The Weekly Brief: Mexico

November 13, 2017 edition— Pemex’s new onshore field may be a farmout; NAFTA round will be extended; and AHMSA will have a new natural gas power plant.




Last Week in a Minute or Less


Renewables & Electricity. Oxxo will be powered by wind; companies will invest in Jalisco’s wind and solar energy; and energy infrastructure for ports will be studied and improved.


Natural Gas & Liquid Fuels. AHMSA will invest in a new natural gas power plant; NSF bets on Tamaulipas refineries; Pemex paid more for imported gasoline than the cost of refining.


Oil & Gas Upstream. Pemex considers a farmout for its new onshore discovery; farmout rules were postponed; and 25 companies will fight for Round 2.4.


Money & Power. The next NAFTA round will start earlier; future oil rounds may be affected by uncertainty over NAFTA; and BP helped Mexico with its oil hedges.


Déjà vu all over again. Last week’s readers were particularly interested in CRE’s two auctions for Pemex’s pipelines (Spanish); Pemex’s finances in the red (Spanish);  and Pemex’s onshore discovery (English).



NAFTA negotiation


Oil auction rounds endangered by NAFTA unpredictability. Concerns about the future of NAFTA and its guarantees for investors could limit future investments in Mexico’s oil sector (Spanish). Energy companies fear a cancellation of NAFTA would eliminate the dispute settlement mechanism that allows investors to seek international arbitration.


The next NAFTA round will be extended. NAFTA negotiators will begin meeting in Mexico City two days before initially scheduled to give themselves more time for discussion (English). The fifth round will be held Nov. 15-21 rather than Nov. 17-21 as originally planned.


Certain Mexican states should fear the end of NAFTA. Aguascalientes, Baja California, Chihuahua, Coahuila, Querétaro, and Nuevo León will be the states most affected by a cancellation of NAFTA (Spanish). More than 70% of the exports of those states are produced in manufacturing subsectors.


HSBC’s Canadian chief is worried about the NAFTA talks. HSBC’s Canadian chief is concerned about the NAFTA renegotiation process and is making plans for how the bank would cope with possible outcomes (English). President Donald Trump’s negotiating team has made proposals that alarmed the Canadian and Mexican negotiating teams, adding tension to the talks.



The Road to Reform


Pemex weighs a farmout for its new onshore discovery. The state-owned company is considering a farmout to exploit the biggest onshore oil discovery in 15 years (Spanish). Initial production from the field in Veracruz could be pumped by the end of 2018 or in 2019.


Farmout rules were postponed. Oil was found at the first farmout before the Energy Ministry had the regulations ready for the shared field (Spanish). Extraction awaits the rules at the discovery made by the consortium of Talos, Sierra, and Premier with future resources of between 400 and 2,000 million barrels of crude oil equivalent.


Round 2.4 has 25 suitors. The National Hydrocarbons Commission (CNH) announced that 25 bidders have shown interest in the Round 2.4 deep-water auction (Spanish). Among the companies figure BHP Billiton, BP, Capricorn Energy, Citla Energy, Chevron, Deutsche Erdoel, and ECP Hidrocarburos.


Nobody wants to sell state-owned hydrocarbons. The National Hydrocarbons Commission (CNH) launched a bidding for a three-year contract to market Mexican state hydrocarbons beginning January 1, 2018 (Spanish). BP, PMI, Shell, and Trafigura Mexico expressed interest in the process, but none presented proposals.


Canamex Dutch withdraws from a Round 1.3 field. The National Hydrocarbons Commission (CNH) announced that the Canamex Dutch company will have to pay US$1.9m to abandon the assigned zone in 15 days or the CNH could execute the compliance guarantees for US$5m (English). Canamex Dutch will abandon area 14 of Round 1.3 (Spanish).



Political Economy


Pemex looks abroad for crude oil. Pemex Exploration and Production (PEP) will invest MXN20bn in studies for exploration abroad as established in the approved 2018 Budget Proposal  (Spanish). The next year the amount devoted to this activity would be MXN4.36bn and similar amounts will be allocated annually until 2021.


The ASF monitors Pemex’s use of helicopters. The Superior Federal Auditor (ASF) reported that the general secretary of the Pemex workers’ union used the state-owned company’s helicopter on ten occasions in 2016 without justification (Spanish). The ASF declared that 33% of Pemex’s assets for land and aerial surveillance are not being used for supervisory purposes.


