September 25, 2017 edition— Nobilis-Maximino up for bid; BP started supplying natural gas; and wind towers arrive in Yucatán.
Last Week in a Minute or Less
Renewables & Electricity. The CFE considers a new nuclear plant; Sener prepares first tender bases for transmission grids; and geothermal energy will broaden its horizons.
Natural Gas & Liquid Fuels. BP started supplying natural gas in eight states and Yucatán has potential for natural gas investment.
Oil & Gas Upstream. Pemex looks for a partner for Nobilis-Maximino.
Money & Power. NAFTA advanced in seven chapters; Pemex plans to eliminate 5,117 positions; and the earthquake shakes finances.
Déjà vu all over again. Last week’s readers were particularly interested in fuel and power thefts (Spanish); the success of the third electricity auction (Spanish); and the increase in prices for the third electricity auction (Spanish).
The NAFTA negotiation
NAFTA advanced in seven chapters, but faces difficulties in 12. The Economy Minister Ildefonso Guajardo announced relevant progress in seven chapters, including the integration of small and medium-size companies into the production chain and transparency (English) (Spanish). In the other 12 chapters, there are complex and different positions.
The US proposed a sunset provision for NAFTA. The US suggested NAFTA should have a five-year sunset provision, which would force partners to re-examine the deal regularly (English). Canada’s and Mexico’s ambassadors said the provision would create uncertainty for businesses with long-term investments.
Mexico understands how difficult it is to modernize NAFTA. Mexico’s Financial Stability Council said that difficulties in modernizing NAFTA can’t be dismissed. Considering the international context, new episodes of high financial volatility are possible (Spanish).
NADB places hopes on the NAFTA renegotiation. The North American Development Bank (NADB) hopes the NAFTA renegotiation will lead to the fund’s recapitalization to finance infrastructure projects across the US-Mexico border (English). The NADB said the US and Mexican governments could use the NAFTA negotiation to inject the bank with more equity.
The Road to Reform
Sener readies the first tender for transmission grids. Sener prepared the first bidding bases to build new transmission lines in Mexico; bids are to be awarded by July 2018 (Spanish). The Energy Minister said MXN205bn per year until 2024 is needed to expand the transmission grid (Spanish).
Pemex looks for a partner for Nobilis-Maximino. The National Hydrocarbons Commission published the call for the international public bidding process for the Nobilis-Maximino concession farmout (English) (Spanish). The minimum contribution for the farmout will be US$815m, 76% above the amount requested for the first farmout in Trion.
The CFE considers a new nuclear plant. The state-owned company is planning to spend MXN200m in 2018 to consider the construction of a new nuclear power plant in Veracruz (Spanish). The work includes an environmental report, emergency plan, basic engineering and security analysis to determine the feasibility of the project.
CFE reestablished most power after the earthquakes. The state-owned company restored service to 4,475,261 homes, representing 92% of those affected (Spanish). In Oaxaca, the transmission grid was restored almost at 100% after the Sept. 7 earthquake and officials said it would be completely repaired by Sept. 25 (Spanish).
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Political Economy
Mexico was hit by a second major earthquake in a month… Mexican rescue teams continued searching for survivors after a 7.1 magnitude quake rocked Mexico City, Morelos and Puebla, killing at least 307 people (English). The earthquake struck 32 years to the day after a 1985 tremor killed at least 5,000 people (English).
…which also shook the country’s finances. Moody’s said public finances could be affected by the earthquake, depending on the damages and the available financial relief (Spanish). After the first quake, the Finance Minister said that Mexico had the necessary financial resources available to address the emergency.
A small flaw shut down CFE’s Poza Rica unit. The CFE paid US$157m to install a gas turbine in Poza Rica, which was shut down because of a millimetric but risky flaw (Spanish). The Sep. 10 blackout was produced by an electric arc, and the CFE will not indemnify the industry for the interruption (Spanish) (Spanish).
Pemex will cut 5,117 positions. Next year, Pemex plans to eliminate 5,117 job positions, leaving Pemex with 111,484 positions (Spanish). Analysts noted that cutting labor liabilities will help Pemex’s finances and make up for the drop in oil prices.
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Market Trends
The peso dipped slightly after the earthquake. After the 7.1 earthquake that struck Mexico City, the Mexican peso maintained stable values with a slight depreciation of 0.08%, equivalent to 1.35 cents, to end at 17.7695 pesos per dollar (Spanish). Values close to 18 pesos could be expected this week after the Fed announcement on monetary policy Wednesday.
Mexico’s international reserves suffered the highest drop in seven weeks. International reserves in Mexico lost US$205m by Sept. 15, ending the week with US$173.3bn, the lowest level since the beginning of September (Spanish). During the same week, a drop of US$182m was seen because of a revaluation of international assets.
Pemex’s fuel production hit rock bottom. Natural disasters and maintenance stoppages reduced Pemex’s already declining liquid fuel production, dropping 334,000 barrels per day in its six refineries (Spanish) compared to a six-month period in 2012. From January to July 2017, production fell 26.7% compared to the same period in 2012.
Fitch points to Latin America’s tough nuts to crack: protectionism and corruption. The international rating agency said commercial protectionism, political instability and corruption are risk factors for global rating outlooks (Spanish). Global credit conditions seem to be improving on the strength of continued economic growth (English).
Strategy & Operations
CFE will invest in 80 projects in Nuevo León. The state-owned company will invest MXN20bn in 80 projects in Nuevo León, including work at the San Jerónimo substation. At a national level, the CFE will invest over MXN160bn and will keep up its maintenance work in the transmission grid (Spanish).
BP started supplying natural gas in eight states. The British oil giant began supplying approximately 200,000 MMBtu per day of natural gas to industrial users, independent power producers and local distribution companies in eight states (English). Delivery began in Coahuila, Guanajuato, Estado de México, Nuevo León, Querétaro, San Luis Potosí, Tamaulipas and Veracruz.
Yucatán bets on wind and needs natural gas. The first 28 wind towers that Viva Energía will install in Eólica del Golfo 1 arrived at Dzilam Bravo, Yucatán, from China (Spanish). The wind farm will be developed with an investment of US$140m. The CRE pointed out Yucatán’s potential for natural gas investment (Spanish).
Geothermal energy will broaden its horizons. Counting the geothermal exploration permits granted by the federal government, the installed capacity could increase by 50% in 2019 (Spanish). Geothermal energy represents only 1% of the total installed capacity in Mexico, or 873.6MW; 436.8MW would be added according to the government’s estimates.
Old School Social
Events in the world beyond your screen – go see and be seen!
The British Chamber of Commerce-Mexico’s 16th annual Energy Day is Oct. 3 at the Camino Real Hotel in Mexico City.
The Mexico Energy Strategy Forum is October 5 at the Four Seasons Hotel in Mexico City.
Lateral Thinking
Mexico’s seismic warning system saved lives. The seismic warning system gave people crucial seconds to flee from vulnerable buildings during the 7.1 magnitude earthquake on September 19th (English). The US Geological Survey has been building a seismic early warning system on the West Coast, but US President Donald Trump’s budget cuts could kill the program.
Quote of the Week
“No dejaré que el país se deshaga entre mis manos.”
“I won’t let the country fall apart between my hands.”
– Miguel de la Madrid (1934-2012), Mexican president during the 1985 Mexico City earthquake.
We hope you have a productive week. Please send any news, comments, or suggestions for post-earthquake aid to MexicoWeekly@energynarrative.com.
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