The Weekly Brief: Mexico

November 6, 2017 edition— Two pipeline open seasons are in the making; Transcanada’s underwater pipeline paralyzed; and Pemex struck black gold.




Last Week in a Minute or Less


Renewables & Electricity. Electricity tariffs are up again and the CFE had nine strong months.


Natural Gas & Liquid Fuels. The CRE is planning two pipeline open seasons before New Year’s Eve; Transcanada’s underwater pipeline was stopped; and GNF reached 100,000 clients in Coahuila.


Oil & Gas Upstream. Hokchi finished drilling a well from Round 1.2; methane releases should be regulated; and fields from Round 1 will start extraction by 2019.


Money & Power. Mexico spent more on oil hedges; Fitch warns about impact of NAFTA withdrawal on Mexico; and new information regarding Pemex’s payments to Odebrecht.


Déjà vu all over again. Last week’s readers were particularly interested in Tamaulipas wind projects (Spanish); Mexico’s trading options beyond the US (English); and the choice between maintaining  NAFTA and having a restricted NAFTA (Spanish).



NAFTA negotiations


Carmakers pushed for NAFTA modernization… Executives of auto-makers think NAFTA could be “modernized”, but believe it is working well for customers and companies (English).  Car manufacturers agree NAFTA has made the sector more competitive on a global basis.


…and US farmers also defended NAFTA. The US agricultural sector sent the US Secretary of Commerce a letter defending NAFTA and detailing the negative consequences of pulling out of the agreements (Spanish). The letter responded to Wilbur Ross’ comments that agriculture industry warnings that withdrawing from NAFTA would have harmful consequences were “an empty threat” (English).


Canada’s foreign minister described US proposals as “troubling”. Canadian Foreign Minister Chrystia Freeland said the US presented “troubling” proposals in the NAFTA renegotiation talks, including changes to Chapter 19 arbitration panels (English). Another concern has been the proposed sunset clause limiting any agreement to five years (Spanish).


Fitch warned: NAFTA uncertainty is a risk. The international rating agency said it is unlikely that the NAFTA renegotiation will end with a total nullification of the agreement (Spanish). However, if the US withdraws, the Mexican economy “would face significant uncertainty and short-term market volatility” (English).



The Road to Reform


The third stage of fuel liberalization reached three more states. On October 30, Baja California Sur, Durango, and Sinaloa gained access to flexible fuel prices (Spanish). The phasing-in process is expected to unleash increased investment in fuel infrastructure, currently projected at US$17.9bn (Spanish).


The CRE plans two pipeline open seasons… Before the end of 2017, the Energy Regulatory Commission (CRE) plans to offer two open seasons for fuel transport capacity and storage (Spanish).  The regions involved in the second liberalization period are Chihuahua, Coahuila, Nuevo León, Tamaulipas, and Gómez Palacio municipality in Durango.


…and pipelines may be a great catch for investors. The Energy Ministry (Sener) expects US$4bn to be invested in liquid storage terminals and pipelines (Spanish). Last May Pemex help an open season for 320,000 barrels of storage and 9,500 barrels per day of product pipeline capacity in Baja California Sur and Sonora.


Round 1 will start extraction by 2019. In the first quarter of 2019, crude oil extraction is expected to begin in four of the five blocks in Round 1.1 and 1.2 (Spanish). Round 1.3 fields which are processing their development plans with the National Hydrocarbons Commission, could increase production by the third quarter of 2018.


Mexico is falling behind in regulating methane releases. In June 2016, Mexico signed on to the goal of cutting oil sector methane emissions by 45% by 2025. Analysts demand robust regulations be developed to capture gas, to limit venting, and to detect leaks (Spanish).



Political Economy


Pemex is in the red again… The state-owned company announced a net loss of MXN101bn in the third quarter after three consecutive quarters with gross profit (Spanish). Pemex also said that total closure of the Francisco I. Madero refinery at Ciudad Madero will be completed by December.


