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September 3, 2018 edition—CRE’s jet fuel tariffs; Vestas in Tamaulipas; and Glencore’s shipment.
Last Week in a Minute or Less
Renewables & Electricity. Vestas will increase investment in Tamaulipas; and Soriana will open a new renewable plant to power up operations.
Natural Gas & Liquid Fuels. Jet fuel tariffs create discord; the CRE changed the dispositions for natural gas pipelines and storage; and Glencore received the first gasoline shipment at the Port of Dos Bocas.
Oil & Gas Upstream. AMLO plans to end gas venting; Pemex’s oil output keeps falling; and Pemex may rely on shale in its next projects.
Money & Power. The US and Mexico reached an agreement; the market liked it; and Mexico’s GDP went down in the second quarter.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s second life for thermoelectric plants (Zocalo – Spanish); AMLO’s energy stance on NAFTA (Bloomberg – English); and Nuevo León’s new power plant (El Financiero – Spanish).
NAFTA Negotiation
Mexico and the US reached an agreement…. The agreement reached between Mexico and the US left out the sunset clause and will last 16 years (El Financiero – Spanish) (Reuters – English). President Trump will end the name of NAFTA after the trade agreement with Mexico (El Financiero – Spanish).
…and it is only the start. The deal is considered to be the beginning of a difficult road to renegotiate NAFTA, with a mandatory 90-day clock for Congress to take up the deal and the pressure on Mexico’s current president Peña Nieto to sign it before President-elect López Obrador takes over on December 1 (Reuters – English).
Canada returned to the table. Canadian negotiators moved “full steam ahead” to reach a compromise to save the trilateral agreement (NYT – English). Canada’s Prime Minister Justin Trudeau and President Peña Nieto agreed on the trilateral nature of the NAFTA deal (Reuters – English).
The US-Mexico agreement gives energy certainty. The Bank of America Merrill Lynch economist for Canada and Mexico considers the agreement good news for the energy sector, reducing uncertainty in the future of energy negotiation as well as reducing uncertainty for future energy trade (El Economista – Spanish). The participation of Mexico’s new government in the renegotiation also reduced uncertainty.
The Road to Reform
Jet fuel tariffs create discord… Several air transportation associations said the new tariffs on fuel storage in airports published by the Energy Regulatory Commission will make jet fuel more expensive than the current price (El Financiero – Spanish). Prices are expected to increase by 6.3% above the international average.
…and CRE justified them. The Energy Regulatory Commission justified the tariffs as the tariff methodology considered the costs of investment on different sources in the international industry. The CRE clarified that including the cost of storage in jet fuel prices meant a 1.1% increase in total fuel prices (El Financiero – Spanish).
The CRE changed the dispositions for natural gas pipelines and storage. The Energy Regulatory Commission modified the dispositions for natural gas transportation and storage (DOF – Spanish). The companies involved in transportation and storage will have 90 days to modify the terms of the service provided, including open season procedures.
The CRE offered flexible contracts. Every contract signed with Pemex has to be approved by the Energy Regulatory Commission, and the commission added special provisions to help gas station owners (El Financiero – Spanish). Pemex has four business models and the discounts are the same for all.
Political Economy
Pemex may rely on shale. The next director of Pemex Exploración y Producción, Fluvio Ruiz Alarcón, expects Pemex’s fuel production to increase, considering shale fields (El Financiero – Spanish). Exploratory activities should be strengthened and the potential of mature fields identified.
Mexico’s GDP went down in the second quarter. Mexico’s economy contracted by 0.2% in the second quarter. The drop was more than what INEGI expected in July 2017 (El Economista – Spanish). Mexico’s negative production performance was affected by the fall in the farm and industry sectors between April and June.
After the deal, Trump again threatened Mexico with paying for the border wall. President Trump repeated his pledge of building a border wall paid for by Mexico (Washington Post – English). Mexican Foreign Minister Luis Videgaray stated on Twitter that Mexico will never “pay for a wall” (Global News – English).
