October 7, 2019 edition—Iberdrola’s El Carmen is running; CFE’s pipeline negotiation continues; and Pemex craves control.
Last Week in a Minute or Less
Renewables & Electricity. Iberdrola’s El Carmen is up and running; OPDEnergy will build two solar farms; and Enel Green Power relies on Mexico as a strategic market.
Natural Gas & Liquid Fuels. The CFE still has to negotiate two pipelines with TC Energía; Pemex has paid 7.5% of the Dos Bocas refinery’s cost; and gasoline sales dropped 8%.
Oil & Gas Upstream. Pemex wants to control Talos’ discovery; oil companies pledged 50,000 barrels per day by 2019; and AMLO sent his choices to lead the CRE.
Money & Power. AMLO will renew the IMF credit line…just in case it is needed; Mexico’s growth outlook was cut again; and S&P said Mexico’s Achilles’ heel is uncertainty.
Déjà vu all over again. Last week’s readers were particularly interested in Bancomext’s opinion on the power auction (El Financiero – Spanish); Iberdrola’s goals (El Financiero – Spanish); and Asolmex’s rules (El Economista – Spanish).
The USMCA is not Mexico’s only card. The Economy Minister said President López Obrador’s plan to boost the Mexican economy does not depend only on the new NAFTA ratification (El Financiero – Spanish). The minister pointed to the reactivation of the internal market and the global economy as sure bets.
The CCE trusts USMCA to boost the GDP. The Business Coordinator Board (CCE) said the ratification of the USMCA and the grand infrastructure plan will ensure 2% GDP growth in 2020 (El Economista – Spanish). The CCE’s international agreements negotiator said there is no plan B for the USMCA (El Financiero – Spanish).
The stability council is concerned with the USMCA delay… Mexico’s stability council said that a possible delay in ratifying the new NAFTA could mean a risk for the markets and Mexico’s financial system (El Economista – Spanish) (Forbes – Spanish) (Reuters – English).
…and JP Morgan said Trump’s impeachment could threaten the USMCA ratification. JP Morgan said the impeachment process in the US could delay the process to ratify the USMCA (El Financiero – Spanish) (Bloomberg – English). Thanksgiving seems to be the deadline for the ratification to become a reality.
Pelosi wants to work on the USMCA ratification despite the impeachment. US House of Representatives Speaker Nancy Pelosi expects Congress to still work with the White House to approve the USMCA despite the impeachment process as “they have nothing to do with each other” (Reuters – English).
The Road to Reform
The CFE still has to negotiate two pipelines with TC Energía. The state-owned company still must negotiate two pipelines with the Canadian company, the Tuxpan-Tula and the Tula-Villa de Reyes pipelines (El Financiero – Spanish). The goal is to reach a single tariff and contract for the whole system.
Briones is out at Pemex; Hernández and Paullada are in. Víctor Briones left the state-owned company in the middle of the price formula revision (El Financiero – Spanish) and Ulises Hernández took his place (El Financiero – Spanish) (Bloomberg – English). The Senate ratified José Paullada as Pemex’s new independent advisor (El Financiero – Spanish).
Pemex has paid 7.5% of the Dos Bocas refinery’s cost. The state-owned company has handed US$597m to four different construction companies for the first stage of the Dos Bocas refinery construction, an investment equal to 7.5% of the total amount for the project (El Economista – Spanish).
Pemex wants to control Talos’ discovery. According to two company executives, the state-owned company wants to take over the Talos’ discovery off Mexico’s southern Gulf coast (Reuters – English) (El Economista – Spanish). Pemex has been looking to take control of the operations at the Zama field since January (El Financiero – Spanish).
AMLO sent the Senate his nominees to lead the CRE. President López Obrador sent his choices to direct the Energy Regulatory Commission (CRE) to the Senate (El Financiero – Spanish). Among the choices is Rocío Vargas, an academic who opposed the energy reform (El Economista – Spanish).
Pemex’s business plan is a risky one. Although the Finance Ministry will help out Pemex with MXN269bn in the next three years, analysts expect another drop in Pemex’s credit rating (El Economista – Spanish). The government capitalization is considered insufficient and the lack of alliances with private companies worrisome.
AMLO met Slim and other businessmen. President López Obrador met in private with business leaders to discuss investment in the National Infrastructure Program (El Financiero – Spanish). Carlos Slim, Energy Minister Rocío Nahle, and the head of the Business Coordinator board attended the meeting.
AMLO will renew the IMF credit line…just in case. The Finance Minister said that the government is discussing the renewal of a flexible credit line with the International Monetary Fund (Reuters – English) (El Financiero – Spanish). President López Obrador said the credit line will only be used in case of emergency (El Economista – Spanish).
