The Weekly Brief: Mexico

September 11, 2017 edition— Third electricity auction set; final farmout bidders announced; and wind farms are in vogue.





Last Week in a Minute or Less


Renewables & Electricity. Électricité de France will install a 300MW wind park; CFEnergía and Iberdrola signed a US$4bn agreement; and the results of the third electricity auction will be announced November 22.


Natural Gas & Liquid Fuels. Harvey made evident Mexico’s reliance on US natural gas; Valero Energy plans a fuel storage plant in Nuevo León; and private gas stations took 23% of the market from Pemex.


Oil & Gas Upstream. The CNH published the final list of farmout bidders and 2017 oil hedges cost MXN18.2bn.


Money & Power. Mexico and China strengthened their friendship through a deal; the second round of NAFTA negotiations ended; and the IFC will invest in Mexico.


Déjà vu all over again. Last week’s readers were particularly interested in Sumex’s plans for Baja California (Spanish); IEnova and Valero Energy’s possible alliance of US$45bn in energy projects (Spanish); and the finance scheme for the Oaxaca-Mexico City power line (Spanish).



NAFTA negotiations


Conclusions of the second round of NAFTA negotiations are out… In the second round, several groups advanced the discussions and consolidated proposals into a “single text” to be worked on in subsequent negotiations, and all countries reaffirmed their commitment to accelerate negotiations (English). The next round is set for September 24 (Spanish).


… and negotiators claim real progress. Although no chapter has been closed, progress has been made in consolidating language on digital trade, the environment and services, and small businesses (English). Mexico’s private sector was informed of the progress (Spanish).


Labor and rules of origin are on the table. Officials discussed better conditions for Mexican workers and rules of origin regarding the auto industry and the percentage of components in a product coming from the three countries (English) (Spanish). The dispute resolution mechanism and protecting agriculture were also key issues in the renegotiations (English).


NAFTA negotiators are working on energy. Canadian, Mexican and US negotiators are analyzing ways to modernize NAFTA by incorporating Mexico’s energy reform. Negotiators are looking for mechanisms to integrate Mexico in hemispheric energy trade and investment (English).



The Road to Reform


The CRE wants to pass 40 rules before the year’s end. The Energy Regulatory Commission (CRE) will approve 40 new regulations for the natural gas, gasoline, and power industries, including the basic power supply tariff (Spanish). The tariff will become the benchmark for a growing electricity market in which several private companies want to participate.


Private gas stations ate 23% of Pemex’s pie.  Gas stations in private hands competing under their own brand took 23% of the market from Pemex in just two years (Spanish). The CRE granted 11,697 permits for gas stations through August 31; 2,678 gas stations sell their own brands.


The CNH finalized the list of farmout bidders. The National Hydrocarbons Commission (CNH) published the list of the 15 technically and financially pre-qualified companies that will vie for three farmouts. The CNH will reveal how companies are grouped in consortias on September 26, and the tender decisions will be made October 4 (Spanish).


The third long-term electricity auction will be decided on November 22. The National Center for Energy Control (Cenace) on November 22 will announce results of the third long-term electricity auction, which will allow private generators to contract with the CFE (Spanish). The Cenace received 734 payments for sale proposals from 80 bidders, 14% more than for the second auction.



Political Economy


Analysts trust Mexico’s GDP but expect higher inflation. Analysts consulted by Mexico’s central bank estimate that by the end of 2017 GDP will grow to 2.15%, an increase from the growth forecast of 2% (Spanish). Analysts calculate inflation will be at 6.25% by the end of the year, while Banxico’s goal was 3%.


Harvey hit Mexico’s oil sector too. Pemex temporarily cancelled  crude oil shipments to the US after t Hurricane Harvey closed certain ports  (Spanish). The US Energy Information Administration said US fuel prices increased due to the hurricane (English).


Trump threatened DACA and Mexico expresses deep regret. President Donald Trump announced the possible cancellation of the program protecting immigrants’ children from deportation (English). The Mexican government regrets the cancellation and offers consular protection for the Dreamers (Spanish).


Mexico and China are getting friendly online. After Trump’s threats to end NAFTA, President Enrique Peña Nieto and President Xi Jinping reaffirmed their support of free trade (Spanish) (Spanish). Mexico signed a deal with Alibaba to include Mexican products and services in the Chinese e-commerce firm’s platform (English).


