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October 18, 2021 edition—Natural gas and LPG prices; power contracts cancellation; and Maxeon’s solar panels.
Last Week in a Minute or Less
Electric Power & Renewables. Maxeon will make solar panels for the US; Nahle said private power contracts will be canceled; and energy transition can boost Mexico’s growth.
Liquid Fuels Mid-Downstream. LP gas distributors protest price limits; the CRE halted 54 tanker trucks of imported fuel; and the Dos Bocas refinery conflict ended with several injured.
Natural Gas Mid-Downstream & LNG. Higher natural gas prices will affect Mexico’s industry.
Government & NGO. AMLO said the power reform does not violate USMCA; the IMF increased Mexico’s growth outlook; and the Finance Minister and the World Bank discussed Mexico’s recovery.
Déjà vu all over again. Last week’s readers were particularly interested in PRI’s position regarding the power reform (El Economista – Spanish); Braskem-Idesa’s rating (Reuters – English); and CFE’s power purchases (El Financiero – Spanish).
Geopolitics & Trade
Mexico disagrees with the US interpretation of the auto origin rule. The Economy Minister discussed the origin rules of the auto sector (El Financiero – Spanish) in the last call with her US counterpart. The minister said the US view is mistaken as the Mexican and Canadian government advocate for a laxer interpretation.
The US will open its border to WHO-approved vaccinated Mexicans. The US and Mexico are discussing the opening of border activities. The US will accept all vaccinated citizens with jabs approved by the OMS (El Economista – Spanish) (BBC – English). Mexico will pressure the WHO to okay Sputnik V and CanSino vaccines.
AMLO said the power reform does not violate USMCA. President López Obrador said the proposed power reform is “respectful” of international trade agreements such as the USMCA (El Economista – Spanish). When asked, the Economy Minister did not answer questions related to the power reform’s effect on the USMCA (El Economista – Spanish).
Canada’s Chamber of Commerce is against the power reform. The Canadian Chamber of Commerce warned that the power reform could destroy Canadian investments in Mexico and violates the commitments made in the USMCA (El Financiero – Spanish).
Political Economy
The IMF increased Mexico’s growth outlook… Thanks to US growth, Mexico’s economy is expected to grow by 6.2% in 2021 and 4% in 2022 (El Financiero – Spanish). The IMF pointed to Mexico’s poverty and productivity problems and the need to speed up vaccination.
…and suggested increasing the policy rate. The IMF advised Mexico’s central bank to review the inflation goal and to speed up the increase in the policy rate if inflation increases in the medium term (El Economista – Spanish) (IMF – English). The medium term considers a three- to four-year horizon.
The IMF recommended two reforms. The International Monetary Fund (IMF) proposed two reforms directed toward Pemex’s business plan and the fiscal system (El Economista -Spanish) (IMF – English). The goal would be to raise non-oil revenue collections by developing a progressive tax reform.
The Finance Minister and the World Bank discussed Mexico’s recovery. Finance Minister Rogelio Ramírez de la O had a meeting with the head of the World Bank David Malpass to discuss Mexico’s recovery from the COVID-19 pandemic, government investment, and private investment to boost sustainable and inclusive development (El Financiero – Spanish).
Legal & Regulatory
The Finance Ministry is checking the reaction to the reform. The Finance Minister is considering the effect of the reform proposal on the market and the reaction of rating agencies to be certain the government has a “consistent model, inside the rules of the market” (El Financiero – Spanish).
Estado de México’s companies are concerned with the reform. The private sector warned that production prices could increase with the proposed energy reform (El Economista – Spanish). The sector suggested an increase in the subsidy to avoid sharp increases in power tariffs.
LP gas distributors protest price limits. LP gas distributors blocked several roads in Mexico City, demanding the government attend their complaints regarding the low profit margin they obtain after the price regulation implementation (El Economista – Spanish).
The CRE halted 54 tanker trucks of imported fuel. The Energy Regulatory Commission (CRE) has paralyzed 5.5 million gasoline liters imported in Ciudad Juárez valued at MXN100m for a month (El Economista – Spanish). The affected company, Biocombustibles Internacionales, has not been able to distribute to its clients in the North area.
Nahle said private power contracts will be canceled. Energy Minister Rocío Nahle said private companies’ self-supply contracts will be canceled in favor of a daily supply auction (El Financiero – Spanish). Nahle said private companies should pay for power transmission.
Market Trends
LP gas prices are higher than before AMLO set a limit. According to the Energy Regulatory Commission (CRE), the average LP gas price between October 10 and 16 will be MXN26.05 per kilogram, above the average price it had when the price limit was set (El Financiero – Spanish). The reason is the global price of propane has skyrocketed.
After AMLO’s limit, 10% of LP gas routes closed. The Mexican Association of LP Gas Distributors and Amexgas estimated that approximately 10% of the delivery routes have closed as the price limit does not allow distribution companies to cover the costs to operate those routes in 3,500 areas (El Economista – Spanish).
Higher natural gas prices will affect Mexico’s industry. The increase in natural gas prices will affect the Mexican industry sector, which depends on this product (El Economista – Spanish). Natural gas prices have increased 321% in 2021, hit by global inflation and the forecast of a cold winter.
Strategy & Operations
Querétaro’s private sector opposes the power reform. The private sector in the state is concerned with the impact the power reform would have on energy generation projects in Querétaro, CFE’s supply, and higher power tariffs (El Economista – Spanish).
Energy transition can boost Mexico’s growth: David Malpass. The head of the World Bank believes supporting energy transition with cleaner energy generation sources could help Mexico’s growth (El Financiero – Spanish). Mexico should also work on economic stability and the digital revolution.
The Dos Bocas refinery conflict ended with several injured. Workers went on strike at the Dos Bocas refinery, accusing ICA Fluor of not paying overtime or offering safety measures (El Economista – Spanish). A group of 12 people tried to go into the plant and the police used gas and rubber bullets, ending with several injured and three arrested (El Economista – Spanish).
CFE’s hydroelectric plants will lead power production. According to the Energy Minister, the government plans to prioritize hydroelectric power over solar and wind private production as the national grid is restructured (El Financiero – Spanish). The reform will cut the private sector’s participation in the power market from 62% to 46%.
Maxeon will make solar panels for the US. The company plans to build 1.8GW-capacity solar panels in Mexicali that will be sold in the US market (PV Magazine – Spanish). Maxeon is also considering opening a plant in the US.
Old School Social Goes Viral
(Editor’s note: For the duration of the COVID-19 outbreak, this section will refocus on announcements of event delays or cancellations, events that are moved online, and scheduled webinars and public conference calls. Stay safe!)
Mexico Infrastructure & Sustainability Summit is scheduled for October 27-28.
Mexico Assembly will be held in May 2022 in Mexico City.
Lateral Thinking
Tropical storm hit CFE’s clients in Nayarit and Sinaloa. The state-owned company reconnected 13% of the clients affected by Hurricane Pamela, 7% of CFE’s total clients in Nayarit and Sinaloa (El Economista – Spanish).
Quote of the Week
“Produzca lo que el país consume y consuma lo que el país produce.”
“Produce what the country consumes and consume what the country produces.”
– Manuel Ávila Camacho (1897-1955), Mexican politician and military leader.
We hope you have a productive week. Please send any news, comments, or blackout games to MexicoWeekly@energynarrative.com.
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