Mexico Energy News
Issue 11, July-August 2019
TABLE OF CONTENTS
I.
Editor’s Note
II.
Letter
III.
Articles
Private Investment to the Rescue? by David Shields
A Win-Win Deal on Gas-Pipelines? by Philip L. Russell
The National Development Plan 2019-2014, by
Philip L. Russell
The Pemex Business Plan, by Philip L. Russell
IV. Sparks
Masthead photo: Boquillas del Carmen, Coahuila, by Rick Byrnes
I.
EDITOR’S NOTE
I’m writing this in Mexico City, where I’ve been attending
Intersolar México 2019
. The mood at the event was definitely upbeat. Distributed solar-generation capacity in Mexico surged up 34 percent during the first half of this year. Special programs are incentivizing the installation of solar hot-water heaters. Solar in Mexico is no longer your grandmother’s (or even your mother’s) solar.
Intersolar México
panelists discussed combining solar with AI, drones, big data, and storage. Finally, walking through the event’s cavernous exhibit hall made it clear that China has come of age. That country’s presence was huge, overshadowing the one-time solar leaders Japan, Germany, and
the United States
.
Philip L. Russell
Austin Tx
russell@mexicoenergynews.com
II.
LETTER
Letter:
In
.
2018, nuclear-power generation equaled 3.1 million tonnes of oil equivalent, a 24.9 percent increase over 2017. How did this big jump happen?
Susan Kleinman
Reply:
The
BP Statistical Review of World Energy 2019
simply reported that nuclear- power generation equaled 3.1 million tonnes of oil equivalent in 2018—a 24.9 percent increase over 2017. It did not provide explanations. The only commentary in the report is a short introduction describing major world-energy trends. In fact, the introduction did not even mention Latin America and Africa, as changes there are insignificant compared to changes elsewhere, especially in Asia.
Other sources reveal why the amount of electricity produced by nuclear power increased during 2018. Laguna Verde, Mexico’s lone nuclear plant, was shut down for refueling during the latter part of 2017. (See Issue 3.) Once refueling was completed, the plant ran without interruption during 2018—thus, the increase. Presumably, the amount of electricity provided by Laguna Verde this year will be roughly the same as last year’s
total.
III. ARTICLES
Private Investment to the Rescue?
by David Shields
If you think Mexico is headed toward energy self-sufficiency thanks to the revitalization of Pemex and the Federal Electricity Commission (CFE) and their producing more oil and lowering imports of gasoline and natural gas, then I’m afraid you’re mistaken.
President López Obrador wants to make a 180-degree turn in energy policy—canceling private-sector investment opportunities and returning as much as possible to a government monopoly. He openly supports Pemex and the CFE and discourages private capital. The business plans of Pemex and the CFE are weak and short-term. Their budgets can’t possibly respond to the growing energy demands of a country that aspires to become one of the top 10 economies of the world. The supply of energy is even in danger, given the failure to resolve disputes about natural-gas pipelines.*
If Mexico goes into recession, energy demand and imports will decline. However, if the economy does grow, Pemex and the CFE won’t be able to meet energy demand. They will leave huge voids in energy markets that should be filled by an ambitious, creative, flexible private sector.
Currently, private investment is booming in fuel transport, distribution, storage, and sales. Formerly, there was only one brand of gasoline. Today there are roughly 60.
Companies such as BP, Oxxo Gas, Shell, Marathon (Arco), Hidrosina, and Mobile have broadened and strengthened retail-gasoline distribution. Each of them has 150 or more stations and plans to double or triple that number within the next five years. Some of them are also investing in storage facilities—vital for Mexico’s energy security.
Investment is occurring, but these and other companies, including Pemex, are now seeking to move fuel by sea, by rail, and especially on wheeled vehicles. There is little investment in pipelines, despite pipeline transport being considerably less expensive. Frequent fuel theft and the gas-pipeline arbitration demanded by the CFE have put into question the use of pipelines in Mexico. The government itself showed a lack of confidence in pipelines when it purchased 750 tanker trucks at the start of its fight against fuel theft.
