that the new government could plan to organize another public vote on the use of reserves.


AMLO will cut the states’ budgets. President-elect López Obrador will reduce the revenue share assigned to states in 2019 by MXN108bn (El Financiero – Spanish). The measure could mean the lack of short-term cash flow and a redesign of their budgets.


The vote on the Maya Train will be held between December and January. President-elect López Obrador said the construction of the Maya Train will be voted on between December and January 2019 (El Financiero – Spanish). The enquiry will be discussed with the governors of Mérida and Yucatán in a meeting.



Market Trends


Barclays expects Banxico to increase interest rates. Considering the cancellation of the new airport in Mexico City, the British bank forecasts an increase in the interest rate from Mexico’s central bank in the next meeting on November 15 (El Financiero – Spanish). Banxico could increase the rate by 25 basis points, to 8%.


S&P will wait for Mexico’s 2019 budget. The international agency will not modify Mexico’s outlook before the new government takes office, leaving Mexico with a BBB+ rate with a stable outlook (El Economista – Spanish). Fitch will pay special attention to public finances and the energy sector (El Economista – Spanish).


Changes in the special tax on gasoline cut regional differences. Regional differences in gasoline prices were reduced last month after the cut made by the Finance Ministry to the special tax on gasoline. In Tamaulipas, the cheapest region in the country, a liter of regular gasoline costs 19.49 pesos; in Nayarit, the most expensive, 20.19 pesos (El Economista – Spanish).


LP gas prices increased 15.5% in 2018. On average, LP gas prices increased 15.5%, with certain states experiencing increases of almost 26% (Excelsior – Spanish). The distribution companies assured the current market follows international references affected by the increase in crude prices and winter demand.



Strategy & Operations


Fuel theft caused shortages to Total and BP. BP and Total had supply shortages in Mexico due to the increase in fuel theft (Bloomberg – English) (El Financiero – Spanish). A Pemex spokesman said the state-owned company’s storage terminals have enough inventories to satisfy demand.


US LNG exports may cross the California border. Sempra Energy and Total will cooperate in the development of LNG export projects, including the Energía Costa Azul liquefaction-export project in Baja California (OGJ – English) (El Financiero – Spanish). A West Coast LNG export facility south of California is under discussion (Platts – English).


Pemex’s new offshore platform will be up and running in April. In April the state-owned company plans to start operating the oil platform built by McDermott International (Reuters – English). The platform will replace a similar one damaged by a large fire that killed three workers in 2016.


All want a piece of Mexico’s sun. Cox Energy will invest US$1.5bn in Mexico in four years to build solar plants (El Financiero – Spanish). Enel started the construction of the Magdalena II solar plant in Tlaxcala, with an investment of US$165m (El Financiero – Spanish).



Old School Social


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


The Fourth North American Sustainable Economic Development Summit will be held November 12-13 at the Four Seasons Hotel, Las Colinas-Irving, in Texas.


The XLII Semana Nacional de Energía Solar is scheduled for November 12-16 at the Palacio de Minería in Mexico City.


The US-Mex Natural Gas Forum will be held November 12-14 at the Westin Riverwalk in San Antonio, Texas.


The Encuentro Internacional de Energía México 2018 is scheduled for November 14-15 at Espacio Virreyes in Mexico City.


The 29 Congreso Internacional de Energía will be held November 14-16 at Expo Guadalajara in Guadalajara, Jalisco.



Lateral Thinking


Mexico’s bee diversity is dying with changes in land use. A research team from the University of Guadalajara conducted a study registering a total of 14,054 individual bees representing 160 species. The study confirmed that an increase in anthropogenic disturbances leads to a decrease in bee richness and diversity (Science Daily – English).



Quote of the Week


“El olvido triunfó sobre el recuerdo.”


“Oblivion triumphed over memory.”


– Agustín Lara (1897-1970), Mexican composer and interpreter.



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