The Weekly Brief: Mexico


September 28, 2020 edition—Puebla’s solar park; China Offshore’s drilling; and ultra-low sulfur rules.




Last Week in a Minute or Less


Electric Power & Renewables. Puebla plans a second solar park; Quintana Roo will have a combined-cycle plant; and Mexican industry will pay less for power.


Natural Gas Mid-Downstream & LNG. Mexico can’t get enough of US natural gas.


Liquid Fuels Mid-Downstream. Mexico delayed ultra-low sulfur rules for a year; Mexico continues fighting fuel thieves; and KBR said goodbye to Dos Bocas.


Oil & Gas Upstream. Some worries over Pemex unitization in shallow waters; and China Offshore goes deeper than ever in Mexico.


Government & NGO. Restrictions will continue at US borders; Moody’s expects 3.7% growth in 2021; and private investment contracted 33.2% in the second quarter.


Déjà vu all over again. Last week’s readers were particularly interested in Morena’s constitutional reform (Argus Media – English); Huexca’s thermoelectric plant (El Financiero – Spanish); and IMP’s opinion on Dos Bocas (El Economista – Spanish).



Geopolitics & Trade


Mexico and the US argue over water. President López Obrador said the country would meet its obligations under the water treaty with the US (Reuters – English). Protesters gathered to retain control of a dam that’s key to the agreement (Reuters – English).


Restrictions will continue along US borders. The US and Canada will continue with the existing border restrictions until October 21 (Reuters – English). The month-long extension does not cover trade or air travel and is directed toward fighting the coronavirus pandemic.


Mexico does not fulfill USMCA’s labor rules. Mexico is not following the labor rules established in chapter 23 of the new NAFTA (El Financiero – Spanish). According to the agreement, 40% of vehicle content must be built by workers receiving US$16 per hour, but that is not happening.



Political Economy


AMLO will not take on debt. Despite the Finance Ministry’s announcement, President López Obrador said the government will not issue new debt even if there is a possible new COVID-19 outbreak (El Economista – Spanish). AMLO said “public finances are healthy, no additional debt would be contracted.”


Analysts expect inflation to end 2020 at 3.84%. According to analysts, inflation will end this year at 3.84%, up from the 3.80% forecast made two weeks ago (El Financiero – Spanish). For 2021, analysts’ inflation expectations remained stable at 3.55%.


Standard & Poor’s is disappointed in Pemex’s policies. The international rating agency said the state-owned company is still one of the country’s main fiscal risks (El Financiero – Spanish). Standard and Poor’s said the COVID-19 pandemic is hitting GDP growth while investment contracts.


Private investment contracted 33.2% in the second quarter. Private investment suffered its worst fall in 25 years during the second quarter, due to the COVID-19 economic and health crisis (El Financiero – Spanish). The index has fallen for five consecutive quarters.


Goldman Sachs forecasts a 9.8% contraction in 2020. Goldman Sachs predicts a 9.8% fall in Mexico’s GDP, up from the previous forecast of an 8.5% contraction (El Financiero – Spanish). Activity during the second quarter was strongly affected by the severe fall in demand due to the COVID-19 pandemic.


Moody’s expects 3.7% growth in 2021. The international rating agency expects Mexico’s economy will grow 3.7% next year, after the crisis caused by the COVID-19 pandemic (Forbes – Spanish). Moody’s forecasts a 10% fall of the GDP in 2020.



Legal & Regulatory


CFE cuts former workers’ pensions. The state-owned company paid MXN450m in July 2020 in pensions compared to the MXN2.1bn paid in the same period in 2019 (Forbes – Spanish). The highest pension was cut 72% to a level that is now MXN3,145 less than President López Obrador’s monthly salary.


Mexico delayed ultra-low sulfur rules for a year. The environmental ministry said that the rule to manufacture, import, and use only trucks and buses that run on ultra-low sulfur diesel was postponed for a year (Reuters – English). Mexico does not produce enough ultra-low sulfur diesel (ULSD) to satisfy demand, the industry has argued.


Some worries over Pemex’s unitization in shallow waters. Certain concerns surround the second unitization process between a private company and Pemex in shallow waters (Platts – English). According to sources, if Pemex and Hokchi come to an agreement, regulators will approve the deal.



Market Trends


Mexico can’t get enough of US natural gas. According to the National Hydrocarbons Commission, Mexico needed 10Bcf per day of natural gas, with imports from the US accounting for 70% of the total (Natural Gas Intel – English). Natural gas output rose slightly in July to 3.752 Bcf/d.


Mexican industry will pay less for power. Industry in Mexico will pay 7% less in its power bills in September, compared to the same month in 2019 (El Financiero – Spanish). The reason is the fall in natural gas prices in the US market.


Wood Mackenzie expects Mexico to fail in its renewables goal. According to Wood Mackenzie, Mexico will not reach the renewable energy goals in President López Obrador’s current administration due to the slow progress of renewables and the cancellation of power auctions (Forbes – Spanish).


Pemex expects less exports for refineries. The state-owned company awaits a sharp fall of almost 70% in oil exports in the next three years as Pemex faces a drop in production while delivering to the new refinery (El Financiero – Spanish).



Strategy & Operations


China Offshore goes deeper than ever in Mexico. The oil company will drill its first exploratory well in Mexico located in the Plegado Perdido belt in ultra-deep waters (El Economista – Spanish). China Offshore Corporation will invest US$91.6m, after the deadline for the activities ran out due to the COVID-19 crisis.


Quintana Roo will have a combined-cycle plant. Trying to attract investments, the state government announced the construction of a combined-cycle plant with 731MW capacity to satisfy power demand growth (El Economista – Spanish). The plant will use the natural gas brought to the peninsula by the Cuxtal 1 pipeline.


Mexico continues fighting fuel thieves. Mexican authorities confiscated a vessel in Veracruz and a warehouse in Tabasco with storage tanks and trucks used by criminal groups to steal, transport, and store hydrocarbons (Reuters – English). According to Pemex, an estimated MXN106bn has been saved since December 2018.


Puebla plans a second solar park. Dalia Solar plans to build a solar plant in Tepeyahualco, Puebla, with an investment of MXN1.8bn, if the company obtains the environmental impact permit (El Economista – Spanish). The plant will have a 150MW capacity and could be working for 42 years.


KBR said goodbye to Dos Bocas. The US company left the second phase of the Dos Bocas project as costs have doubled from what they expected during contractings (Forbes – Spanish). The company was in charge of building the fourth and sixth subtasks of the refinery project.



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


AMLO works hard against GM crops. The Mexican government is stopping research on genetically modified (GM) crops, affecting farmers and producers and blocking their access to agricultural tools needed to address climate change effects, such as heat and drought, and satisfy the growing domestic demand for maize (Genetic Literacy Project – English).



Quote of the Week


“Hay veces en que el mar tiñe sus olas;

Con tintas imposibles de copiar;

Parece que la luz enamorada;

Seduce y acaricia, Medrosa, su imponente majestad.”


“There are times in which the sea colors its waves

With inks impossible to mimic;

It seems that the loving light;

Seduces and caresses, fearful, its magnificent majesty.”



– José Tomás de Cuellar (1830-1894), Mexican writer, journalist, and politician.



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