Private companies are also considering the distribution of natural gas by truck, either in compressed form or as LNG. Since Pemex hasn’t increased natural-gas production, imports have soared. Given the failure to complete natural-gas pipelines, several companies are considering transporting natural gas by truck. One company announced that it plans to store 100,000 gallons of LNG in the first of six facilities.
The use of trucks, instead of pipelines, is just one of many examples of how Mexican energy policy is bucking global trends. Gaps in the energy system, as well as errors in official policy, provide business opportunities, albeit in a large market that is operating under suboptimal conditions.
Similarly, now that the electricity auctions have been canceled, private electricity generators are diligently seeking synergistic arrangements not involving the CFE. They search for medium- and large-scale industrial clients to purchase electricity.
During this presidential term, Mexico’s energy supply, which is almost synonymous with national security, will depend more than ever on innovation by the private sector. It is even possible that private energy investment will see unprecedented growth. However—and this is the great unknown—this will only occur if there is investor confidence and economic growth, which is far from guaranteed. Today these conditions are lacking. The Energy Regulatory Commission (CRE) should be made to realize the pressing need for more private investment in the sector.
This article originally appeared in Spanish in the August 20 edition of
Reforma.
* See next article for an update on gas pipelines.
A Win-Win Deal on Gas-Pipelines?
by Philip L. Russell
Rather than accepting the Sur Texas-Tuxpan pipeline, which was completed in June, the
Federal Electricity Commission (CFE) declared that it would submit the contract with the builder to international arbitration, claiming the contract was “unfair” (“
leonino”
). Then, rather than going ahead with arbitration, the Mexican government decided to negotiate with the owner of the pipeline as well as with companies building other natural-gas pipelines. The total length of the pipelines whose contracts were to be renegotiated was more than 2,600 kilometers.
After two months of negotiations, on August 27, an ebullient President López Obrador announced that a deal had been struck with the pipeline builders. He claimed that, by renegotiating the contracts with the companies, the government had saved $4.5 billion—a figure that was soon questioned.
Each of the firms involved in the settlement—Grupo Carso, IEnova, and TC Energy—negotiated a separate deal. (Fermaca has yet to settle.) The settlements, though, do have common features. In each case, the builders remain as owners of the pipelines. The only matter up for discussion was the amount of payment to be made for transporting natural gas. Clauses which the CFE felt were unfair were removed. These clauses provided for the government to pay the pipeline companies in cases of “acts of God” and “accidents” (
fuerza mayor
&
caso fortuito
). The rate charged for transporting the gas will remain constant through the life of the contract. (The old contracts had gradually increasing rates.) Finally, the lengths of the contracts were extended, with some being as long as 35 years.
Since not all the details have been released and one firm has yet to settle, the actual savings are hard to quantify. Writing in
expansion.com.mx
, Édgar Sigler wrote:
Will the government pay more or less with the new agreement? Analysts feel it is impossible to answer that question without knowing the details of the changes, but given what was claimed on Tuesday, both sides can claim victory, depending on who is doing the calculating. (1)
Robbie Whelan also commented on the settlement in the
Wall Street Journal
:
The analysis of the deal terms viewed by the Journal argued that even though the government is saving $600 million in nominal terms, the higher upfront payments make the deal potentially worse for the Mexican government in the long run than the original contracts—after accounting for things like inflation and the cost of capital. (2)
Most of the business community expressed approval, something unusual for one of AMLO’s announcements. For example, Carlos Salazar Lomelín, president of the Business Coordinating Council (CCE), declared: “This marks the beginning of an important round of investment in Mexico, which we were all waiting for. It has been win-win.” (3) The stock market also approved, as indicated by n the value of shares of the companies involved increasing after the announcement.
