The Weekly Brief: Mexico


October 1, 2018 edition—Enel Green’s wind; a new natural gas entity; and Canada under pressure.




Last Week in a Minute or Less


Renewables & Electricity. Enel Green will build a wind park in Coahuila; the fourth power auction hit a new record; and power tariff negotiations continue.


Natural Gas & Liquid Fuels. The CNH suggests a new entity for natural gas; Andeavor and Pemex Logística signed an agreement; and the Salamanca refinery was under attack.


Oil & Gas Upstream. ENI and Lukoil will bet US$416m in shallow waters; and Talos and Pemex agreed to share information regarding their blocks.


Money & Power. Lighthizer pressured Canada; inflation paced itself in September; and crude prices will give AMLO a hand.


Déjà vu all over again. Last week’s readers were particularly interested in the return of SME (El Universal – Spanish); the award of the Oaxaca-Mexico line (El Economista – Spanish); and the increase in power tariffs (Reforma – Spanish).



NAFTA Negotiation


Trump’s auto tariffs hit NAFTA talks. The dispute over Trump’s auto tariffs is the final core disagreement between the US and Canada (Bloomberg – English). Canadian negotiators are pressuring to be exempt or receive preferential treatment in Section 232 tariff investigations.


Trudeau expected to discuss NAFTA at the UN meeting. Prime Minister Justin Trudeau said US and Canadian negotiators will hold informal talks on the sidelines of the UN meeting (Reuters – English). If an agreement between both nations cannot be reached, the Canadian dollar could sink by 10% (Bloomberg – English).


Canada may add on to the US-Mexico deal. Canada’s Prime Minister Justin Trudeau said he believes that Canada could build on a bilateral deal that the US and Mexico have already agreed on (Reuters – English). President-elect López Obrador said that if the US does not reach an agreement with Canada, he will sign a trade deal with the latter (El Economista – Spanish).


Lighthizer pressured Canada. US Trade Representative Robert Lighthizer said the US will move forward on its bilateral deal if they cannot resolve their differences over dairy and a dispute resolution system (Bloomberg – English) (El Economista – Spanish). The US accused Canada of not making concessions to reach a deal (Reuters – English).



The Road to Reform


The CNH suggested a new entity for natural gas… The National Hydrocarbon Commission (CNH) recommended creating a state-owned company devoted to gas to increase Mexico’s natural gas production (Platts – English) (El Financiero – Spanish) and to thereby stop the excessive dependence on US supply (Reuters – English).


…and approved Repsol’s plans. The National Hydrocarbon Commission (CNH) okayed the first work program and budget associated with Repsol’s exploration plan for contractual area 11 in Round 2 (Milenio – Spanish). The contract will be developed by Repsol and Sierra Perote E&P, with the Spanish company holding 60% of the project share.


The CRE okayed three new LP gas brands. The Energy Regulatory Commission (CRE) approved three permits for LP gas distribution through tank trucks (El Economista – Spanish). The companies must follow the security measures of other distributors and can choose a distribution route.


A former Pemex official recommended AMLO postpone oil rounds. Fluvio Ruiz Alarcón, a former Pemex board member, suggested President-elect López Obrador postpone oil auctions until the law is revised, using his political support to change the nation’s energy law (Reuters – English).


Regulators had a busy week. The National Hydrocarbons Commission (CNH) published the rules to determine the extraction area associated to contractual and assignation areas (DOF – Spanish). The Energy Regulatory Commission (CRE) announced the characteristics of phases II and III of the program to open Pemex gas contracts to competition (DOF – Spanish).


The fourth power auction hit a new record. The fourth long-term power auction registered records in participation and number of approved offers, despite President-elect López Obrador’s plans to review the buying and selling of power contracts with private companies (Reforma – Spanish).



Political Economy


Thousands of public energy workers surpass the salary limit. Approximately 9,821 public workers in the energy sector earn above the limit established by President-elect López Obrador, MXN108,000 per month (El Universal – Spanish). In Pemex, 8,269 public workers collect between MXN220,000 and MXN109,000 per month.


Fitch is happy with the new rounds, but others criticize thermoelectric plans. The rating agency applauded the plan of the new administration to offer rounds in December (El Financiero – Spanish). Experts criticized the plan to reactivate CFE’s old thermoelectric plants due to their obsolete infrastructure and harmful pollution levels (Reforma – Spanish).


The CFE will invest in the Bajío. The state-owned company will invest MXN1bn to improve the current infrastructure to attend to the growing demand in the Bajío region (El Financiero – Spanish). The region recorded an increase of more than 100,000 clients this year.


