February 3, 2020 edition—Newpek’s natural gas; Valero’s 15 gas stations; and Pemex’s Zama operation.

Last Week in a Minute or Less

Electric Power & Renewables. With an uncertain MEM, users turned to bilateral contracts.

Natural Gas Mid-Downstream & LNG. The CRE okayed Newpek’s natural gas retail; and Mexico’s south demands more natural gas.

Liquid Fuels Mid-Downstream. Pemex sold less than what was recovered from robberies; and Pemex’s exports in 2019 were at the lowest level since 1981.

Oil & Gas Upstream. Pemex fell short of its production goal; Pemex wants to operate Zama; and BHP will let Doris work on Trion’s SURF.

Government & NGO. Trump finally signed the new NAFTA; Barclays cut Mexico’s growth outlook; and inflation started 2020 at 3.18%.

Déjà vu all over again. Last week’s readers were particularly interested in the investment in the infrastructure agreement (El Economista – Spanish); the new migrants’ arrival (El Financiero – Spanish); and in clean energy auctions in Latin America (The Dialogue – English).

Geopolitics & Trade

Wilbur Ross visited Mexico. Mexico’s Economy Minister announced that US Commerce Secretary Wilbur Ross would attend the signing of a memorandum of understanding between the Mexican Institute of Industrial Property and the United States Patent and Trademark Office (Reuters – English) (El Financiero – Spanish).

Canada is speeding up the USMCA ratification process. Canada’s minority government started the ratification process for the new NAFTA, asking opposition lawmakers to approve the deal as quickly as possible and set partisanship aside (Reuters – English). Canada is the only country left to ratify the trilateral agreement.

Mexico’s Foreign Minister went to Washington for the USMCA signing. Foreign Minister Marcelo Ebrard traveled to Washington to attend the signing ceremony for the new NAFTA (Reuters – English) (El Economista – Spanish).

Trump finally signed the new NAFTA. President Trump signed the USMCA, finally “ending the NAFTA nightmare” (Reuters – English), surrounded by lawmakers, workers, farmers, and chief executives. The USMCA will replace the 26-year-old NAFTA with tougher labor rules.

Political Economy

JPMorgan and Reuters doubt Mexico’s economic performance. JPMorgan expects Mexico’s GDP to fall 0.3% compared to the previous outlook of a 0.2% decline (El Financiero – Spanish). Reuters’ poll estimates that Mexico’s economy shrank 0.1% in the last quarter of 2019 compared to the previous quarter (Reuters – English).

Inflation started 2020 at 3.18%… Inflation increased to 3.18% due to the rise in basic product prices and the special tax on cigarettes and gasoline (El Economista – Spanish). The increase is the highest since August, and it was above analysts’ expectations (El Financiero – Spanish).

…and Banxico remains cautious as a consequence. Considering the increase in inflation, Mexico’s central bank board could be more cautious in its decisions (El Economista – Spanish). Banxico could wait one or two months to cut interest rates.

Barclays cut Mexico’s growth outlook. Barclays reduced Mexico’s growth outlook for 2020 from 1.4% to 0.6% (El Economista – Spanish). The investment bank expects a halt in the service sector and in public and private investment.

Legal & Regulatory

The Finance Ministry stopped subsidizing diesel. The Finance Ministry will eliminate the subsidy for diesel for the first time this year (El Financiero – Spanish). Premium gasoline was left again without the subsidy, keeping its 13-week streak.

Considering the MEM uncertainty, electricity users turned to bilateral contracts. As doubts surround the modification of wholesale market rules, big buyers of electricity in Mexico have turned to bilateral contracts with energy suppliers to ensure predictable prices (Platts – English).

Special oil contracts will be offered in the infrastructure plan… The government plans to include special contracts for private companies in oil activities if the government does not have the resources to boost the sector (El Financiero – Spanish). The infrastructure plan could include farmouts or strategic associations.

