September 16, 2019 edition—CFE’s combined cycle in Baja Sur; Pemex’s service contracts; and a possible pipeline tender.

Last Week in a Minute or Less

Renewables & Electricity. CFE will work on a combined cycle plant in Baja California Sur; AMES bets on small solar panels; and the CENACE published the Integration and Operation Manual of the Acquisition, Rental, and Services Committee.

Natural Gas & Liquid Fuels. CFE and Fermaca settled their pipeline dispute; Canacintra is not satisfied with the Texas-Tuxpan pipeline supply in Yucatán; and the government is working on a pipeline tender.

Oil & Gas Upstream. Pemex will offer service contracts in November; and Mexico and Pemex focus on oil hedges.

Money & Power. The Trump administration answered Democrats’ concerns over USMCA; the Finance Ministry gave Pemex a hand worth US$5bn; and the Finance Ministry has high hopes for Mexico’s economic growth.

Déjà vu all over again. Last week’s readers were particularly interested in Stabilis’ plans in Monterrey (El Financiero – Spanish); Siemens’ smart transformers (El Financiero – Spanish); and a quick USMCA pass (Reuters – English).

NAFTA Negotiation

The tomato deal is not everyone’s cup of tea. Although a deal was agreed upon in August, some American growers considered the compromise insufficient, as the deal fails to address key grievances (Bloomberg – English). The new agreement ends the tariff on Mexican tomatoes and requires that organic tomatoes sell for 40% more.

Mexico understands US duties on structural steel. The government said US duties on Mexican structural steel are part of a normal and ongoing investigation with the final outcome expected by the end of January 2020 (Reuters – English). Such investigations are common when an industry feels it is being affected by unfair practices.

Mexico did its job on migration, and now it expects relief on tariff threats. The US recognized Mexico’s and Central American countries’ efforts to reduce US border arrests by almost 60% (Reuters – English). Foreign Minister Marcelo Ebrard does not expect any more threats from the US regarding tariffs on its goods (Reuters – English).

The Trump administration answered Democrats’ concerns over USMCA. The Trump administration sent US House of Representatives Democrats proposals to address the legislators’ concerns regarding the new NAFTA (Reuters – English). The Democrat lawmakers are reviewing the proposals, according to a spokeswoman from the House Ways and Means Committee.

The Finance Ministry expects USMCA to push growth… The Finance Ministry explained that the ratification of the new NAFTA is one of the elements considered in the last forecast of economic growth (El Financiero – Spanish) presented in the economic package, between 1.5% and 2.5% for 2020.

…and the AmCham expects ratification by September-October. The president of the American Chamber of Commerce México (AmCham) said there is a possibility for USMCA ratification between September and October (El Financiero – Spanish). The estimate comes after US legislators finished their summer break.

The Road to Reform

The CENACE published the Integration and Operation Manual of the Acquisition, Rental, and Services Committee. The National Center of Energy Control published the Manual for the Integration and Operation of the Committee of Acquisitions, Rental, and Services (DOF – Spanish). The manual established the functions of the committee and of the different members (Spanish).

Nahle promises 1,000,000 barrels a day for Pemex’s refineries. The Energy Minister pledged Pemex’s six refineries will finish 2019 processing between 900,000 and 1,000,000 crude barrels per day (El Financiero – Spanish). In 2020, the Energy Ministry will devote part of the budget to renovate the refineries.

The MexDer is almost ready. The price of electricity to be traded through the Mexican Derived Market will be ready by the end of November or beginning of December (El Economista – Spanish). The new instrument will consider the reference prices estimated by the National Center of Energy Control.

Pemex will offer service contracts in November. The state-owned company will offer 15 service contracts to bidding firms from November through the first quarter of 2020 (El Financiero – Spanish) (Reuters – English). The goal is to increase production by 17% to meet the 2020 budget goals.

CFE and Fermaca settled their pipeline dispute. Mexico’s government reached a deal with Fermaca negotiating the natural gas pipeline contracts signed under the previous administration (Reuters – English) (El Economista – Spanish). President López Obrador said the deal will save the government US$672m.

The government is working on a pipeline tender. The president of the Industrial Chambers Confederation said the government and private companies are working on a public tender for pipeline projects (El Financiero – Spanish). The main goal is to increase natural gas transportation.

Political Economy

Moody’s blamed unpredictable policy for a drop in investor confidence. A Moody’s analyst said that investor confidence has been affected by the unpredictability surrounding policy decisions (Reuters – English). Moody’s expect 2021 to be a “critical” year for Mexico’s economy due to expenditure cuts to achieve fiscal discipline (El Financiero – Spanish).

