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September 14, 2020 edition—Dos Bocas’s budget; Mexico’s oil production; and natural gas futures.
Last Week in a Minute or Less
Electric Power & Renewables. Enel completed turbine installation at the Dolores wind farm; Camescom has high hopes for Mexico’s renewables; and infrastructure projects come to the energy sector’s rescue.
Natural Gas Mid-Downstream & LNG. Mexico is helping US natural gas futures; and experts recommend Mexico develop natural gas resources.
Liquid Fuels Mid-Downstream. The Dos Bocas refinery’s budget got a boost; and the rule for “complete liters” will be effective in October.
Oil & Gas Upstream. Oil income in 2021 will be only 2.7%; AMLO explains July’s crude production report; and Mexico lowers the production goal for 2021.
Government & NGO. Fitch expects Mexico’s economy to fall hard; Mexico is the main US trade partner; and Mexico’s judiciary needs a big budget for the USMCA.
Déjà vu all over again. Last week’s readers were particularly interested in CFE’s future with private investment (El Financiero – Spanish); Greenlux’s plans (El Financiero – Spanish); and Generación VI’s recovery (PV Magazine – Spanish).
Geopolitics & Trade
Mexico is the main US trade partner. Mexico again became the main US trade partner thanks to the USMCA. The total commerce between Mexico and the US reached US$290.6bn between January and July, surpassing Canada and China (El Financiero – Spanish).
Trump has an eye on Mexico before the elections. President Donald Trump plans to fulfill some trade promises to protect certain key electoral districts before the elections (El Financiero – Spanish). The US trade representative wants to investigate if Mexican cranberries have affected US farmers.
Mexico’s farmers warned the US over USMCA. The National Farming Board (CNA) warned that the government will act on any action taken that violates the USMCA, as the USTR sent help to US farming producers (El Financiero – Spanish).
Mexico’s judiciary needs a big budget for the USMCA. Mexico’s judiciary requested MXN1.4bn to create courts as part of the work reform agreed upon in the new NAFTA (El Economista – Spanish). The institution demanded a 7.6% increase in its budget compared to the 2020 budget to comply with the commitments made.
Mexico could take advantage of the USMCA in COVID-19 times. As COVID-19 disrupts international trade, Mexico could benefit from manufacturing companies moving to North America (Freight Waves – English). Ottensmeyer said the US-China trade war and subsequent tariffs have made Mexico an attractive option.
Political Economy
Pemex may deal with more than oil now. The Morena party in the Senate is looking to boost a reform to the Pemex law to allow the company to generate alternative energy projects not based on hydrocarbons (El Financiero – Spanish).
In 2021, taxes will be updated. The deputy Finance Minister said that taxes will be updated considering inflation but will not be increased nor will new ones be added (El Financiero – Spanish). The Finance Ministry will work on improving collection processes.
Oil income in 2021 will be only 2.7%. According to the 2021 budget, oil income will represent only 2.7% of the GDP (El Economista – Spanish). Oil income will represent 12.6% of total government income, compared to the 15.4% estimate for the end of this year.
Mexico’s debt could reach 70% of GDP. President López Obrador could end his administration in 2024 with a debt of up to 70% of the GDP (El Economista – Spanish). By the end of 2019, debt reached 44.85% of the GDP.
Fitch expects Mexico’s economy to fall hard. According to the rating agency, Mexico will experience one of the three biggest GDP declines worldwide, with a 10.8% contraction, together with the United Kingdom and Spain (El Economista – Spanish). Citibanamex survey expects a 9.9% GDP contraction (El Financiero – Spanish), while experts expect 3.5% GDP growth in 2021 (EL Financiero – Spanish).
Legal & Regulatory
The rule for “complete liters” will be effective in October. The consumer advocate agency (Profeco) said the Mexican norm that states the rules for gas stations to offer complete liters will be mandatory in October (El Financiero – Spanish). Some distributors are asking for an extension.
AMLO welcomes foreign investment in energy. President López Obrador said foreign investment is welcome in the energy sector in the country, “only when it does not affect the general interest, public finances, the integrity of the territory, and the environment” (El Financiero – Spanish).