The Finance Ministry owes 32% to Pemex Exploración y Producción. The pending debt of the Finance Ministry with Pemex reached MXN70bn (El Economista – Spanish), almost 32% of the annual budget of Pemex Exploración y Producción. The amount was directed to investment to develop fields that were not assigned to Pemex in Round 0.
AMLO will fight venting. The government of President-elect López Obrador plans to end gas venting in the Project 2018-2024 (Reforma – Spanish).
Market Trends
HR Ratings ratified Mexico’s rating. HR Ratings ratified Mexico’s debt rating with a stable perspective in the long- and short-term (El Economista – Spanish). The firm said the goals of tax consolidation and lowering debt will be achieved.
Mexico may suffer power shortages next summer. The president of Power Clusters warned that the lack of power infrastructure and growing demand could produce shortage problems in the summer of 2019 (El Financiero – Spanish). The drought in Nuevo León and other states is affecting the capacity of thermoelectric plants.
The peso celebrated the US-Mexico agreement… Mexico’s currency gained after the announcement of the US-Mexico agreement (El Financiero – Spanish). The agreement also showed the commitment of both nations to maintain transparency over how they manage their currencies as part of the trade deal (Bloomberg – English).
…and so did Fitch. The rating agency said the US-Mexico trade agreement was a positive step for Mexican companies, reducing uncertainty and providing a framework for long-term investments (El Financiero – Spanish). Fitch pointed out possible increases in labor costs for Mexican corporations due to the approved 75% minimum content for autos’ rules of origin.
Pemex’s oil output keeps falling. The state-owned company said its oil production dropped to 1.84 million barrels per day in July and was down 145,000 barrels per day year over year. The reason is a decrease in mature field production in southern Mexico (Platts – English).
Strategy & Operations
BP will import fuel. BP will publish details on fuel importation and the infrastructure to develop it, hoping to benefit consumers (El Universal – Spanish). BP has more than 330 gas stations in 18 states, and the company hopes to close 2018 with 500 gas stations.
Glencore received the first gasoline shipment at the Port of Dos Bocas. Glencore received the first gasoline shipment at the new 600,000-barrel marine terminal at the Port of Dos Bocas in Tabasco (Platts – English) (El Financiero – Spanish). Glencore invested US$50m to broaden the storage infrastructure and add capacity to the Mexican market.
Soriana will power up with renewables. In 2019, Soriana will cover 89% of its power needs with renewables once the Vicente Guerrero wind park in Tamaulipas starts working (El Financiero – Spanish). The capacity of the park will be 460 GWh per year.
Vestas will increase its investment in Tamaulipas. Vestas plans to invest MXN3.6bn in the Matamoros plant to increase the number of production lines and generate 3,000 jobs (El Financiero – Spanish). Vestas produces blades for wind parks in the country.
Old School Social
Events in the world beyond your screen—go see and be seen!
The First National Congress of Jet Fuel will be held September 4-6 at the Fiesta Americana Reforma in Mexico City.
The Mexico Summit 2018 is scheduled for September 6 at the St. Regis Mexico City.
The Fourth North American Sustainable Economic Development Summit will be held September 9-10 at the Four Seasons Hotel, Las Colinas-Irving, Texas.
The Energy Storage International is scheduled for September 24-27 at the Anaheim Convention Center, California.
Lateral Thinking
Mezcal leftovers are used to generate wind power. Students and professors from the Technology University of the Central Valleys of Oaxaca found a way to create blades from the husk of agave (El Financiero – Spanish). Agave husks are more resistant than fiberglass.
Quote of the Week
“La materia, inmortal como la gloria cambia de formas, pero nunca muere.”
“Matter, immortal as glory changes shapes, but never dies.”
-Manuel Acuña (1849-1873), Mexican poet and writer.
We hope you have a productive week. Please send any news, comments, or uses for mezcal to MexicoWeekly@energynarrative.com.
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