The Weekly Brief: Mexico


September 10, 2018 edition—Iberdrola’s wind in Puebla; Tabasco’s findings; and the US-Canada negotiation.




Last Week in a Minute or Less


Renewables & Electricity. Iberdrola will push wind capacity in Puebla; Acciona cut the ribbon on the El Cortijo wind park; and the Wind Energy Association recommended more transmission lines.


Natural Gas & Liquid Fuels. Jaf will be the first natural gas cavern; and nobody wanted Pemex’s offer of eight storage terminals.


Oil & Gas Upstream. Private companies hit black gold in Tabasco.


Money & Power. The US and Canada restarted the NAFTA renegotiation; a new refinery will start construction in February; and Moody’s maintained Mexico’s rating.


Déjà vu all over again. Last week’s readers were particularly interested in the possible power shortage (El Financiero – Spanish); AMLO’s plans to cut gas venting (Reforma – Spanish); and flexible contracts (El Financiero – Spanish).



NAFTA Negotiation


NAFTA talks between the US and Canada continued…US negotiators resumed a second round of talks with Canada to salvage NAFTA (Reuters – English). The Canadian foreign minister said negotiations remained “constructive” and President Trump said a final decision will be announced in a few days (Bloomberg – English).


… and Canada will stick to its guns. Canadian Prime Minister Justin Trudeau assured Canada would not compromise on key demands at the NAFTA renegotiation with the US (Reuters – English). President Donald Trump has threatened to retaliate against the Canadian economy unless Canada relinquishes some ground.


Trump said Canada is not needed in NAFTA. US President Trump said there was no need to keep Canada in the NAFTA deal and warned Congress not to intervene with the trade negotiations (Reuters – English). Trump informed Congress of his intent to sign a bilateral agreement with Mexico after the most recent talks with Canada ended without a deal.


The US-Mexico agreement may complicate Canada’s deal. According to the Center for Strategic and International Studies, the public information on the US-Mexico agreement is short on specifics, but could make an agreement with Canada more difficult in several aspects, including intellectual property and procedural safeguards (CSIS – English).


The energy chapter was closed. The renegotiation of the energy chapter was closed but there is a lack of information regarding private foreign investment in the chapter (El Financiero – Spanish). A specialist in the energy sector, Juan Carlos Machorro, warned that the new administration’s revision of rounds could bring uncertainty.



The Road to Reform


AMLO will offer upstream rounds in December. President-elect López Obrador said his administration will prepare tenders for oil exploration in the first days of December (El Financiero – Spanish). According to Bloomberg, AMLO also wants to change the regulation that requires Pemex to receive approval when choosing partners for farmouts (El Financiero – Spanish).


ASEA will manage energy procedures virtually. The Security, Energy, and Environment Agency has a digital platform to formalize procedures with the agency from afar (El Financiero – Spanish). Companies will be able to digitalize their project documents, send them, and do the follow-up until the final resolution.


No one wants Pemex’s storage terminals. The state-owned company did not receive an offer for eight storage terminals in Chiapas, Guerrero, Michoacán, Oaxaca, and Tabasco, making the fourth auction void (El Economista – Spanish). Pemex offered 1.4% of its capacity, amounting to 241,086 barrels.


Jaf will be the first natural gas cavern. The National Center of Natural Gas Control chose the dry gas field of Jaf (El Economista – Spanish), located in Veracruz, for the first auction to store natural gas. The field, with a capacity of 10,000 million cubic feet for emergencies, will require an investment of US$240m and will take 42 months to build.


The CRE eased Pemex’s natural gas contract transfer. The Energy Regulatory Commission converged the last two phases of the Contract Cession Program of Pemex to sell natural gas in one last phase to promote the interest of new participants in the industry (El Economista – Spanish). Pemex Transformación Industrial (TRI) will offer 25.13% of its contracts to private companies.


The CFE pushed back the fourth electricity auction’s ruling. The decision on the fourth long-term auction was postponed two weeks to November 14, and the contracts will be signed by February 28 (El Financiero – Spanish). On September 5 and 6, the National Center of Energy Control will receive the applications for sale offers’ prequalification.



Political Economy


AMLO will strengthen trade with Asia. President-elect López Obrador will focus on increasing trade relations with Asia and the Pacific (El Financiero – Spanish). AMLO explained the plan to connect the Pacific and the Atlantic, modernizing Mexico’s rail lines to handle cargo trains.