GDP growth is expected to hit the gas. Market analysts expect the Mexican economy to speed up in the fourth quarter and through 2018, boosting the annual growth rate to 2.4% in 2019 (Spanish). Analysts project growth of 2.2% for GDP in 2017, the highest forecast in a year.


The ASF demands an explanation for 2016 public spending. The Superior Federal Auditor (ASF) asked the Finance Ministry to explain the cuts made to public spending during 2016 (Spanish). Although adjustments were made to cut MXN164bn by year-end, public spending increased by MXN56.7bn, or 4.6%, compared to 2015.



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Market Trends


Pemex paid more for imported gasoline than it costs to refine them locally. Pemex paid an average of MXN17.4bn per month to import 505.1 miles of daily barrels in 2016, 93% of which was paid to US refiners (Spanish) (English). Producing Magna and Premium gasolines could cost between 56.2% and 61.1% less than importing them.


BP gave Mexico a hand with its oil hedges. BP helped Mexico to execute oil hedges for 2018, becoming the second major company – after Shell – to participate in the program (English) (Spanish). Banks including Goldman Sachs, Citi, and JPMorgan have controlled the hedging operations for years.


Carstens will leave Banxico with a 7% rate. The forecast is that the reference rate will be maintained at 7% with no change in Agustín Carstens’  last announcement as Mexico’s central bank governor (Spanish) (English). Banxico’s decision was made after the Federal Reserve’s announcement maintaining the US rate between 1.0 and 1.25%.


The peso caught a break. Mexico’s banks sold dollars at 19.49 pesos after the announcement of a possible delay in the reform of the US tax system (Spanish). Republican leaders in the US Senate anticipate a one-year delay in implementation of the tax cut to achieve compliance with regulations.



Strategy & Operations


NSF bets on Tamaulipas’ refineries. The National Standard Finance (NSF) investment fund prepares its first investments of US$4bn in Mexico (Spanish). The goal is to finance the construction of six refineries with an initial investment of US$1.5bn. The first refinery will be located in Matamoros, Tamaulipas.


Oxxo will be powered by wind. FEMSA expects to reduce its power costs by producing 50% of its energy with wind (Spanish). The goal is to cover 85% of the company’s power needs with wind energy.


AHMSA will bet on a new power plant. Altos Hornos de México (AHMSA) will invest US$70m to build a new electricity plant powered by natural gas with a 100MW capacity (English) (Spanish). The plant would be sited in Monclova, Coahuila, and will cover 100% of the company’s needs by 2019.


Foreign companies will invest to develop Jalisco’s green energy. Grupo Dragón, Ele Green Power, and JINKO Solar will invest US$800m in projects to produce wind and photovoltaic energy in Jalisco (Spanish). Most of the projects will be developed in Ojuelos, a municipality in Los Altos.


The energy infrastructure at Mexico’s ports is slated for a makeover. The Energy Regulatory Commission (CRE) and the Port and Merchant Marine Coordinator agreed to exchange information and research to identify needed energy infrastructure projects to improve port operations (Spanish). The goal is to develop an energy program for ports.



Old School Social


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


The Symposium Energía Solar Térmica y Fotovoltaica is November 14 at Hotel Marriott Reforma, Mexico City.


The 2nd FIEM is November 15-16 at Querétaro Centro de Congresos. The event has achieved ample recognition in the energy sector and has become the opportunity to take advantage of and promote clean energies in the region.


The Encuentro Internacional de Energía México 2017 is November 15-16 at Campo Marte Ciudad de México



Lateral Thinking


The vaquita returns to the spotlight. The Animal Welfare Institute is calling for a halt to the Vaquita CPR program involving the endangered porpoise species, following the death of one of the porpoises after it was caught (English). Scientists said the vaquita porpoises “do not respond well to the stress of capture”.



Quote of the Week


“Al conquistar nuestras libertades hemos conquistado una nueva arma; esa arma es el voto.”


“By winning our liberties, we have conquered a new weapon; that weapon is the vote.”


-Francisco I. Madero (1873-1913), Mexican revolutionary and the 33rd president of Mexico




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