The Weekly Brief: Mexico


October 22, 2018 edition—The Proteus solar project is underway; fracking debated; and Canada’s steel.




Last Week in a Minute or Less


Renewables & Electricity. GIS Power got its power plant underway; the Tampico Proteus solar project is under construction; and the CFE saved with natural gas-powered plants.


Natural Gas & Liquid Fuels. An electrical accident hit the Salina Cruz refinery; fuel thieves took a liking to LP gas; and would AMLO cancel the Braskem-Idesa contract?


Oil & Gas Upstream. López Obrador pushed oil companies to accelerate production; the fracking debate continued; and violence menaces gas projects.


Money & Power. Mexico and Canada discussed steel tariffs; AMLO met the governors involved in the Maya train; and the Odebrecht bill will be collected.


Déjà vu all over again. Last week’s readers were particularly interested in CRE’s new methodology (DOF – Spanish); Pemex’s future farmouts (El Economista – Spanish); and the USMCA’s e-commerce (Reuters – English).



NAFTA Negotiation


Mexico and Canada discussed steel tariffs. Canada announced quotas and a 25% tariff on steel imports from China and other countries to prevent the diversion of cheap foreign steel imports (Bloomberg – English). According to Mexico’s Economy Secretary, the impact on Mexican steel exports to Canada may reach US$200m (Platts – English) (El Financiero – Spanish).


Mexico is certain the deal won’t affect other trade relations. Mexican Foreign Minister Luis Videgaray said that Mexico’s new trade deal with the US and Canada will not stop economic relations with other countries (Reuters – English).


The USMCA will bring certainty to markets and investment. The US-Mexico-Canada Agreement will offer financial certainty to markets and benefit national economies (El Economista – Spanish). Analysts recommend that Mexico take advantage of the context to attract more capital for the country.


The new deal protects farm biotechnology. The farming chapter of the USMCA establishes protections and coordination for farming biotechnology, an issue not included in the original NAFTA (El Economista – Spanish). The agreement forces the three countries to publish details of crops produced with biotechnology.



The Road to Reform


The CRE will let telecoms use the power grid. The Energy Regulatory Commission (CRE) will allow telecommunication operators to use more of the 11 million power posts from the national power grid (El Economista – Spanish). The new dispositions will be up and running by January.


The Cofece is trying to stop Tabasco’s new law. The Federal Economic Competition Commission (Cofece) is planning to stop legal reforms approved in Tabasco that allow the governor of the state to make direct construction allocations (El Financiero – Spanish). The modification to the law allows the executive power of the state to be exempt of public tenders.


The CRE and Cofece signed an energy agreement. The Federal Economic Competition Commission (Cofece) and the Energy Regulatory Commission (CRE) signed an agreement to strengthen institutional activities in energy and competence (El Financiero – Spanish). The goal is to create a free market for all the players of all the sectors (gas stations, storage, and gas distributors).


Power companies are cautious and uncertain. Companies are moving with caution to sign long-term contracts due to the uncertainty surrounding the next administration (El Financiero – Spanish). Analysts expect Mexico to propel the Wholesale Electricity Market with a liquid financial market.



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Political Economy


López Obrador pushed oil companies to accelerate production. President-elect López Obrador pressured foreign oil companies to start producing oil from the recent finds (Reuters – English) (El Financiero – Spanish). López Obrador made no offers of new fields to reverse dwindling output.


The fracking debate continued. According to the Mario Molina Center, Mexico can learn from the lessons of others and adopt better practices in non-conventional hydrocarbon production (El Economista – Spanish). The Energy Secretary said fracking was used in 22% of the wells where fuel is being extracted (El Economista – Spanish).


The Odebrecht bill will be collected. Mexico will try to collect a fine imposed on two Odebrecht subsidiaries by repossessing US$30m that Pemex owes to the Brazilian company (Reforma – Spanish). The INAI will publish the names of the public servants involved in the Odebrecht case (El Economista – Spanish).


AMLO met the governors involved in the Maya train. President-elect López Obrador met with the governors of the five states that the train will cross while assuring that it will not affect the environment (El Financiero – Spanish). The Maya train tender will be announced after December 1 (El Financiero – Spanish).