A new refinery will start construction in February. The construction of the new refinery will start in February 2019 (El Financiero – Spanish) with a budget of MXN155bn included in the 2019 general budget (El Financiero – Spanish). AMLO and the Tabasco governor met to discuss the next refinery project.


The 2019 budget will include a slice for Pemex and CFE. The new Energy Minister, Rocío Nahle, met President-elect López Obrador to review the 2019 budget to make both state-owned companies more productive and efficient (El Economista – Spanish). AMLO pledged resources to improve Pemex’s conditions and repair hydropower plants.


Pemex loses money on fertilizer. After three years, Pemex’s fertilizer business keeps failing (Reforma – Spanish). Pemex expected to control 75% of the national demand for fertilizers and substitute imports for US$400m, but the plants have reported low production (El Vigia – Spanish).



Market Trends


Mexico’s country risk went down. The country risk of Mexico improved, reaching 197 basis points by August 31, three units less compared to the level on August 24 (El Economista – Spanish). In 2017, Mexico ended at 188 basis points, 44 points less than in the previous year.


LP gas prices skyrocketed by 50% under EPN. Prices for LP gas, the fuel used by seven out of 10 families in Mexico, have increased by 50% in the Peña Nieto administration (La Jornada – Spanish). The Energy Regulatory Commission (CRE) said that the price of LP gas per kilogram in cylinder increased by 3.04 pesos on average.


Analysts expect a lower GDP for 2018 and 2019. In the Mexican central bank’s last survey, private analysts cut their forecasts of GDP growth for 2018 and 2019, from 2.25% to 2.14% and from 2.17% to 2.16%, respectively (El Financiero – Spanish). Analysts also adjusted their inflation prediction.


Moody’s maintained Mexico’s rating. The international rating agency left Mexico’s rating unchanged at “A3” despite the uncertainty surrounding the NAFTA renegotiation (El Economista – Spanish). Moody’s warned that the cancellation of oil rounds and the construction of refineries could harm investors’ interests (El Economista – Spanish).



Strategy & Operations


Private companies hit black gold in Tabasco. Three round-winning companies confirmed oil discoveries in the state of Tabasco. They are expected to invest US$42bn over 30 years in the region (El Financiero – Spanish).


Iberdrola will push wind capacity in Puebla. The Spanish company will triple its power in the Pier wind park in Puebla with 51 new generators by 2019 (El Financiero – Spanish). Phase II of the project will add 220MW to the complex that powers up Grupo Modelo.


Transmission lines should spread. The Wind Energy Association expects the new administration to expand transmission lines to take advantage of the country’s wind resources. The association pointed to the importance of continuing the Oaxaca-Mexico line (El Financiero – Spanish).


Querétaro cut the ribbon on an energy cluster. The energy cluster in Querétaro opened with 20 companies, eight research centers, and three universities (El Financiero – Spanish). The state’s energy sector is expected to develop investment projects in generation, distribution, and sustainable energy.


Gulf found no limits in the jet fuel market. The gas stations brand found no barriers to go into the jet fuel market in Mexico. Gulf still plans to sell fuel in the main airports after 2019 (El Norte – Spanish).


Acciona opened the El Cortijo wind park. The El Cortijo wind park, located 40 km away from Reynosa, Tamaulipas, is operating under the new regime of the Wholesale Electricity Market (El Financiero – Spanish). El Cortijo has a capacity of 183MW and was built in 15 months.



Old School Social


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


The Energy Storage International is scheduled for September 24-27 at the Anaheim Convention Center, California.



Lateral Thinking


Hundreds of sea turtles died on the Oaxacan coast. Mexico’s federal agency for environmental protection said more than 300 Ridley sea turtles died after being entangled in a fishing net (National Geographic – English), days after another 113 sea turtles were found dead in Chiapas (Live Science – English).



Quote of the Week


“En la época actual, los países pueden dividirse entre los que tienen y los que no tienen petróleo. Nosotros lo tenemos.”


“Currently, countries could be divided between the ones who have and do not have oil. We have it.”



-José López Portillo (1920-2004), Mexican lawyer and politician who served as President from 1976 to 1982. He said this quote in the first government report, 1977.



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