By removing uncertainty surrounding its natural-gas supply, Mexico clearly benefitted. As Carlos Slim of Grupo Carso commented, “These pipelines are important because they allow us to have access to the cheapest natural gas in the world.” (4) Inexpensive U.S. natural gas is 77 percent less expensive for generating electricity than diesel and 81 percent less expensive than using fuel oil. (5) It also produces much less greenhouse gas per megawatt-hour generated. Adequate supplies of natural gas will alleviate shortages leading to power outages on the Yucatán Peninsula.
Finally, these renegotiated contracts lock Mexico into energy policies adopted during previous administrations. These policies assume that Mexico will not pass a carbon tax and that the price of imported natural gas will remain low. A final assumption is that the United States won’t use the threat (or the actuality) of a natural-gas export tax or an interruption of supply to pressure Mexico into adopting policies favored by Washington.
1.
expansion.com.mx
, Aug. 28, 2019.
2.
Wall Street Journal.com
, Aug. 25, 2019.
3.
El Financiero
, Aug. 28, 2019.
4.
El País
, Aug. 29, 2019.
5.
Reforma
, Aug. 28, 2019, p. 9.
The National Development Plan 2019-2014
by Philip L. Russell
Even though President Andres Manuel López
Obrador (AMLO) has been in office for more than half a year, the National Development Plan 2019-2014 (
Plan
Nacional de Desarrollo 2019-2024
) reads more like a campaign statement than a guide to managing the economy.
The AMLO administration feels that the document is “an instrument to identify national problems and lay out solutions over a six-year time frame” (p. 4). In addition, the document dips into economic history. The post-World War II period of “stabilized development,” often referred to as the Mexican Miracle, is highly praised. The following period of 1982 to 2018 is characterized as neoliberal, a favorite AMLO epithet. The plan emphasizes that the neoliberal period, which is pilloried, ended with AMLO’s coming to power and the beginning of the Fourth Transformation—AMLO-speak for the changes he hopes to make during his administration.
Key components of the Fourth Transformation are enumerated, including combatting corruption, establishing governmental austerity, and deemphasizing the war on drugs. There is information concerning the creation of a National Guard, immigration policy, and health care. These last three subjects each receive more lengthy consideration than does energy.
In the short section on energy (305 words), the AMLO administration repeats campaign pledges to not increase fuel costs beyond the rate of inflation and to lower electric rates by the middle of the term. (Given his no-new-tax pledge, this could put AMLO in a bind if the value of the peso declines significantly.) In the plan, its drafters return to neoliberal bashing, noting that reforms under President Peña Nieto (2012-2018) imposed extreme (
gravísimo
) harm on Pemex and the Federal Electricity Commission (CFE). Again repeating previous policy statements, the plan promises to upgrade existing refineries, build a new refinery, and modernize government-owned electric-generation facilities, with emphasis on hydroelectric plants. The plan very optimistically concludes that dialogue will resolve social conflicts affecting CFE and Pemex installations.
One lone sentence indicates the plan does not date from the 20th century: “The Mexican government’s new energy policy will promote sustainability by incorporating populations and communities to energy production from renewable sources, which will be fundamental to supplying electricity to small isolated communities which lack electricity and whose populations number two million” (pp. 50-51). No further details are provided on renewable energy, making it appear that the AMLO administration views renewables primarily as a means to provide electricity to isolated consumers.
The tone of the report reflects AMLO’S consistent optimism. The plan foresees economic growth reaching 6 percent by the end of his administration in 2024, leaving the average growth rate for the six-year presidential term at 4 percent.
Ironically, despite his efforts to differentiate his administration from that of his predecessor, Enrique Peña Nieto, planks of his predecessor’s National Development Plan differ little from the current plan. The 2012-2018 plan called for “increasing Pemex’s performance capacity” and for promoting “renewable energy sources.” The key difference, not explicitly stated in either document, is that Peña Nieto sought to harness the private sector to meet his goals, while AMLO plans to rely primarily on the state sector.
NOTE: Page numbers given here from the version available at
The Pemex Business Plan
by Philip L. Russell
This summer Pemex, released a 222-page business plan (
Plan de negocios de Petróleos Mexicanos y sus empresas productivas subsidiarias 2019-2013
)
.