IEPS will be maintained by the new administration. The next Energy Minister Rocío Nahle warned the special tax on gasoline will remain the same so states like Campeche, Tabasco, and Veracruz do not lose budget share (Excelsior – Spanish). As the budgets were already done, the new administration cannot lower the IEPS without affecting them.


Inflation paced itself in September. Mexican annual inflation increased less than expected in September, leaving hope that Mexico’s central bank will maintain interest rates (Reuters – English). Inflation rose to 4.88% through the first half of September (El Economista – Spanish).



Market Trends


Power tariff negotiations continue. The private sector will discuss the recent increases in power tariffs with the Finance Ministry (El Financiero – Spanish). Ineffective production, transmission problems, and high temperatures in certain states propelled power tariffs.


Barclays expects Mexico’s economy to grow more slowly. Barclays lowered the forecast for Mexico’s economic growth in 2018 and 2019, from 2.3% to 2% (El Economista – Spanish). For 2019, Barclays cut the prediction from 1.9% to 1.8%.


Crude prices will give AMLO a hand. The AMLO administration will have better income due to the increase in crude prices (El Financiero – Spanish). Considering current fuel prices and the estimate for the 2019 budget, the government could enjoy an additional MXN64.2bn.


Pemex will not reach its production goal. In August, extraction dropped by 1.3% to 1,816,000 daily barrels (El Universal – Spanish). Pemex production fell by almost 112,000 daily barrels during the year. The reason is the natural production decline in fields without compensating with more discoveries.



Strategy & Operations


Talos and Pemex agreed to share information regarding their blocks. The state-owned company reached an agreement with Talos to evaluate whether Talos’ find extends into a Pemex block (Reuters – English) (El Financiero – Spanish). Talos Energy will drill two limiter wells, Zama-2 and Zama-3, in shallow waters in Pemex’s block limit (Reuters – Spanish).


The Salamanca refinery was under attack. An oil engineer for the Antonio M. Amor refinery in Salamanca, Guanajuato, was executed by an armed commando (Reforma – Spanish). The refinery is disputed between two criminal groups trying to control five pipelines that supply gasoline, diesel, jet fuel, and gas to the region (Reforma – Spanish).


Enel Green will build a wind park in Coahuila. Enel Green Power México will start to construct the wind park Amistad II in Acuña, Coahuila, one of the projects awarded in the third power auction (El Financiero – Spanish). The project will require an investment of US$115m and have a capacity to produce 350GWh.


Andeavor and Pemex Logística signed an agreement. The US company signed an agreement with Pemex Logística to use facilities including four storage terminals in Baja California Sur and Sinaloa (El Universal – Spanish). Andeavor manages 100 gas stations under the ARCO brand in Baja California, Sinaloa, and Sonora.


ENI and Lukoil will bet US$416m in shallow waters. The Russian and Italian companies will invest US$416m between 2018 and 2022, exploring four blocks in shallow waters awarded in Round 2.1 (El Economista – Spanish). The first well will be drilled in November 2018.



Old School Social


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



The 31st World LPG Forum is scheduled for October 2-4 at the Hilton Americas-Houston, Houston, Texas.


The Petroleum Economist Mexico Energy Strategy Forum 2018 will be held October 3 at the Marriott Reforma Hotel in Mexico City.


The S&P Global Platts 22nd Annual Mexican Energy Conference is scheduled for November 8-9 at the St. Regis Mexico City Hotel. This conference is the leading event for Mexico’s energy industries. Meet with senior officials, regulators, and entrepreneurs and learn the latest about Mexico’s energy reforms. For more information, including a full agenda and confirmed speaker line-up, visit



Lateral Thinking


An ancient Mayan mask was discovered. A 1,500-year-old ancient mask depicting a Maya king was discovered in the architectural complex known as “El Palacio” in Palenque, Chiapas (Fox News – Spanish). Archeologists says the mask depicts the ruler K’inich Janaab ‘Pakal, known as “Pakal the Great.”



Quote of the Week


“El ajedrez es la forma de conformarse del hombre para saciar su sed, su nostalgia de infinito, conformarse en hacer la guerra allí en un espacio limitado pero al mismo tiempo capaz de alojar al infinito. ¿Cuál es el infinito? Las infinitas complicaciones que crean entre si las piezas del ajedrez.”


“Chess is a way for man to resign to quench his thirst, his nostalgia of the infinite, settle to make war there in a limited space, but at the same time capable of housing the infinite. What is the infinite? The boundless complications that the chess pieces create between themselves.”


– Juan José Arreola (1918-2001), Mexican writer and academic.



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