Mexico may have a conflict with its state-owned companies. México Evalúa published a vigilance map analyzing Pemex and CFE, pointing to the centralized intervention in the markets by the government to favor the companies as the main fault in the state-owned companies’ operation (El Economista – Spanish).
AMLO said renewables will be boosted. President López Obrador pledged to boost renewable sources, but not “crooked businesses of subsidized wind plants” (PV Magazine – Spanish). AMLO plans to rehabilitate hydroelectric plants “which is clean, renewable energy at a low cost and we already have the infrastructure.”
Infrastructure projects come to the energy sector’s rescue. Mexico will announce a set of 168 infrastructure projects worth US$44.4bn before September 15 (Platts – English). The original plan designed between the government and private industry was announced in November.
Market Trends
AMLO explains July’s crude production report. President López Obrador said there is a “misunderstanding” of the information regarding crude production in July and asked Pemex’s director to clarify it (El Financiero – Spanish). AMLO argued that production did not fall, on the contrary, it has remained stable.
Experts recommend Mexico develop natural gas resources. According to a series of industry panelists, Mexico should develop its natural gas resources as it pivots to building an energy matrix around gas and renewables (Natural Gas Intel – English). Mexico’s demand for natural gas exceeds 10 Bcf/d, with imports from the US accounting for about 70% of the total.
Mexico is helping US natural gas futures. US natural gas futures fell 2% despite a daily increase in LNG exports and record sales to Mexico (Reuters – English). Pipeline exports to Mexico were expected to reach 6.2 bcfd in September, after August’s 5.9 bcfd record high.
Mexico lowers the production goal for 2021. Mexico’s government forecast a production of 1,857,000 barrels of crude by 2021 (EL Financiero – Spanish). The amount is 10% less than the previous estimate made by Pemex in 2019 for that year, which was 2,069,000 barrels per day.
Strategy & Operations
Iberdrola bets on Mexico’s industry. Iberdrola México hands more than 60% of its contracts to Mexican companies, generating jobs, energy development, and resources in the areas where it is present (El Financiero – Spanish). Iberdrola is working on social programs regarding schools and health centers.
Enel completed turbine installation at the Dolores wind farm. Enel has finished the installation of all turbines for its 274MW Dolores wind farm in Nuevo León (Renewables Now – English) (PV Magazine – Spanish). The plant consists of 83 wind turbines and is capable of generating over 938GWh per year.
The Dos Bocas refinery’s budget got topped up. The government plans to invest MXN45bn to continue with the construction of the new refinery of Dos Bocas, 9% more than the amount registered in 2020 (El Financiero – Spanish). Pemex will use MXN544bn for production, distribution, and sales processes.
Camescom has high hopes for Mexico’s renewables. The Spanish Chamber of Commerce in Mexico reaffirmed US$533m in investment during President López Obrador’s government (PV Magazine – Spanish). The amount is 28% of the total investments received in the country in the period.
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!)
The 2nd Edition of The Madrid Energy Virtual Conference will be held September 28-October 2.
MIREC Week has been postponed from June 2-4 to October 8-10 at Centro Citibanamex.
Solar Power Mexico was postponed from March 24-26 to November 18-20 at Centro Citibanamex.
The Mexican Energy Forum is rescheduled for November 17-18 in Mexico City.
2nd Edition of Shallow and Deepwater Mexico was postponed to February 16-18, 2021, at Ciudad del Carmen, Campeche.
Mexico Assembly is rescheduled for May 26-27, 2021, at Hyatt Regency, in Mexico City.
The Mexican Petroleum Congress is rescheduled for June 23-26, 2021, in Monterrey.
Lateral Thinking
Mammoth bones keep surfacing in Mexico. The construction of the new airport in Mexico City keeps uncovering enormous bones of mammoth skeletons. More than 100 individual mammoths, camels, horses, fish, birds, antelopes, and rodents have been recovered (Science Alert – English).
Quote of the Week
“Y después de todo, ¿no es posible hacer la más maravillosa pintura con sólo un lápiz cualquiera sobre cualquier papel?”
“And after all, is it not possible to do the most marvelous painting with just any pencil over any paper?”
– José Clemente Orozco (1883-1949), Mexican caricaturist and painter.
We hope you have a productive week. Please send any news, comments, or more mammoth bones to MexicoWeekly@energynarrative.com.
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