…and CFE is in the black. The state-owned company announced a net profit of MXN6.8bn in the first nine months of 2017, which offsets the MXN59.2bn loss in the same period of 2016 (Spanish). The results are consistent with the financial strengthening scheme in CFE’s Business Plan 2017-2021.


Together with big oil giants, Pemex fights climate change. Pemex met with ten of the most important oil companies worldwide in London to support the fight against climate change (Spanish). The group (known as OGCI) plans actions to reduce methane emissions in the gas value chain which contribute to the greenhouse effect.


Higher tax revenue helped public finances. In the first nine months of 2017, tax revenues rose – except from the IEPS special tax on gasoline – and pushed up government receipts to MXN2.18 trillion, that is, MXN101.6bn over the projected amount (Spanish). However, public spending also increased, to MXN3.7 trillion, surpassing the programmed amount.



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Market Trends


In September 76% of gasoline sold was from abroad. Mexico’s gasoline production reached a historic low in September, and 76% of domestic fuel consumption was imported (Spanish). The national refining system produced an average of 190,000 barrels daily, a drop of 27.9% compared to the same period last year.


Mexico spent US$1.25bn on the biggest oil hedge. The Finance Ministry announced that Mexico spent US$1.25bn in oil hedges for 2018, 21% more than what it paid to lock in prices last year (English). Deputy Finance Minister Vanessa Rubio explained in mid-October that Mexico had completed its annual oil hedge for 2018.


CFE once again raised retail power tariffs. The state-owned company increased its power tariffs for commercial and industrial users, by 2.4% and 3.5%, respectively, compared to October (English) (Spanish). According to analysts, constraints on access to natural gas increased CFE’s dependence on fuel oil and LNG shipments, and drove up prices.


Pemex made unjustified payments to Odebrecht. The Comptroller’s Office found “excessive” payments from Pemex to the Brazilian company for MXN707.6m (Spanish). The payments were judged “inadmissible” by the Comptroller’s Office which cited high unit costs in the contract and low performance.



Strategy & Operations


Pemex struck black gold onshore. The state-owned company announced its biggest oil onshore discovery in fifteen years in Veracruz (English) (Spanish). Pemex made the discovery drilling the Ixachi well and the field is believed to hold 350 million barrels of proven, probable, and possible reserves.


GNF has 100,000 friends in Coahuila. Gas Natural Fenosa invested MXN1.6bn in infrastructure in Coahuila, reaching 100,000 customers in the area (Spanish). The goal is to reach another 100,000 clients in coming years with an investment plan to expand service to more communities and industries.


Hokchi completed drilling of a Round 1.2 well. Hokchi Energy finished its drilling activities at the Hokchi-6DEL well three months before the scheduled time, becoming the first operator to conclude an evaluation plan in Round 1.2 (Spanish). The company will soon present its development plan to the National Hydrocarbons Commission.


Pemex will be rebranded to fight in the gas station market. Pemex plans to relaunch its franchise brand by November 15, aiming to hold its market position among gas stations in Mexico (Spanish). Pemex now must compete with 30 new brands operating 700 gas stations and 20 companies that are importing gasoline (Spanish).


Transcanada’s underwater pipeline was put on hold. A federal judge ordered a provisional halt in the construction of the Tuxpan-Texas underwater pipeline (Spanish). The order was issued in response to the injunction sought by Tamaulipas fishermen who argued the pipeline would cause irreversible environmental damage to fish species.



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.



Lateral Thinking


Scientists hunt slow quakes in Guerrero. Mexican and Japanese scientists will place sensors on the sea floor off the coast of Guerrero and release a wave glider to gather data (English). The data could indicate whether stresses that may lead to a big earthquake are building up or are dissipating gradually.



Quote of the Week


“Nadie hace bien lo que no sabe; por consiguiente, nunca se hará República con gente ignorante, sea cual fuere el plan que se adopte.”


“Nobody does well what they do not know; consequently, a Republic can never be made with ignorant people, regardless of the plan that is adopted.”



– Francisco Villa (1878-1923), Mexican Revolutionary general.




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