The Weekly Brief: Mexico

October 2, 2017 edition— NAFTA’s tough third round started off; Iberdrola is big on cogen plants; and Round 3 was announced.





Last Week in a Minute or Less


Renewables & Electricity. The second earthquake shook up wind energy; Iberdrola will construct seven co-generation plants; and 19 power generators were left in the dark.


Natural Gas & Liquid Fuels. Salina Cruz will be open for business by the end of October; Nuevo León is interested in natural gas projects; and illegal taps are bursting out all over.


Oil & Gas Upstream. Farmouts and Round 2.4 will be competitive; Round 2.1 contracts signed; and the CNH approved Round 3.


Money & Power. Videgaray believes in “life after NAFTA”; the third round of NAFTA talks kicked off; and the CFE will lay off 9% of its workers.


Déjà vu all over again. Last week’s readers were particularly interested in CFE’s plans for a new nuclear plant (Spanish); Yucatan’s potential for natural gas (Spanish); and the first transmission grid tender (Spanish).



NAFTA negotiation


NAFTA—round three. Canada, Mexico, and the US commenced the third of seven rounds of discussions planned to renegotiate NAFTA, although experts doubt negotiations will be done by year’s end (Spanish). Prime Minister Justin Trudeau warned negotiations will be tough in the third round (Spanish).


NAFTA negotiations deal with delicate chapters. Negotiators are discussing the rules of origin for manufactured goods in the Ottawa talks, focusing especially on the auto industry (English). Progress on including startups and small businesses is expected and would promote growth in the three countries (Spanish).


Videgaray said “life after NAFTA” is possible. Mexico’s Foreign Minister Luis Videgaray said people understand “that there could be life after NAFTA if the US withdraws”, although investors expect a favorable outcome (English) (Spanish). Videgaray said investments are being made and the market is reacting well to the renegotiation.


US refiners focused on protecting cross-border trade in NAFTA. The US Association of Refiners and Petrochemical Producers asked government negotiators to guarantee their access as suppliers to Mexico (Spanish). Mexican private sector leaders expect Mexico’s trade surplus with the US to decline as new sectors, including energy, are included (Spanish).




The Road to Reform


Respecting gasoline price limits is part of post-earthquake solidarity. The Energy Regulatory Commission (CRE) asked gas station owners to respect the set maximum prices while daily publication is suspended due to the earthquake (Spanish). The CRE also suspended temporarily the requirement of daily reporting by gas stations of the amount and prices of fuels sold.


The earthquake left 19 power generators in the dark. The September 19 earthquake left 19 power generator units with a combined capacity of 1,185MW out of service, according to the National Center of Energy Control (Cenace) (Spanish). The Cenace counted 5,000MW affected by the tremor in metropolitan Mexico City and four states.


Farmouts and Round 2.4 will offer a good fight. Six individual participants and four consortia will compete in the shallow water Ayin Batsil farmout process and in the onshore fields of Ogarrio and Cárdenas-Mora (Spanish). In Round 2.4, six companies have shown interest in the 30 deep water fields.


Round 2.1 contracts signed. Sierra Oil & Gas and Repsol signed the contract for exploration and extraction in Area 11, obtained in Round 2.1 (Spanish). Pemex signed its alliance with Deutsche and Ecopetrol for two shallow water blocks (Spanish), while Eni will start working in Tabasco in partnership with Capricorn and Citla (Spanish).


Round 3.1 was okayed and Yucatan is out of Round 2.4. The National Hydrocarbons Commission (CNH) approved the basis for Round 3 with 35 shallow water areas (Spanish). Sener withdrew the Yucatán’s protected coral reefs from Round 2.4  pending an environmental impact study (Spanish).




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Political Economy


Illegal taps have skyrocketed. From January to July, 5,789 illegal taps have been found, a 56% increase compared to the 3,703 taps reported in the same period in 2016 (Spanish). This year so far, illicit taps have surpassed the annual totals for the years from 2010 to 2015.


Pemex looks abroad for exploration. The state-owned company plans to invest or partner with big oil companies including BP, Chevron, ExxonMobil, Shell, and Total to bid for hydrocarbon fields  abroad (Spanish). The fields to be sought could add 200 to 300 million barrels to Pemex reserves in the next four years.