The plan is organized into an introduction and 12 sections.
The introduction noted that, in 2018, voters elected an administration with a nationalistic worldview and a high degree of social consciousness. This new administration, the introduction states, plans to strengthen Pemex so that it can spur Mexican economic growth.
Section 1, titled “Context,” describes Pemex as having more income than any other Mexican corporation. It describes the complexity of a firm with 63 subsidiary firms, a number that is to be reduced to 13. The sprawling company engages in a wide range of activities including (a) the exploration, production, and sale of crude oil and natural gas; (b) the refining and sale of petroleum products; (c) the transport and storage of petroleum products; and (d) the manufacture and sale of fertilizer. The two most important activities, in monetary terms, are the export of crude and domestic gasoline sales.
Section 2, titled “Environment,” comments on three global trends: (a) the increase in oil demand, especially by India and China; (b) the United States’ becoming the world’s top producer of crude and natural gas; and (c) awareness of the need to curtail greenhouse-gas production. Domestic trends include increased demand for oil, a sharp increase in natural-gas demand, and Pemex’s becoming unprofitable.
The third section, “Diagnosis,” focuses on Pemex itself, noting that the firm’s reserves declined from 16.5 billion barrels of crude equivalent in 2006 to 7.0 billion today, most of which is concentrated in Mexico’s southeast. The plan notes that future exploration will be more challenging than it was in the past because oil prospects are found in smaller fields now and are more dispersed. Natural-gas production has fallen in parallel with the decline in crude reserves. Gas production totaled 6.534 bcfd in 2009 and then declined to 3.842 bcfd in 2018. Similarly, the number of wells drilled declined from 1,200 in 2012 to 143 in 2018. A final decline noted was that of refining, which fell from 1.295 mbd in 2012 to 0.612 mbd in 2018.
Sections 4 and 5 simply state that the plan was published in the
Diario Oficial de la Federación
and that the firm’s mission is to contribute to energy security and offer production and services in an efficient, ethical, and sustainable manner.
The core of the plan is contained in Section 6, which claims, “It is necessary to get out of the vicious cycle of structural problems limiting cash flow, thus resulting in a decline in investment which lowers production and income.” In order to break out of this cycle, the plan proposes 11 objectives, such as strengthening company finances, increasing reserves and production, and increasing fuel and petrochemical production. Each of these objectives is followed by a list with bullet points of tasks to be carried out. These lists run to 47 pages.
Section 7, titled “Business Opportunities and Major Projects,” describes plans to develop new fields, build a refinery at Dos Bocas, and lay a pipeline across the Isthmus of Tehuantepec. It includes 16 more pages of lists.
Section 8, “Resource Requirements and Financing Alternatives,” declares that the firm will not take on any more debt. Between 2019 and 2022, it will receive government financing to increase crude production. Then, between 2022 and 2024, it will reduce debt by using income from increased oil production.
Section 9 continues the discussion of Pemex finances. It notes that the company’s principal problem is high taxes that, in the past, have limited its ability to invest.
Section 10 considers future finances and observes that many unknowns make planning difficult. Some of these variables are the dollar-peso exchange rate, the export price of crude, the price of imported natural gas, and the impact of IMO 2020 standards for marine fuel. These unknowns notwithstanding, crude production is projected to reach 2.697 mbd by 2024 and that of natural gas to reach 4.916 bcfd. Similarly, refining is projected to almost double to 1.166 mbd and exports to increase to 1.325 mbd.
Section 11 considers “strategic risks.” Six different risks are identified but won’t be listed here since they are “reserved,” i.e., kept as secrets and not published with the public version of the report.
Finally Section 12 summarizes the actions and goals set out in the plan. Both production and financial goals are listed, with anticipated figures for each year of the López Obrador administration listed.