…but the private sector needs certainty. Grupo Carlyle warned that certainty and clarity in regulations and policies are needed to invest in Mexico’s energy sector (El Financiero – Spanish). According to the Business Coordinator Board (CCE), private companies could have 20% of the investment in the energy sector (El Financiero – Spanish).

The CRE okayed Newpek’s natural gas retail. The Energy Regulatory Commission (CRE) awarded Newpek, part of Grupo Alga, a permit to sell natural gas and oil from the Burgos Basin (El Financiero – Spanish). Newpek will have two plans, one with a US$7.7m investment and the second with the drilling of the Cieneguita-1 well.

Market Trends

Pemex fell short of its production goal. The state-owned company did not reach the production goal set for 2019; it remains at 46,000 barrels per day, or 3% under the goal of 1.707 million barrels per day (El Financiero – Spanish). In December, only three of Pemex’s 20 fields produced crude (El Financiero – Spanish).

Pemex exported like it was 1981. Last year, the state-owned company sent 1.103 million barrels per day abroad, the lowest level since 1981, when Pemex exported 1,098,000 daily barrels (El Financiero – Spanish). Compared with 2018, exports dropped by 6.8%.

Mexico’s south demands more natural gas. The private sector urged more solutions to supply natural gas to Mexico’s southern region (El Financiero – Spanish). Further natural gas supply is needed to reduce power costs and to satisfy industry power needs.

HR Ratings is pondering Mexico’s rating. The international rating agency will announce in the next few weeks if Mexico’s rating will remain at A- with a negative outlook or if it will change (El Economista – Spanish). Debt has remained unaffected despite a GDP at a standstill.

Strategy & Operations

Pemex will invest US$1bn in Xanab. The state-owned company will use US$1.016bn on the Xanab field, one of its main assets that has suffered low production in recent years (El Financiero – Spanish). Pemex will spend US$734m in investment and US$246m in operational expenses.

BHP will let Doris work on Trion’s SURF. BHP Petroleum awarded an engineering services contract to Doris Inc. for the subsea umbilicals, risers and flowlines (SURF), and export pipeline scopes of the Trion project (OGJ – English). The Trion field covers an area of 1,285 sq km, and BHP is an operator with 60% interest.

Querétaro’s industry demands power solutions. Among the 45 industrial parks in Querétaro, 20 have needed to develop energy supply systems and 15 are looking for solutions to generate power (El Economista – Spanish). Incorporation of renewable energy in the local industry is still negligible.

Pemex recovered less money from robberies than it lost from falling sales. The government recovered MXN56bn fighting illegal taps, while Pemex’s sales fell by MXN99.2bn compared to 2018 (El Economista – Spanish). The loss of fuel is one of Pemex’s biggest challenges.

Pemex wants to operate Zama. The state-owned company would like to operate the operations in the offshore oil area when development begins, as Pemex believes most of the crude in the area lies in an adjacent block where it holds the development rights (Reuters – English).

Old School Social

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

The Institute of the America’s Mexico Energy Outlook 2020 Roundtable is scheduled for February 25-26 at the Marriott Reforma in Mexico City.

Mexico WindPower will be held March 4-5 at Centro Citibanamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico with nine consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.

Lateral Thinking

Really old interstellar material fell in Mexico’s desert. In 1969, the Allende meteorite hit the Mexican desert and scientists have concluded its interstellar material, known as pre-solar grains, pre-dates the solar system (Science Alert – English). The pre-solar grains identified were composed of silicon carbide and were found within an inclusion inside the meteorite called “Curious Marie.”

Quote of the Week

“Cada edad tiene sus rasgos característicos y es indispensable conocerlos y respetarlos, como en biología se respeta a la oruga, al capullo y a la mariposa.”

“Each age has its characteristic traits and it is essential to know and respect them, as in biology we respect the larva, the cocoon, and the butterfly.”

– Gregorio Torres Quintero (1866-1934), Mexican educator.

We hope you have a productive week. Please send any news, comments, or interstellar ideas to MexicoWeekly@energynarrative.com.

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