Oil hedges set the government back by MXN18.2bn. According to the fifth state of the union report, the 2017 oil hedge program has spent MXN18.2bn to guarantee an average of 42 dollars per barrel (Spanish). In total, 250 million barrels were hedged at US$1bn.



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Market Trends


Investment funds have Mexico’s infrastructure in sight. Private investment funds, including BlackRock, BlackStone, ENCap, GBM, and IFC have US$10.5bn ready to invest in Mexico’s infrastructure in the next four years (Spanish). Financed projects  include one by Sierra Oil & Gas and Citla Energy’s electricity generation park.


Harvey made Mexico’s dependence on US natural gas clear. Pemex asked clients to decrease natural gas consumption by 20% after the hurricane forced closure of cross-border pipelines (English) (Spanish). Imports dropped 16% in a day and the Sabine Pass terminal halted LNG exports as the weather did not allow vessels to load.


With or without NAFTA, the IFC will invest in Mexico. The International Finance Corporation (IFC) will invest US$5bn in Mexico over the next five years to help the private sector participate in energy, infrastructure, education and financial technology projects (Spanish). Uncertainty over NAFTA and the elections does not overshadow the development of the reforms.


Banxico renews its foreign exchange hedges. Mexico’s central bank held an auction to renew US$200m worth of foreign exchange hedges (Spanish). Demand reached US$725m, 3.63 times the amount placed, but low for the context.



Strategy & Operations


Électricité de France and Shell bet on Mexico. Électricité de France (EDF) will invest MXN600m to install a 300MW wind park in Unión Hidalgo, in Oaxaca’s Tehuantepec Isthmus (Spanish). Shell plans to invest US$1bn in the next 10 years in new gas stations and transportation infrastructure projects (Spanish).


AHMSA will power up with coal-bed methane. Minera del Norte, a subsidiary of Altos Hornos de México (AHMSA), will generate power through methane gas produced in its coal mines. The company plans to consume 500 cubic meters of methane per hour to produce 1.6MW for mining operations (Spanish).


CFEnergía and Iberdrola sign a US$4bn agreement. CFEnergía, subsidiary of the state-owned power company, will supply gas US$4bn worth of natural gas to the Spanish company’s El Carmen combined-cycle plant over 24 years (Spanish). The plant will generate 866MW and is set to open by September 2019.


Valero Energy plans a fuel storage plant, and Cubico Sustainable Investments, a wind farm. Valero plans to install a liquid fuel terminal with three tanks in Nuevo León with a capacity of 325,000 barrels (Spanish). Cubico Sustainable Investments will start construction of the 250MW El Mezquite wind park by the end of September (Spanish).


Cox Energy enters Mexico’s market. The renewable-energy company has obtained a license to sell 1,000MW in Mexico to qualified users and will request permission to supply basic users (Spanish). Cox Energy is the second Spanish company to compete in the Wholesale Electricity Market (MEM).



Old School Social


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


The Simposio Eficiencia Energética en la Industria is September 11 at the Hotel Marriott Reforma in Mexico City.


The Simposium Internacional de la Energía is September 12-13 at Expo Santa Fe in Mexico City.


The World Energy Leaders’ Summit is September 12-13 at Expo Santa Fe in Mexico City.


The workshop Empowering energy: Scaling up rural energy access through innovation is September 13 at Expo Santa Fe in Mexico City.


The British Chamber of Commerce-Mexico’s 16th annual Energy Day is October 3 at the Camino Real Hotel in Mexico City.



Lateral Thinking


A new level in origami: a functioning paper bike. In Chihuahua, the startup Green Code developed a bike made of recycled craft paper (55%), reusable metals (35%) and recycled plastic (10%) (English). The bike’s water-resistant paint is made of recycled polystyrene.



Quote of the Week


“No vengo aquí a vender paraísos perdidos ni a buscar indulgencias históricas, decir la verdad, la mía, es mi obligación, pero también mi derecho”.


“I don’t come here to sell lost paradises or look for historic indulgences, saying the truth, my truth, is my duty, but also my right.”


-José López Portillo (1920-2004), Mexican lawyer and politician, president from 1976 to 1982, quote from his last state of the union address.




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