January 20, 2020 edition—Pemex’s exploration plans; unconstitutional ethanol; and Dhamma Energy’s three projects.

Last Week in a Minute or Less

Electric Power & Renewables. Dhamma Energy has three new projects in Mexico; and Oaxaca’s packing company will rely on solar power.

Natural Gas Mid-Downstream & LNG. Mexico’s natural gas production could suffer if fracking is banned; and Valley Crossing maintenance could affect Mexico’s natural gas imports.

Liquid Fuels Mid-Downstream. Increasing the ethanol in gasoline was declared unconstitutional; oil hedges will be a secret for five years; and Chinese banks may be financing Dos Bocas.

Oil & Gas Upstream. Pemex has big exploratory plans; Canacintra criticized the oil rounds’ cancellation; and Pemex will get started on Zama between January and March.

Government & NGO. Senate committees okayed USMCA; investments in Mexico await the USMCA ratification; and the IMF is considering cutting Mexico’s growth outlook.

Déjà vu all over again. Last week’s readers were particularly interested in AMLO’s energy sector investment plan (El Financiero – Spanish); the Tuxpan-Tula pipeline’s new route (Reuters – English); and Vestas’ turbine order (Renewables Now – English).

Geopolitics & Trade

The OECD said USMCA could help out Mexico… Although the Organization for Economic Cooperation and Development knows that the new NAFTA will not solve all of Mexico’s problems, the trade deal could provide certainty and differentiate Mexico from other countries (El Economista – Spanish).

…and Seade is expecting it soon. The Deputy Secretary of North American Foreign Relations, Jesús Seade, believes the USMCA ratification is a piece of cake (El Financiero – Spanish). Seade expects a resolution as soon as next week.

US Senate committees okayed USMCA. The new NAFTA was completely approved by all the Senate committees, and the agreement can now be voted in the plenary session (El Financiero – Spanish). Grassley said the full Senate would likely vote on USMCA the following week (The Hill – English).

Investments in Mexico await the USMCA ratification. The ratification of the new NAFTA is the key element missing to secure investment projects (EL Economista – Spanish). The prolonged ratification process stopped the flow of investment.

Political Economy

Inflation was low in December, but it is expected to rise. Banxico expects a transitory increase in inflation in the first quarter of 2020 (El Economista – Spanish). Mexico’s inflation in December was at its lowest level since August 2016 (Reuters – English) (El Economista – Spanish).

Pemex’s debt is again a concern. The International Monetary Fund (IMF) warned that Pemex’s debt situation is a risk thermometer for Mexico’s public finances (El Economista – Spanish). Pemex financial weakness has gotten worse as a consequence of the continuous fall in oil production.

The IMF is considering cutting Mexico’s growth outlook. The International Monetary Fund (IMF) could cut Mexico’s GDP growth outlook (El Economista – Spanish). The reason is the economy’s enfeeblement in the last quarter of 2019 compared to what was previously estimated.

AMLO has the energy transition program almost ready. The Energy Minister led a meeting to develop and publish the Energy Transmission Special Program 2019-2024 to reach the goal of producing 35% of power with clean sources (Forbes – Spanish). The plan includes repowering hydroelectric plants.

The new contracts with Pemex and CFE will be published in February. The Energy Minister announced that the administration will publish the contracts in which private companies will participate in the first week of February (El Financiero – Spanish). The contracts will be related to specific projects.

Legal & Regulatory

Canacintra criticized the cancellation of the oil rounds… The National Chamber of Transformation Industry said the oil rounds’ cancellation will increase natural gas, gasoline, and power costs between 30% and 60%, as the lack of rounds would make the country face a critical shortage in the short term (El Economista – Spanish).

…and private companies defended themselves. The Mexican Association of Hydrocarbons Companies said that the companies with rounds contracts have fulfilled 100% of the commitments acquired and invested almost US$11bn (El Financiero – Spanish). The Business Coordinator Board (CCE) defended the private companies’ participation in the sector (El Financiero – Spanish).

Chinese banks may be financing Dos Bocas. According to China’s ambassador to Mexico, Chinese banks are providing US$600m in construction financing for the Dos Bocas refinery (Reuters – English) (El Economista – Spanish). The Energy Minister denied that the Dos Bocas refinery project would be financed by any bank institution (El Financiero – Spanish).

Pemex has big exploratory plans. The National Hydrocarbons Commission (CNH) approved three exploratory and production plans for the state-owned company (El Financiero – Spanish). Pemex has a total of 22 exploratory plans that could add 3,700 million barrels of crude oil equivalent in new reserves (El Economista – Spanish).

Increasing the ethanol content in gasoline was declared unconstitutional. The Supreme Court declared as unconstitutional the use of up to 10% ethanol to oxygenate gasolines (Forbes – Spanish). The legal power considered that the Energy Regulatory Commission (CRE) modified the Mexican official norm “unilaterally” to increase the ethanol percentage.

Mexico could suffer if fracking is banned. Mexico does not commercially produce oil or natural gas from shale, but one out of four oil wells use fracking techniques to stimulate and allow hydrocarbons to keep flowing (Pulso Energético – Spanish). Mexico would lose 1,200 million daily cubic feet of natural gas.

Market Trends

Mexico placed some more bonds. The Finance Ministry placed EUR1.75bn in bonds to cover financing needs for this year and to reduce financial costs (Forbes – Spanish). The Finance Ministry said that EUR1bn will be used to repurchase a bond for 2021 in advance and to reduce foreign debt payments.

Oil hedges will be a secret for five years. Mexico has turned oil hedges into a state secret to protect the information from speculators and avoid cost increases. The Finance Ministry will keep the information secret for five years and has published an approximate annual cost of US$1bn (El Financiero – Spanish).

Fuel prices will remain stable at the expense of tax revenues. The government of President López Obrador announced that gasoline and diesel prices would not increase this year. However, if there are international price increases, the Finance Ministry will have to reduce the amount of tax per liter (Platts – English).

BofA is expecting bad news for Mexico’s rating. BofA Securities said that if Mexico’s economy remains under 1%, as forecasted, it is possible that Moody’s will reduce Mexico’s rating in the second half of 2020 (El Economista – Spanish). The international rating agency has left Mexico’s rating at A3.

Strategy & Operations

Pemex will get started on Zama between January and March. The state-owned company programmed the drilling of Zama to start between January and March. The well will help determine the amount of oil that belongs to Pemex (El Financiero – Spanish).

Oaxaca’s packing company will rely on solar power. The company Envasadora Gugar will install 1,665 panels to generate 100% of the power needed to operate the plant (Energía Limpia para Todos – Spanish).

Valley Crossing maintenance could affect Mexico’s natural gas imports. Maintenance on the Valley Crossing Pipeline could restrict receipts and deliveries on the pipeline, putting pressure on South Texas gas exports and prices (Platts – English). A similar maintenance event on Valley Crossing on January 3 reduced the volumes delivered to Mexico.

Dhamma Energy has three new projects in Mexico. Dhamma Energy received the environmental permits to develop three solar plants with a combined capacity of 554MWp in Mexico (Energía Limpia para Todos – Spanish). The projects would be ready to build by mid-2020.

Old School Social

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

The 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

Gold from Moctezuma’s treasure was found. A massive gold bar from the Aztecs was found by a construction worker excavating for a new building in Mexico City (Live Science – English). Archaeologists confirmed that it was taken from the Aztecs by Spanish conquistadors in the 16th century.

Quote of the Week

“La muerte, la sola idea de la muerte, me consterna.”

“Death, the single idea of death, troubles me.”

– Andrés Henestrosa (1906-2008), Mexican writer and politician.

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

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