The Weekly Brief: North American Integration

January 9, 2017 edition— Mexico’s record oil imports; fuel prices shoot up; and really old potatoes.




Last Week in a Minute or Less


Renewables & Electricity. Malware was found at a Vermont electric utility and Trump will have to choose his battles against Obama’s clean energy regulations.


Natural Gas & Liquid Fuels. Mexico’s oil imports hit record levels; Petronas chooses two Canadian islands for its LNG plant; and natural gas prices went up.


Oil & Gas Upstream. North American oil production was maintained; Mexico’s Round 2.1 was postponed until June; and U.S. oil inventories reached 486.1 million bbl.


Money & Power. Mexico will negotiate trade using border security; Tillerson cut ties with Exxon; and Trump may hit Canada’s economy.


Déjà vu all over again. Last edition’s readers were particularly interested in Ottawa appointments to the NEB (English); Mexico’s and US’s businessmen exchanging trade information (English); and LP gas liberalization process (Spanish).



Keeping Track of Trump


Trump will have to choose among its energy policy lawsuits. The Trump team will have to decide where to focus its efforts to fight Obama administration’s energy regulations (English). Certain rules will demand lengthy procedures, while other will be dictated by market forces such as the coal industry’s future.


Tillerson cut ties with Exxon and will testify on climate change. Rex Tillerson complied with conflict of interest requirements cutting ties with Exxon, surrendering entitlement to US$4.1m in cash bonuses (English). Tillerson will testify the day before inauguration in a case aiming to prove oil industry knew about climate change (English).


Canada waits for Trump’s effect on its economy and climate change. Canada’s economy could suffer President-elect Donald Trump’s cut on personal tax rate and easing on regulations (English). Prime Minister Trudeau sees “extraordinary opportunities” for Canada if Trump keeps his promise of ignoring climate change (English).


Malware at a Vermont electric utility sparks U.S.-Russia tensions. After Obama’s announcement of sanctions to Russia, the electric department of Burlington municipally confirmed it had found malware in a laptop at an electric utility (English). The code has been linked to cyber attacks targeting the DNC and other political organizations.



Macro Trends


U.S. oil inventories reached 486.1 million bbl… According to the Energy Information Administration (EIA), crude oil inventories reached 486.1 million bbl close to the higher limit of the average range for the holidays (English). Gasoline production rose 10.5 million barrels daily and U.S. refinery inputs averaged 16.6 million barrels per day.


…and natural gas inventories fell below average. The EIA published an important decline of 237 billion cubic feet in natural gas inventories, remaining at 3,360 Bcf (English). Natural gas prices have been low after years of increased production but production started falling in February and inventories are now below the average.


North American methanol prices are on the rise. The price of methanol contracts increased 5-10 cents/gal for January, a 6% increase since the December’s announcement (English). The reason is the global strength in spot pricing – as the European spot at 19-month high – driving up U.S. spot pricing.


Gasoline prices rose over the holidays. The American Automobile Association estimated 93.6 million travelers by car during the holidays and US gasoline prices rose 2.25 cents/gal during the holiday period (English).



Cross-Border Flows


Mexico’s oil imports hit a record high, making U.S. refiners happy. US Gulf Coast-based refiners are enjoying Mexico’s increasing demand for imports which could reach a million barrels per day in 2017 (English). Mexico’s dependence is due to its inability to increase refining output to cover domestic demand.


Ford backtracks on investing in Mexico. After Donald Trump’s threats, Ford Motor Company cancelled investments in Mexico totaling US$1.6bn (English) (Spanish). The amount was going to be allocated to its new facilities in San Luis Potosí and instead US$700m will be invested in Ford’s plant at Flat Rock, Michigan.


Mexico will leverage border security to negotiate trade. In talks with President-elect Donald Trump, Mexico plans to use border security to negotiate for maintaining trade and investment (English). Mexico could offer to strengthen its northern border or provide a role for the US in securing the southern border.


North American oil production kept up the pace. U.S. and Canadian production was strengthened last year, with a 29% increase in U.S. rigs since September and a 98k barrel-per-day rise in Canada (English). Refined products increased, demand grew by 200k barrels per day year-over-year in the last month, and PADD IB is oversupplied.



Infrastructure & Investment


Arctic and Mid-Atlantic waters are now off limits. President Barack Obama and Prime Minister Justin Trudeau announced that 3.8 million acres of Arctic and Atlantic coasts are closed for oil and gas activity (English) (English). The goal is to protect marine environments from the hazards that oil and gas exploitation could present.


Mexico’s Round 2.1 was postponed to June. The National Hydrocarbons Commission (CNH) postponed the tender of 15 shallow-water fields from March 22 to June 19, and the deadlines for accessing information and paying inscriptions will be put off for three months (Spanish). The goal is to increase competition and investment in the auction (English).


Petronas’ Canadian LNG plan spans two islands. The company will continue with the plan to install a US$27bn liquefied natural gas plant in western Canada (English). The Pacific North West LNG liquefaction plant will be on Lelu Island while its docking facilities will be on neighboring Ridley Island, in British Columbia.


U.S. rig count moves up while Canada’s plummeted. The U.S. rig count jumped 5 units on December 30 reaching 658 and natural gas rigs increased in 3 units to 132 (English). On the contrary, Canada’s rig count lost 67 units to maintain 157, with oil rigs suffering the greater hit.


First Nations cannot veto energy projects. Prime Minister Justin Trudeau told the Musqueam, Squamish, and Tsleil-Waututh that they do not have the unconditional right to block projects (English). Regarding the Trans Mountain oil pipeline, Trudeau noted that dozens of First Nations along its route had signed agreements for US$300m in economic benefits.



Old School Social


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


The Mexico Infrastructure Projects Forum is January 18-19 in Monterrey, Nuevo Leon.


The Solar Summit: Mexico is January 27-28 at Intercontinental Presidente, Mexico City.


The 13th Annual State of the Energy Industry Forum is January 31 at the National Press Club

Ballroom, Washington D.C.



Lateral Thinking


An underwater 3,000-year-old potato garden was found in British Columbia. Archeologists have found a potato garden which dates back 3,800 years with an engineering system of water flows (English). The garden has been preserved by waterlogging through centuries on Katzie First Nation territory, close to the Fraser River and Vancouver.



Quote of the Week


“Love must give warmth and unfading color to every day of the dullest life.”


– Louis Hémon (1880-1913), French Canadian author


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