The Weekly Brief: Mexico

September 4, 2017 edition— Fifteen fight for farmouts; CFEnergía will supply ArcelorMittal; and Tamaulipas gets windy.





Last Week in a Minute or Less


Renewables & Electricity.

CFE proposed Pidiregas financing for the Oaxaca-Mexico City line; Tamaulipas will have 10 new wind farms; and General Electric (GE) will develop five storage projects.


Natural Gas & Liquid Fuels. CFEnergía will supply natural gas to ArcelorMittal; Ienova and Valero plan to invest in Mexico’s infrastructure; and Chevron will open 250 gas stations.


Oil & Gas Upstream. Fifteen companies will compete to partner with Pemex; Round 3.1 will include 35 contracts; and Pemex production fell in 2017.


Money & Power. Moody’s is concerned over Mexico’s 2018 election; Trudeau downplayed Trump’s threat over NAFTA; and Mexico’s central bank increased its growth forecast.


Déjà vu all over again. Last week’s readers were particularly interested in CRE publishing its first natural gas price index (English); Tamaulipas’ need for two liquids terminals (Spanish); and the confirmation of Round 2.5 during this presidential term (Spanish).



NAFTA negotiations


Trudeau was not surprised by Trump’s threat against NAFTA… The Canadian Prime Minister said there was nothing new in a threat by Donald Trump to the NAFTA negotiations since “we have heard such comments before” (English). Trudeau affirmed Canada would remain in the talks to modernize the trade agreement.


…and Trump may have shown his cards. Mexican and US analyst believe Trump’s threat is a negotiating strategy to obtain his objectives in revising the agreement (English) (Spanish). Although he can legally start the process to terminate the agreement, he could encounter great opposition in Congress and the agriculture and industrial sectors.


Moody’s worries more over Mexico’s election than NAFTA. The rating agency considers Mexico’s 2018 presidential election a greater challenge to Mexico’s credit risk than a failure of NAFTA talks (English). If  NAFTA were terminated, that could provoke a 2% drop in GDP in the first year and a 4% decline in the next (Spanish).


Canada, Mexico, and the US signed non-disclosure agreements. According to Mexico’s Economy Ministry, Canada, Mexico, and the US signed non-disclosure agreements before the first round of the NAFTA renegotiation (English). The agreements does not restrict the information the Mexican government can share with economic sectors or the legislative branch.


NAFTA talks have left the peso untouched. Expected volatility for the peso in the next three months fell to nearly the lowest level in two years, even after Trump threatened to terminate NAFTA (English). The level of confidence is remarkable considering Mexico’s high dependence on trade with the US.


The Council of the Americas assessed breaking points for the NAFTA negotiations. The vice president of the Council of the Americas pointed to rules of origin and the investor-state dispute resolution as possible deal breakers in the NAFTA renegotiation (English). The border tax, Chapter 19 covering anti-dumping, and countervailing duties could also provoke tensions.



The Road to Reform


Sener okayed an extension for Pemex. The Energy Ministry (Sener) approved a two-year extension for the state-owned company to continue as operator of all Round 0 areas (Spanish). Sener could have withdrawn the allocations since Pemex could not prove it completed the minimum amount of work promised in 65 areas.


Fifteen companies want to partner up with Pemex. Fifteen international companies initiated pre-qualification to participate in the triple farmout tender on October 4 organized by the National Hydrocarbons Commission (CNH) (Spanish). The areas to be explored are Ayín-Batsil in the Southeast basin and the onshore fields of Cárdenas-Mora and Ogarrio in Tabasco.


The CFE proposed Pidiregas financing for the Oaxaca-Mexico City line. To lower the impact of the Oaxaca-Mexico City line on CFE’s finances, the state-owned company suggested the use of a conditional investment (Spanish). The CFE will launch an international public tender for development of the project as a Build-Operate-Transfer (BOT) scheme.


Round 3.1 will offer up 35 contracts. The National Hydrocarbons Commission announced Round 3.1 will include 35 exploratory shallow water blocks, with an average area of 400 square km each (Spanish). Fourteen of the blocksare are located across Burgos, 13 in Tampico Misantla, and eight in the Southeast basin off the coasts of Veracruz and Tabasco.


The Supreme Court took the CNH and CRE under its wing. The Supreme Court resolved that federal judges cannot suspend norms or resolutions published by the National Hydrocarbons Commission (CNH) and the Energy Regulatory Commission (CRE) (Spanish). The resolution responds to the writ of amparo (injunction) sought by Altos Hornos de México.



