The Weekly Brief: Mexico

October 30, 2017 edition— Acciona bets on transmission grid; Round 2.4 was extended; and doubts surround the NAFTA talks.


Last Week in a Minute or Less


Renewables & Electricity. Acciona will invest in transmission grid; Tamaulipas will attract 23 more wind projects.


Natural Gas & Liquid Fuels. Mexico can help shale gas skip the Panama Canal; the House of Representatives discussed IEPS taxes; and gas stations will compete with services.


Oil & Gas Upstream. The CNH offered an extension for Round 2.4; a third tender will be realized before the 2018 elections; and Pemex will make farmouts more desirable.


Money & Power. Time to prep plan B for NAFTA; Moody’s maintained Pemex’s negative outlook; and Banxico gave the peso a hand.


Déjà vu all over again. Last week’s readers were particularly interested in Pemex’s new farmouts (English); Pemex’s profits thanks to farmouts (Spanish); and the effect of the elections on tenders (Spanish).



NAFTA negotiation


Mexico thinks no NAFTA is better than bad NAFTA. The Economy Minister could look to Brazil and Argentina for agricultural imports if the NAFTA talks fail (English). Economy Ministry officials confirmed that Mexico’s interests are being defended and it would be better to end NAFTA than have a trade deal with restrictions (Spanish).


US lawyers are getting ready to challenge any NAFTA withdrawal. Congressional trade lawyers and private attorneys are drafting ways to challenge an eventual decision by President Trump to pull out of NAFTA (English). Industry leaders could push for legal action against the withdrawal and the  Chamber of Commerce is expected to back them up (Spanish).


The auto industry is defending NAFTA to pressure Trump. The auto industry launched a coalition to urge President Trump to keep the US in NAFTA (English). The Mexican Auto Industry Association (AMIA) rejected US proposals to increase North American content for vehicles produced in the region, half of which would originate in the US (English).


Mexico agrees to end forex manipulation. Mexico’s Economy Minister told lawmakers that he agrees to a potential NAFTA pledge to prevent currency manipulation (English). The only condition would be that the vow should not affect domestic monetary policy.


NAFTA uncertainty would hurt the North American economies. Economists said a collapse in the NAFTA negotiations would hurt the countries’ economies, affecting especially Mexican manufacturing and low-skilled workers (English). Doubts surrounding the NAFTA negotiations are hurting growth and investment, according to the Bank of Canada (English).



The Road to Reform


The CNH offered an extension for Round 2.4… The National Hydrocarbons Commission (CNH) agreed to delay some Round 2.4 tenders and the fifth farmout (Spanish). Announcement of pre-qualified  companies and the final version of tender specifications will be published on December 21 and the period to request authorization of the bidder makeup will be January 18-19.


…and plans a third tender before the elections. The National Hydrocarbons Commission (CNH) announced a third oil and gas tender for conventional onshore blocks (English) (Spanish). The bidding terms will be announced by year-end or early in 2018, while the contracts will probably be assigned before the July elections.


Pemex will make farmouts more desirable. The state-owned company’s board okayed a proposal to bundle 42 allocations into 11 clusters to be transformed into exploration and production contracts (Spanish). The Energy Ministry must approve the proposal that could make the fields farmout opportunities.


Hydrocarbon businessmen ask to hit the gas on tenders. The Mexican Association of Hydrocarbons Companies said the energy reform has made progress but needs to be sped up to reach long-term goals (Spanish). The association believes it is necessary to achieve 15 tenders as successful as Round 1.



Political Economy


The IEPS tax was up for discussion in the House of Representatives. The PRI majority in the Finance Commission of the lower house cast aside the proposal to reduce the IEPS tax on gasoline by 50% (Spanish). The proposal was presented after a fuel price increase caused angry consumers to blockade roads and loot service stations.


Pemex plans to launch a new franchise. The head of Pemex Transformación Industrial announced the launch of a new Pemex franchise and new contracts with gas station owners in November (Spanish). Pemex is negotiating with authorities to recognize its costs in transport of products.


FDI has reached US$156bn during Peña Nieto’s term. Pres. Enrique Peña Nieto said that foreign direct investment during his administration totaled US$156bn (Spanish). The constitutional reforms in the energy and telecommunication sectors have drawn investment – $80 billion in the energy sector alone – that generates jobs in Mexico.


Moody’s maintains its negative outlook for Pemex. The rating agency issued a report comparing credit metrics for Pemex, Petrobras, and Ecopetrol (English) (Spanish). Pemex is the only one of the three with a negative outlook; Ecopetrol is best positioned, but has only 6.7 years’ worth of potential production remaining, compared to 7.8 years for Pemex.



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Market Trends


Mexico suffers from natural gas withdrawal. Pemex, the Energy Ministry, the CNH, the CRE, and the National Center of Natural Gas Control plan a strategy to develop various projects to increase domestic natural gas production (Spanish). Natural gas production fell by more than 266 million cubic feet per day in the last ten years.


CFE will premiere a new power tariff. The state-owned company will publish the new power tariff for homes in November (Spanish). The new tariff will include the cost of generation, transmission, distribution, and supply of power in houses.


The earthquakes hit inflation. Mexico’s inflation rose slightly in the first two weeks of October following the earthquakes (Spanish). Inflation reached 6.30% after a slight decrease to 6.17% in the second two weeks of September, thanks largely to temporary, post-earthquake freebies on public transport and cellphone service.


Banxico helped the peso. Mexico’s central bank will increase by US$4bn the amount of dollar hedges it sells in response to the weakening peso (English) (Spanish). The goal is to shield the local currency from volatility due to the uncertainty surrounding the NAFTA renegotiation.



Strategy & Operations


Mexico can be the next Panama Canal for gas. The deputy minister of hydrocarbons announced Mexico’s government is discussing with shale drillers in West Texas a possible pipeline to ship gas directly to Mexico’s west coast (Spanish) (English). A pipeline could reduce the need for liquefied natural gas tankers to transit the Panama Canal.


Acciona goes big in transmission grid. Acciona will invest US$24.5m to build a transmission grid associated with the Topolobampo III combined cycle power plant (Spanish). The company will build two transmission lines with voltages of 400kW and 230KW, with a total length of 276km of high-tension lines.


Tamaulipas will attract 23 more wind projects. Tamaulipa’s Energy Commission reported that 23 wind projects are expected to come to Tamaulipas (Spanish). The state is expected to generate 20% of Mexico’s wind energy by 2018 and will have a strategic plan for clean energies by the end of this year.


Gas stations compete with services. The head of the National Organization of Fuel Suppliers in Nuevo León said that, due to conditions on gasoline imports, suppliers cannot compete by price, so gas stations will use services to gain clients (Spanish). Location, image, and services will differentiate gas stations.



Old School Social


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


The 2nd 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 of and promote clean energies in the region.



Lateral Thinking


Fighting corruption through a new mobile phone app. Civil organizations in Mexico presented a new mobile phone application designed for citizens to report corruption (Spanish). Citizens can follow up on the complaints they filed and track other complaints while the app could facilitate research on anti-corruption efforts.



Quote of the Week


“Solo durante el fugaz instante de nuestra participación con lo absoluto podemos afirmar que existimos.”


“Only during the fleeting instant of our participation with the absolute can we affirm our existence.”


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




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