The core of the plan is in the lists contained in Section 6. This article is not the place to attempt to evaluate each of the bullet points in each of the lists. Furthermore, there is no way to know if the proposals will even be implemented. What is important is the impact the business plan has on perceptions of the company, since these perceptions will affect the company and Mexico’s finances. This in turn will influence inflation, the cost of debt, and funds available to invest.
Judging from reactions to the plan, which ranged from skeptical to negative, the plan did little to further López Obrador’s Fourth Transformation. A sampling of opinion can be found below:
“The Pemex business plan makes unfounded assumptions about economic progress and the problems of the firm itself.” Manuel Sánchez González,
El Financiero
, July 24, 2019.
“López Obrador and his team have ignored the warning that his government’s prominent intervention in Pemex finances could put at risk Mexico’s bond rating.” Sonia Corona,
El País
, July 18, 2019.
“The plan seeks a very rapid increase in oil production. That is indeed a very laudable goal, but it seems highly unlikely that such a rapid increase will occur.” Rosanety Barrios,
expansion.com.mx
, July 17, 2019.
“It is quite likely Moody’s will lower Pemex bonds to junk rating. The business plan didn’t have anything new.” Citi Research
, El Financiero
, July 18, 2019.
“The business plan announced yesterday by its Director General Octavio Romero Oropeza, an agronomist with no experience in the oil industry, does not address the most important problems of the company.” Sergio Sarmiento,
Reforma
, July 17, 2019, p. 8.
IV. SPARKS
FOSSIL FUELS
Oil
As the chart below indicates, Mexico is the world’s eighth largest producer of crude. It is not even one of the top 10 consumers.
Crude production (mbd)
United States 12.2
Russia 11.3
Saudi Arabia 9.7
Iraq 4.59
United Arab Emirates 3.07
Iran 2.63
Nigeria 1.9
Mexico 1.7
Data is for the first quarter of 2019.
Source:
Energía Hoy
, May-June, 2019, p. 19.
Natural Gas
Mexican natural-gas production has declined to 2.587 bcfd, while imports total 5.453 bcfd.
Reforma
, Aug. 27, 2019, p. 3
negocios
.
Since 2007, the Federal Electricity Commission (CFE) has contracted, via international bidding, the construction of 24 natural-gas transportation projects. Seventeen of these projects are now in service. They have added 8,000 kilometers of pipeline—a 75% increase in mileage. When they are all in operation, Mexico will have 19,000 kilometers of gas pipeline.
El Economista
, July 4, 2019.
Due to a shortage of natural gas, three of the combined-cycle plants on the Yucatán Peninsula are only operating at 25% capacity. Once the Sur Texas-Tuxpan pipeline begins service, this shortage should be alleviated.
La Jornada
, July 6, 2019.
Twelve Mexican states lack access to natural gas
.
La Jornada
, Aug. 20, 2019.
Mexico has 16,000 kilometers of natural-gas pipeline, while the Unites States has 488,000. Texas alone has 94,741 kilometers.
Petróleo &Energía
, May-June 2019, p. 50.
There are 18,500 natural-gas-powered vehicles in Mexico and 35 service stations supplying natural gas.
Energía Hoy
, May-June 2019, p. 42.
Coal
The CFE plans to increase generation at its two coal-burning power plants in Coahuila. The Río Escondido plant has been operating at between 30% and 40% of capacity, and Carbón II has been operating at 70%. Together these two plants burn 11 million tons of coal annually.
Reforma
, July 26, 2019
,
p. 1
negocio
s
.
Burning coal to generate a kilowatt-hour of electricity generates 812 grams of CO
2
.
Petróleo & Energía
, May-June 2019, p. 12.
RENEWABLES
As of February, only 10 of the 56 clean-energy projects that resulted from the three clean-energy auctions were in operation. Auction winners have committed to spending $10 billion to build projects that will have a generating capacity of 7,666 MW.
El
Economista
,
July 13, 2019.