The CFE will fire 9% of its workers. The state-owned company plans to fire 8.9% of its 90,000 staff employees in the next four years (Spanish). The goal is to save MXN22bn per year from now until 2021, an amount equivalent to 6.3% of the CFE’s approved budget for 2017.


Salina Cruz will be open for business by the end of October. Pemex reported the Salina Cruz refinery will be reactivated in the third week of October. Continuous aftershocks have delayed the plant’s rehabilitation after the Sept. 7 earthquake (Spanish).


Three Special Economic Zones opened for business. Coatzacoalcos, Lázaro Cárdenas, and Puerto Chiapas will open their doors to companies that wish to develop projects in southern Mexico (Spanish). Two hundred businesses have expressed interest and 35 companies are advanced in plans for projects in the zones.



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Market Trends


Inflation fell…at last. Mexico’s inflation dropped after reaching its fastest pace of increase in 16 years in August, and is expected to decrease to 6.3% by the end of the year (English) (Spanish). Mexico’s central bank left interest rates unchanged in August at 7%, the highest level since 2009.


OPEC stands on oil output cuts. The monitoring committee agreed it was too early to extend the deal or recommend deeper cuts, although the group decided to track export data to strengthen trader confidence (English) (Spanish). Production data is monitored every month, and the inclusion of export figures will support the data.


Liquid fuel production got back in the saddle. Pemex reported a slight improvement, of 3.7%, in liquid fuel production in August compared to July (Spanish). The Salina Cruz refinery was out of order due to  flooding and a fire and the Madero refinery is undergoing maintenance.



Strategy & Operations


Natural gas distribution gets a boost in Nuevo León. Companies in Nuevo León will invest MXN725m in natural gas projects, including CNG infrastructure and retail stations, according to the Energy Regulatory Commission (CRE) (Spanish). The CRE okayed Solensa’s liquefaction project in Apodaca which requires MXN90m in investments.


The second earthquake hit wind energy. Efforts to reactivate 60% of the wind farms affected by the first earthquake were blocked by the second earthquake that shook Mexico on Sept. 19 (Spanish). Although turbines were not affected, control centers, transmission grids, and substations were damaged in Oaxaca and wind farms shut down.


Eni boosted up Area 1 resource potential. The Italian company increased the estimate for reserves in Contractual Area 1 to 1.4 billion boe (English). The 3,430m-deep Mizton-2 well found 185m of net oil pay in the Orca formation in Campeche Bay.


Iberdrola will build ten new plants in Mexico by 2020. The Spanish company will invest US$1.7bn between 2017 and 2020 to build ten new wind, cogen and combined cycle plants in Mexico (Spanish). Iberdrola will be able to generate up to 75TWh per year in Mexico, more than the 60 to 65TWh per year it generates in Spain.



Old School Social


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


The British Chamber of Commerce-Mexico’s 16th annual Energy Day is Oct. 3 at the Camino Real Hotel in Mexico City.


The Mexico Energy Strategy Forum is October 5 at the Four Seasons Hotel in Mexico City.


The Expo Enverdeser 2017 is October 6-8 at the Centro Citibanamex, Mexico City.


The 2o 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 and foment clean energies in the region.



Lateral Thinking


Plastic bottles wanted to build shelters for the earthquake homeless. Architects are building emergency shelters with plastic bottles filled with earth or rubble for people who lost their homes in Mexico’s recent earthquakes (English). The goal is to provide a roof for people left homeless who are sleeping in the rain.



Quote of the Week


“Se necesita exigir que los Presidentes sean grandes administradores, creadores y arquitectos; por eso debe escogérseles a base de capacidad y de honestidad. ‘El arquitecto del desarrollo nacional’, tal debiera ser el título supremo del mandatario.”


“Demands must be made on Presidents to be great administrators, creators, and architects; therefore, they need to be chosen for their abilities and honesty. ‘The architect of national development’ should be the supreme title of the ruler.”



-José Vasconcelos (1882-1959), Mexican writer, philosopher, and politician




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