The Weekly Brief: Mexico


November 18, 2019 edition—Iberdrola’s solar; CNOOC and Shell’s drilling; and Pemex against corruption.





Last Week in a Minute or Less


Renewables & Electricity. Mexico needs more power generation and transmission infrastructure; Iberdrola will light up La Huasteca; and Jalisco will boost renewables with US$3bn.


Natural Gas & Liquid Fuels. The refineries’ makeover is going slow; the Sener plans to cut fuel storage; and the DFC will finance Mexico’s southern natural gas pipeline.


Oil & Gas Upstream. CNOOC will start drilling in Tamaulipas in 2020; Shell will start drilling in December; and Talos got good news from two wells.


Money & Power. The USMCA ratification could be getting closer; Pemex made its contract ironclad against corruption; and Moody’s explained what menaces Mexico’s rating.


Déjà vu all over again. Last week’s readers were particularly interested in CEL’s excessive supply (El Financiero – Spanish); CFE plants’ lack of profitability (El Financiero – Spanish); and CFE’s rejection of cheap energy (Reforma – Spanish).



NAFTA Negotiation


Trudeau sees “positive momentum” in the USMCA ratification. Canadian Prime Minister Justin Trudeau cited “positive momentum” in the US ratification of the new NAFTA deal. Trudeau showed his hopefulness at the start of talks in Ottawa with Democratic chairman of the House Ways and Means Committee, Richard Neal (Reuters – English).


A former US ambassador said labor rights will not stop USMCA ratification. Anthony Wayne, former US ambassador to Mexico, said that labor negotiations discussed in the US House of Representatives and the Senate do not substantially change the new NAFTA (El Financiero – Spanish).


The USMCA ratification could be getting closer. After a long Veterans Day weekend, US Representative Richard Neal wants to move the USMCA ratification to the Senate before Thanksgiving, according to House Agriculture Chair Collin Peterson (Fox – English). That leaves 10 voting days to approve the new deal.



The Road to Reform


The refineries’ makeover is going slow. The Energy Minister said she is concerned with the slow progress in rehabilitating Pemex’s refineries (El Financiero – Spanish). Rocío Nahle did not confirm the date for the completion of the project.


Changing the CELs may bring bad consequences. According to the Mexican Association of Photovoltaic Industry (AMIF), due to the regulatory changes regarding Clean Energy Certificates (CELs), Mexico’s solar power generation will miss US$1.5bn in investment (El Financiero – Spanish). Clean energy companies in Tamaulipas are considering writs of amparo against the regulatory changes (El Economista – Spanish).


The Senate chose Rogelio Hernández for the CNH. The Senate chose Rogelio Hernández Cázares to head the National Hydrocarbons Commission (CNH) (El Financiero – Spanish). He was the director of Pemex Fertilizantes during the new federal administration.


The Sener plans to cut fuel storage. The Energy Ministry sent a proposal to the Conamer to reduce the private company’s fuel inventory obligations from 13 days to five (Reforma – Spanish). The Energy Commission of the Business Coordinator Board (CCE) warned that Mexico has no natural gas storage capacity (Forbes – Spanish).


Pemex avoided a clean diesel dilemma. The state-owned company avoided the regulation that forced Pemex to supply low-sulfur diesel to all the gas stations from July 1, 2019 (Reforma – Spanish). Pemex obtained a writ of amparo while the auto industry warned of the lack of supply.


The CRE will leave LP gas cylinders regulation be. The Energy Regulatory Commission (CRE) will not modify the LP gas administrative rules in the short term (El Financiero – Spanish). The CRE had a new rule prepared forcing LP gas users to recharge their tanks with the company that owned the cylinder.


Mexico needs more power generation and transmission infrastructure. Mexico will need to increase its generation capacity and transmission grid to cover the country’s growing demand, while the reform implementation and private sector investment has slowed over the past year (Platts – English). According to the director at Bravos Energia, the solution could come from private auctions.



Political Economy


Bank analysts are concerned with Mexico’s economy. Analysts from Morgan Stanley and UBS Group are being cautious about Mexico’s economy as measures to boost growth could hit the government budget  (El Financiero – Spanish). Citibanamex cut its GDP growth outlook for 2020 to 1% from 1.2% (El Financiero – Spanish).