In December of last year, the Interamerican Development Bank released a study on net metering in Latin America and the Caribbean. It considers the three actors involved in net metering—the regulator, the utility, and the panel owner—as well as variables such as how monetary and energy credits are applied. The study concluded, “Currently, Net Metering and Net Billing policies are one of the main mechanisms to incentivize adoption of Distributed Generation in the LAC [Latin American and Caribbean] region” (p. 13).
Details are provided in the study on Mexico’s net-metering policy, which was adopted in 2010 (Fig. 4). The maximum capacity allowed for a distributed generator is 500 KW (Table 2). Distributed generators receive cash payments of $0.23 per KWh for electricity sold to the grid.
(Mejdalani
et al.
2018: Annex 1).
Wind
According to Leopoldo Rodríguez Olivé, president of the Mexican Wind Energy Society, 1,800 MW of wind-generating capacity will be added this year, bringing the total to 6,800 MW, located in 13 states.
El Economista
,
July 13, 2019.
Since 2014, wind-generating capacity has increased from 2,360 MW to 5,382 MW.
Reforma
, July 21, 2019, p. 10.
Wind on the Isthmus of Tehuantepec was so promising that the CFE installed the first wind turbines there in 1994, well before the passage of the energy reform.
Proceso
, June 23
,
2019, p. 13.
Oaxaca is Mexico’s undisputed wind-generation champion, as steady winds blow across its 200-kilometer-wide Isthmus of Tehuantepec. Currently, there are 28 wind farms there with 2,360 MW of generating capacity. Construction of many of these wind farms has resulted in disputes with local residents, many of whom are members of indigenous groups. Critics charge that the contracts were rigged and contained provisions in small print granting automatic renewal rights to wind generators. Local residents complain of being excluded from their rented land by private armed guards. They also claim that spilled oil fouls the land.
Proceso
,
June 23, 2019, pp. 12-14.
Solar
There are currently 47 solar farms in operation in Mexico. An additional 45 projects are expected to come online this year. The new projects could double Mexico’s current solar-generation capacity of 4,326 MW.
Reforma
, July 16, 2019,
p. 6
negocios
.
While the boom in utility-scale solar is drawing to a close due to the lack of new clean-energy auctions, there is a boom in distributed generation, 99.3% of which is solar, resulting in 112,600 users with 817 MW of generating capacity. The most rapid growth was in systems with a capacity in excess of 50 MW, presumably due to an electricity price increase of more than 100% for larger users during the past year.
PV
Magazine México
, Aug. 16, 2019.
Five percent of this capacity is in industry, 20% in commercial installations, and 75% in homes. The state with the most installations is Jalisco, with 17,079, followed by Nuevo León with 11,045. Recent growth in part has resulted from lower installation costs based on increased experience in the solar industry.
PV Magazine México
, Aug. 7, 2019.
Alma Energía, S. de R. L. de C. V., filed an environmental-impact statement for a 100-MW solar farm to be constructed at Lagos de Moreno, Jalisco. Plans call for the installation of 310,464 Junko Solar modules. The farm will cover 209 hectares.
PV Magazine México
,
July 20, 2019.
ELECTRICITY
Thanks to a 1989 law, private producers were allowed to enter the electricity market. As a result, 46% of Mexico’s electricity is currently generated by the private sector, with the other 54% being generated by the CFE.
El Financiero
, July 26, 2019.
The Federal Electricity Commission (CFE) debt totals $60 billion.
El Financiero
, July 6, 2019.
During the first six months of this year, the CFE lost 2.81 billion pesos, compared to a loss of 48.49 billion during the first half of 2018.
El Financiero
, July 26, 2019.
Air-conditioning now accounts for 14% of Mexican electricity consumption. The largest component of this load is residential, which accounts for 40% of total AC usage.
Energía a Debate
,
May-July 2019, pp. 34-35.
As air-conditioning loads increased, on Aug. 1, demand on the National Interconnected System (SIN) reached 43,350 MW. The SIN is the national grid, minus systems on the Baja California Penninsula that are separated from the rest of Mexico.
Reforma,
Aug. 2, 2019, p 2
negocios
.