Political Economy


Inflation still rising. Annualized inflation reached 6.59% in the first two weeks of August, the highest rate in 16 years (Spanish). Mexico’s central bank warned that the risk of rising inflation has not improved since the last monetary policy decision and pledged a “prudent” stance on setting the benchmak interest rate (English).


Mexico’s central bank pushed up the growth forecast. Mexico’s central bank has increased the 2017 growth forecast to between 2% and 2.5%, from a previous range of 1.5% to 2.5% (Spanish). Banxico said global trade has recovered, and business and consumer confidence has increased gradually.


Mexico’s account deficit caught a break. Mexico’s current account deficit shrank to US$321m in the second quarter compared to the US$8.3bn deficit in the first quarter of 2017 (English) (Spanish). The deficit in the second quarter represented only 0.1% of GDP, according to Mexico’s central bank.


Pemex workers suspended for fuel theft. The Comptroller’s Office suspended 25 Pemex employees from the Chihuahua storage and distribution terminal for allegedly stealing hydrocarbons (Spanish). According to the investigation, the group was part of a network organized by public servants that falsified the filling up of tank trucks.


Fitch gave the thumbs up to the cut in Pemex’s tax burden. The international rating agency qualified as positive the reduction in the state-owned company’s tax burden (Spanish). The decision will enhance Pemex’s capacity to invest in profitable fields.



Market Trends


Pemex’s Madero refinery stopped due to maintenance. The Ciudad Madero refinery in northern Mexico started a gradual, programmed halt in different plants to reach a complete stop in operations (Spanish). Pemex is carrying out an intense maintenance program.


All eyes set on Tamaulipas’ wind. Seven companies will build ten wind farms in Tamaulipas with a total investment of US$2bn,  five of which are already in operation (Spanish). The wind farm construction  will create 7,400 jobs in the state and will generate 1,361MW in two years (Spanish).


Pemex’s gasoline production collapsed in 2017… In five months, the domestic production of gasoline fell 35%, with 219,400 barrels produced in July, the lowest volume in 24 years (Spanish). The Energy Minister said Mexico will produce an average of 1.9 million barrels of oil per day in 2018 (Spanish).


… and its oil production is not diversified. Pemex concentrates 53% of its production in five of the 257 fields it operates (Spanish). The announced strategy of diversification has not worked as expected due to the field conditions and the pressure to maintain production in proven fields.



Strategy & Operations


Sumex and GE have big plans for Mexico’s energy. Sumex plans to install a combined-cycle plant in Baja California (Spanish). General Electric (GE) will develop five power storage projects in three years in Mexico, investing US$5m in each facility (Spanish).


Chevron will cut the ribbon on 250 gas stations. The US company plans to open between 200 and 250 gas stations in Baja California, Baja California Sur, Sinaloa, and Sonora between 2017 and 2021 (Spanish). Between six and ten gas stations will be open before the year ends.


Ienova and Valero Energy’s relationship is going strong. The Sempra subsidiary wants to develop more projects with Valero Energy and sees a business potential of US$45bn by 2025 (Spanish). According to Ienova, US$10bn in investment will be needed to develop infrastructure to transport fuels, including storage, refining, and pipelines.


CFEnergía signed its first gas contract with ArcelorMittal. The state-owned company through CFEnergía will provide natural gas to ArcelorMittal, the biggest industrial consumer of this product in Mexico (Spanish). CFEnergía will provide 160 million cubic feet per day for a year for a fee of US$240m.



Old School Social


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


The CIE Congreso Internacional de Energía is September 4-9 at the Centro de Educación Continua, Instituto Politécnico Nacional, in Mexico City.


The Oportunidades y Requerimientos Para los Proveedores Nacionales de la Industria de Hidrocarburos Proyectos Aguas Arriba Ronda 1 y 2 de la CNH is September 5 at Hotel Camino Real, Mexico City.


The Green Expo is September 5-7 at Mexico World Trade Center, in Mexico City.


The Seminario de Actualización Jurídica Gas LP is September 6-8 at Hotel Courtyard By Marriott Ciudad de México Revolución.


The Mexico Summit 2017 is September 7 in Mexico City.


The Simposio Eficiencia Energética en la Industria is September 11 at Hotel Marriott Reforma, 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


Mini submarines are exploring the Gulf of Mexico. Mexican scientists are using remote-controlled mini submarines to explore areas of the Gulf of California which cannot be reached by divers (English). The project focuses on areas between 30 and 150 meters deep and is studying biodiversity and environmental conditions.



Quote of the Week


“La felicidad es como las neblinas: Cuando estamos dentro de ellas no las vemos.”


“Happiness is like mist: when we are inside it, we cannot see.”


-Amado Nervo, Mexican poet, journalist, and educator, 1870-1919




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