Mexico’s growth outlook was cut again. According to the analysts surveyed by Banxico, Mexico will grow by 0.43% by the end of 2019 (El Economista – Spanish). For 2020, analysts expect the GDP to fall from 1.39% to 1.35% (El Financiero – Spanish).
Lack of public spending reached 1% of the GDP. Despite the efforts of the Finance Ministry to make money available, the lack of public spending increased in August (El Financiero – Spanish). The unassigned budget reached MXN232bn, equivalent to 1% of the GDP.
The Finance Ministry forgot about Premium’s subsidy…again. The Finance Ministry increased the subsidy of the special tax on gasoline and diesel, while Premium gasoline remains without support (El Financiero – Spanish) (El Economista – Spanish). Magna gasoline will receive a subsidy of 19.92%.
Analysts will have certain Banxico members in sight. Analysts will be watching two members of Mexico’s central bank who voted in favor of cutting interest rates 0.5% (El Economista – Spanish). Banxico’s strategy suggests two more cuts to come, leaving it at 7.25% by the end of the year.
Mexico is producing and drilling more. Pemex’s perforation has increased in 2019, drilling 146 wells, the highest level since 2015 (El Financiero – Spanish). The National Hydrocarbon Commission said that total production increased 0.59% in July, while production from private sector contracts went up 18% in July (El Economista – Spanish).
S&P said Mexico’s Achilles’ heel is uncertainty. The international rating agency said Mexico’s rating is as vulnerable to a highly uncertain context as the one taking place worldwide (El Economista – Spanish). S&P also confirmed that Pemex’s business plan and the 2020 budget have not boosted investors’ trust.
Gasoline sales dropped 8%. In the first half of 2019, Pemex and private companies sold 20,745,000,000 liters of gasoline, an 8% fall from 2018 and the lowest volume sold by the state-owned company since 2015 (El Financiero – Spanish). The reasons are high fuel prices and the economic stalemate.
Strategy & Operations
OPDEnergy will build two solar farms. OPDEnergy and Sumitomo Mitsui Banking Corporation (SMBC) signed an agreement to finance US$86m to build two solar plants in Mexico (Energia a Debate – Spanish). The financing will be directed to the solar plant Andalucía II and the Aguascalientes Sur I park.
Oil companies pledged 50,000 barrels per day by the end of the year. The Mexican Association of Hydrocarbon Companies (AMEXHI) said the companies are ready to produce 50,000 barrels per day by the end of 2019 (El Financiero – Spanish). In the first quarter of 2019, US$9.6bn was invested in exploration and production activities (El Economista – Spanish).
Iberdrola’s El Carmen is up and running. Iberdrola said the combined cycle plant El Carmen is now in operation in Nuevo León and will offer energy to industrial clients in the Wholesale Electricity Market (Reforma – Spanish). The plant has a capacity of 866MW and required an investment of US$450m.
Enel Green Power relies on Mexico as a strategic market. Enel Green Power’s director of operations and asset management said Mexico has boosted Enel’s growth in the solar power sector (El Economista – Spanish). Mexico has four solar projects with a total installed capacity of 1,308.13MW, of which 220MW are still under construction.
Sempra Energy will focus on Mexico and the US. Sempra Energy will sell its business in Perú to China Yangtze Power for US$3.5bn (El Economista – Spanish) to focus on the US and Mexican markets. The sale will include 83.6% of the shares of Luz del Sur, Peru’s largest electricity utility.
Old School Social
Events in the world beyond your screen—go see and be seen!
Energy Day 2019 is scheduled for October 8 at the Hotel Hilton Mexico City Reforma, in Mexico City.
The XLIII National Week of Solar Energy ANES will be held October 14-18 in Nuevo Vallarta, Nayarit.
US and Mexican scientists work to save the avocado from climate change. Scientists in the US and Mexico mapped the DNA of several avocado varieties, including the Hass variety (NYT – English). The goal is to use breeding techniques and genetic modifications to produce avocados that can resist drier conditions.
Quote of the Week
“Nosotros representamos la legalidad durante la lucha armada, y actualmente somos los revolucionarios, no sólo de la Nación Mexicana, sino los revolucionarios de la América Latina, los revolucionarios del Universo.”
“We represent the legality during war, and nowadays we are the revolutionaries, not only of the Mexican nation, but the Latin American revolutionaries, the revolutionaries of the Universe.”
– Venustiano Carranza (1859- 1920), main leader of the Mexican revolution.
We hope you have a productive week. Please send any news, comments, or avocado recipes to MexicoWeekly@energynarrative.com.
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