During the first five
months of 2019, 7,849 electric vehicles were sold in Mexico, 27% above the corresponding figure for 2018. Mexico City led with 2,656 sales, followed by the State of Mexico with 1,386 and Jalisco with 684.
Currently, there are more than 500 charging stations in Mexico, with 125 in Mexico City alone. Rising gasoline prices and exceptions from a vehicle tax known as the
tenencia
encourage sales. Also, in Mexico City, gasoline-powered cars are forced to remain idle for one day a week. Electric cars are exempt from this requirement.
Milenio,
Aug. 20, 2019.
LM & TH Automóviles currently builds electric bicycles and tricycles. It expects to begin production of a two-door electric coupe called Thalia in 2020. Thalia will be a “city car” with limited range. Its estimated price will be $18,000.
Cleantechnica
,
Aug. 2, 2019.
PEMEX
Revitalizing Pemex and the energy sector is the priority because Pemex has to be the engine of national development. …We are going to revitalize Pemex so that it will produce and refine oil. During the final years of this administration, we are going to sow petroleum, that is to say, we’ll have surpluses to spur productive activity and promote well-being.
Andrés Manuel López Obrador,
Reforma
,
Aug. 1, 2019, p. 6.
The National Hydrocarbon Commission (CNH) renewed Pemex production rights over 64 areas that had been awarded to the company in Round Zero. The commission reasoned that, even though Pemex had not developed the areas within the originally stipulated time period, if it did not renew Pemex’s rights, the areas would be lost because no auctions were occurring to enable the private sector to develop them
.
expansion.com.mx
, Aug. 8, 2019.
Production
In June of this year, Mexico produced 1.671 mbd of crude. This figure was 0.48% above that of the previous month, but 8.58% below the corresponding month of 2018.
La Jornada
,
July 27, 2019.
Despite the modest uptick in production in June, during the second quarter of 2019, production averaged 1.66 mbd, 10.6% below the corresponding figure for 2018.
expansion.com.mx
, July 26, 2019.
In July, Pemex produced 1.671 mbd of crude. This is the same figure as reported for June. Thus, Pemex has gone two months without a decline in production. The July figure, however, was 8.34% below the corresponding figure for 2018.
El
Financiero
, Aug. 24, 2019.
In December 2018, production at Cantarell, which once was the world’s second largest oil field, declined to 161,000 bd, 8.5% below the corresponding figure for 2017.Production at Ku-Maloob-Zaap, currently Mexico’s most productive field, rose 1.9% during the same period to reach 874,000 bd.
Reforma
,
July 20, 2019, p. 1.
During the second quarter of 2019, gasoline production was 18.8% below the corresponding period of 2018, while diesel production fell by 1.9%.
expansion.com.mx
, July 26, 2019.
The National Hydrocarbon Commission (CNH) reported that 8,457 wells in seven states had been frocked. This represents 43% of all onshore wells.
Milenio
, Aug. 22, 2019.
Since President López Obrador has repeatedly come out against frocking, the future of the procedure remains unclear.
Reforma,
July 23, 2019, p. 1
negocios.
During the first half of 2019, Pemex refined 595,000 bd of fuel, 11.3% below the corresponding figure for 2018. LPG production was down 33.5%, while that of gasoline was down by 13.5%.
El Universal
, July 28, 2019.
The first Pemex farmout was formed with BHP Billiton to develop the deep-water Trión field, located 179 kilometers off the coast of Tamaulipas in the Perdido Fold Belt. Pemex’s second farmout was formed with Cheiron Holdings to develop the Cárdenas-Mora field in Tabasco. The third was formed with DEA Deutsche Erdoel AG to develop another area in Tabasco.
Energía a Debate
,
May-July 2019, pp. 14-15.
Pemex is on record, in the form of an advertisement, of declaring that its crude production will increase from 1.713 mbd this year to 2.654 mbd by the end of 2024. The ad presents a graph indicating that the anticipated increase will come from increasing production from existing fields, slowing the decline of fields, revitalizing mature fields, “new development,” and exploration. The largest increase is anticipated from this latter category
.