The Finance Ministry has high hopes for Mexico’s economic growth. The Finance Ministry estimates economic growth between 1.5% and 2.5%, a more optimistic outlook than the previous forecast of between 1.4% and 2.4% (El Financiero – Spanish). The domestic market, new jobs, and investment in public infrastructure are expected to increase dynamism.

The 2020 budget brought budget cuts. The 2020 budget will cut the budget approved in 2019 by MXN19.5bn for the Mayan train, the Isthmus corridor, the Santa Lucía airport, and the Dos Bocas refinery (El Financiero – Spanish). The government’s goal is to increase spending on social welfare programs, security, and Pemex (Reuters – English).

Mexico’s inflation keeps dropping. Mexican consumer price inflation reached a three-year low in August, falling to 3.16% (Reuters – English). Inflation is below the economists’ previous estimate of 3.2%, giving Banxico more freedom to lower interest rates.

Market Trends

Mexico and Pemex still like oil hedges. According to the 2020 budget plan, Mexico will maintain oil hedges against lower prices, and Pemex would also continue a similar hedging plan (Reuters – English). Mexico has already asked banks for quotes pushing up the purchase of financial oil options contracts for 2020 (Reuters – English).

The Finance Ministry gave Pemex a hand worth US$5bn… Pemex announced the immediate payment and refinancing of its debt thanks to a one-off US$5bn capitalization from the government (El Economista – Spanish). Fitch considered the support “moderate” (El Economista – Spanish) and Moody’s said the decision does not change the credit rating outlook (El Economista – Spanish).

…and Moody’s rated the new Pemex notes as Baa3. Moody’s rated the new senior 7-, 10-, and 30-year notes issued by the state-owned company at Baa3 (BnAmericas – English). Moody’s had warned Pemex that it was close to losing its investment rating (El Economista – Spanish), while the government sees a brighter future for Pemex (Reuters – English).

AMLO will renew Mexico’s IMF credit line. The federal government plans to maintain the flexible credit line opened for the country with the International Monetary Fund (IMF), guaranteeing immediate access to US$74bn (El Economista – Spanish). The goal of the credit line is to help public finances facing unfavorable events.

Strategy & Operations

Canacintra is not satisfied with the Texas-Tuxpan pipeline supply in Yucatán. The president of Canacintra said Pemex’s injection of an extra 50 million cubic feet per day to the Yucatán peninsula through the Texas-Tuxpan pipeline is not enough either to solve the region’s energy problem or the high tariffs (El Financiero – Spanish).

AMES bets on small solar panels. The Mexican Association of Solar Energy (AMES) is boosting the installation of solar panels that can generate up to 1MW without authorization from the Energy Regulatory Commission (CRE) (El Financiero – Spanish).

Renewables lost investments and direction… The United Nations said investments in renewable energy dropped by 38% in 2018, to US$3.8bn (Forbes – English). Moody’s said that uncertainty surrounding government policies is the main risk that renewable projects face (El Financiero – Spanish).

…but wind may find a way. The Mexican Association of Wind Energy (AMDEE) expects to increase by 1,500MW the generation capacity in the country by the end of the year, reaching 6,600MW. Companies involved in wind energy generation plan new projects in 2020 (El Economista – Spanish).

CFE will work on a combined cycle plant in Baja California Sur. The state-owned company will start construction of a combined-cycle plant in Baja California Sur to strengthen power generation infrastructure in the peninsula. The project will start in 2021 and will be running by 2023 (El Financiero – Spanish).

Old School Social

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

Energy Day 2019 is scheduled for October 8 at the Hotel Hilton Mexico City Reforma, in Mexico City.

The XLIII National Week of Solar Energy ANES will be held October 14-18 in Nuevo Vallarta, Nayarit.

Lateral Thinking

Archaeologists are looking for the lost city of Sac Balam. Archaeologists are looking for Sac Balam, a Maya city founded 400 years ago, whose inhabitants were forced to leave in 1715, 20 years after the Spanish found it. The city could offer a unique time capsule of Lacandon culture (Science Mag – English).

Quote of the Week

“Tiempo es ya de consagrar a la libertad los cultos debidos, en altares limpios de sangre.”

“It is time to bless to freedom the proper worship, in altars free of blood.”

– Nicolás Bravo (1786- 1854), was the 11th Mexican President.

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

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