Market Trends


Fitch lowered Pemex’s outlook and hit the peso. Although the global and national rating remained unchanged, the international rating agency lowered the outlook for the state-owned company to negative, due to the uncertainty on Pemex’s commercial strategy (El Financiero – Spanish). Mexico’s peso fell 1% after Fitch’s report on Pemex’s outlook (Reuters – English).


The Economy Minister justified fuel price increases. Facing criticism from the opposition over the fuel price increases, the Economy Minister, Ildefonso Guajardo, compared inflation rates with the previous administration and said “poor people do not eat gasoline, they eat tortillas” (Excelsior – Spanish).


The CFE blamed CRE for high power tariffs. The state-owned company emphasized that the Energy Regulatory Commission (CRE) sets the tariff schemes (El Financiero – Spanish). The business board presented a plan to reduce power tariffs by the end of the year (El Universal – Spanish) to the CRE.


LP gas became a hot commodity for fuel thieves. Illegal taps in LP gas pipelines increased from one in 2007 to 166 in 2017, robbing 8% of the LP gas consumed (El Universal – Spanish). The problem has extended from Veracruz to 10 states, producing losses of more than MXN12bn per year.


Pemex placed a US$2bn debt. The state-owned company placed a 10-year US$2bn debt (Expansión – Spanish). The debt offers a 6.5% yield.



Strategy & Operations


The CFE saved with natural gas plants. The state-owned company (CFE) saved MXN14.3bn by reconverting six power plants to natural gas (Excelsior – Spanish). The goal is to lower the use of fuel oil in power plants, which is 80% more expensive and produces 68% more contaminants.


GIS Power got underway with its power plant… The company Green Island Solution Power started the construction of the Industrial Park Opción in San José Iturbide (El Financiero – Spanish). In the first phase, GIS Power will use natural gas to produce 30MW.


…and so did the Tampico Proteus solar project. The Tampico Proteus Solar Project in Guanajuato is under construction, and is scheduled for completion by June 2019. The project will produce 90MW in two plants with a final investment of US$105mn (El Economista – Spanish).


Violence menaces gas projects. Wood Mackenzie warned that violence levels in the north of the country and the possible fracking ban could result in an increase in hydrocarbon production (Excelsior p.6 – Spanish). Violence affects the operational costs of the northern fields that can only be worked in certain hours of the day, and workers must be escorted by the military.


Would AMLO cancel the Braskem-Idesa contract? The next government must decide to either cancel the ethane supply contract between Pemex and Braskem-Idesa or continue losing millions (El Financiero – Spanish) (Reuters – English). If the new administration cancels the contract, Pemex will have to buy the Etileno XXI complex, valued at US$1.2bn.


An electrical accident hit the Salina Cruz refinery. Mexico’s Salina Cruz oil refinery is operating normally after an electrical accident injured three people (Reuters – English). A short circuit sparked flames at the 330,000 barrel-per-day capacity facility.



Old School Social


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



The OGEP Oil & Gas Expo Procura will be held October 22-24 at the Centro de Convenciones Tabasco 2000, in Villahermosa.


The Mexico Energy Reform Symposium is scheduled for October 23 at the Hyatt Regency Houston, in Houston.


Energy Day 2018 will be held October 23 at the British Chamber of Commerce in Mexico City.


The XLII Semana Nacional de Energía Solar is scheduled for November 12-16 at the Palacio de Minería in Mexico City.



Lateral Thinking


NASA found a 217-mile-long fault in California and Mexico. NASA’s Jet Propulsion Laboratory (JPL) found an unearthed 21-mile-long fault line fracture connecting Mexico and the US (Express – English). The finding will predict if an earthquake along one section of a fault can grow into a larger quake along other sections.



Quote of the Week


“La libertad de prensa, lo mismo que todas las libertades, tendrá sus inconvenientes, tendrá sus peligros; pero con todos ellos es preferible a la tranquila placidez del despotismo, como decía Tácito.”


“Freedom of the press, as any freedom, has its inconveniences, has its dangers; but with all those, it is preferable to the peaceful tranquility of despotism, as Tacitus said.”


– José María Vigil (1829-1909), Mexican writer.



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