Pemex made its contract ironclad against corruption. The state-owned company included anticorruption clauses in its contracts with suppliers and other companies, allowing Pemex to end those contracts without penalties (El Financiero – Spanish). Pemex also published its code of conduct (DOF – Spanish).


Nahle said Pemex was the victim of a cyberattack. The Energy Minister Rocío Nahle said that the state-owned company suffered a cyberattack on the administrative department’s computers, and Pemex’s computer department is working on recovering the information. Nahle said that the ransom will not be paid (El Economista – Spanish) (Reuters – English).


Moody’s explained what menaces Mexico’s rating. The rating agency pointed to the contrast between the conservative stance in fiscal policy and the populist rhetoric as the issue to consider in future evaluations of the sovereign rating (El Economista – Spanish). Moody’s is also concerned with Mexico’s violence as a risk (El Financiero – Spanish).



Market Trends


Mexico’s country risk dropped again. The Finance Ministry said Mexico’s country risk fell 55 points to 186 points, the lowest level since October 17, 2018 (El Economista – Spanish). Country risk shows the likelihood a country will pay its foreign debt.


Drivers paid more for gasoline and diesel. The Finance Ministry lowered the subsidy for the special tax on Magna gasoline and diesel (El Financiero – Spanish). Premium gasoline was left without a subsidy.


S&P is concerned with Mexico’s deficit. The international rating agency doubts that the Mexican government’s income will support its long-term deficit goals, and that cuts in public spending are not the best strategy to reach that goal (El Financiero – Spanish).


Banxico is expected to lower interest rates. Analysts expect Mexico’s central bank to lower interest rates to 7.5% (Forbes – Spanish). Lower production costs and consumer prices strengthen the expectation of a cut in interest rates (El Financiero – Spanish).



Strategy & Operations


CNOOC will start drilling in Tamaulipas in 2020… The Chinese oil company will start operations in Tamaulipas’ deep waters in March 2020, with projects totaling US$400m in investment (El Financiero – Spanish). The projects include exploration and drilling works at Ameyali-1 well.


…and Shell and Talos have news too. Shell will start drilling the Chibu-1EXP exploratory well in ultra-deep waters in December (El Financiero – Spanish). Talos drilled two wells on Block 31, revealing a thicker and bigger reservoir than expected (Platts – English).


The DFC will finance Mexico’s southern natural gas pipeline. US development financier, the International Development Finance Corporation (DFC), signed a letter of interest to fund a natural gas pipeline in southern Mexico (Reuters – English) (Forbes – Spanish). The US$632m investment will boost economic development in the southern region.


Iberdrola will light up La Huasteca. The Spanish company has started a joint project with Iluméxico that will bring power to 30 rural communities in La Huasteca, with MXN30m in investment (El Financiero – Spanish). Iberdrola will close 2019 with a total investment of US$1bn in Mexico (Forbes – Spanish).


Monterrey’s sun will power up Walmart. Becquerel Power was awarded a contract to install solar panels in three Walmart stores in Parral, Puebla, and Tlaxcala (El Financiero – Spanish). Walmart’s auction was for the installation of 2MW in 16 places in the country, including the mentioned contract.


Jalisco will boost renewables with US$3bn. Jalisco will develop 25 renewable energy investment projects for US$3bn in the next two years (El Economista – Spanish). The projects are mainly solar energy plants and efficient cogeneration systems in industrial parks.



Old School Social


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


Encuentro Internacional de Energía México 2019 will be held November 20-21 at Espacio Virreyes in Mexico City.



Lateral Thinking


Mammoth human-built mammoth traps were found in Mexico. Archaeologists found the largest discovery of mammoth remains: 800 bones from at least 14 mammoths (ABC – English) in central Mexico. They also found 15,000-year-old pits to trap mammoths about 1.7 meters deep and 25 meters in diameter.



Quote of the Week


“Arráncame la vida, con el último beso de amor.”


“Take my life, with the last kiss of love.”


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



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