Energía a Debate
,
May-July 2019, p. 16.
Trade
During the first half of 2019, Mexico posted a record petroleum trade deficit of $10.585 billion.
Arena Pública
, July
29, 2019.
Since 2017, Pemex gasoline sales have been declining. During the first five months of 2019, Pemex sold 17,516,000 cubic meters of gasoline. If this trend continues until the end of the year, sales will be 5.2% below those of 2018. Shortages early in the year resulting from an attempt to combat fuel theft contributed to this decline.
Milenio
,
July 22, 2019.
During the first six months of this year, Pemex gasoline sales averaged 728,800 bd, 6.9 % below the corresponding figure for 2018.
Reforma
,
Aug. 26, 2019, p. 9.
In July, Pemex exported 1.079 mbd of crude, 8.44% more than it did in June.
El
Financiero
, Aug. 24, 2019.
Mexico is the second largest supplier of crude to the United States. In April, Canada supplied 3.881 mbd, followed by Mexico at 0.652 mbd and Saudi Arabia with 0.569 mbd. Total U.S. imports during the month were 7 mbd.
El Universal
, July 24, 2019.
Gasoline imports averaged 543,000 bd between April and June of 2019, compared to 571,000 bd during the corresponding period of 2018.
El Heraldo de México
, July 27, 2019.
During July, Mexico imported 18.36 million barrels of gasoline. The largest supplier was the United States, which supplied 15.6 million barrels. For the first time, China, which supplied 1.2 million barrels, was the second largest supplier. China was followed by South Korea, with 0.9 million, the Netherlands with 0.3 million, and Singapore, with 0.3 million.
expansion.com.mx
, July 22, 2019.
During the first six months of this year, Pemex gasoline sales averaged 728,800 bd, 6.9 % below the corresponding figure for 2018.
Reforma
,
Aug. 26, 2019, p. 9.
Finances
During the second quarter of 2019, Pemex lost 52.8 billion pesos, 67.7% less than it lost during the corresponding quarter of 2018. Pemex reports that part of this reduction is due to an 8.3 billion-peso decline in losses due to fuel theft.
expansion.com.mx
, July 26, 2019.
During the first half of 2019, Pemex supplied 6.8% of government budgeted income. This figure is 1.6% below the corresponding figure for 2018 due to decreased crude production, the cost of combatting fuel theft, and a 1.7% decline in the price received per barrel of exported crude.
Reforma
, Aug. 16, 2019, p. 2
negocios
.
This year,
$9.74 billion of Pemex debt will come due. In 2020, $9.65 billion will come due, while during the following year $9.37 billion will.
Energía a Debate
,
May-July 2019, p. 18.
During the past three decades, Pemex has paid 28.89 trillion pesos into the federal treasury. In 2008, such payments constituted 44% of government spending. By 2018, this figure had declined to 33%.
La Jornada
,
July 20, 2019.
Pemex, with 121,654 employees, is widely seen as overstaffed. The company only produces 16 barrels a day per employee. By comparison, the Norwegian company Equinor produces 103 barrels a day per employee, while the Colombian firm Ecopetrol produces 61 barrels a day per employee. Similarly, ExxonMobil produces 57 barrels a day per employee while Petrobras produces 40 barrels a day per worker.
El Heraldo de México
,
July 31, 2019.
Between 2017 and 2018, Pemex’s production costs per barrel of crude produced increased 26% to reach $13.73. The costs at its most productive field—Ku-Maloob-Zaap—were $10.03 per barrel. Cost increases resulted from higher taxes and increased fees as well as increased maintenance costs. Also, as production declined, fixed costs resulted in more cost per barrel.
Reforma
,
July 20, 2019, p. 1.
During the first six months of 2019, Pemex lost 88.509 billion pesos. The company noted that a major cause of this loss was a $1.80 decline in the price received per barrel of exported crude.
El Financiero
,
July 26, 2019.
A decline in crude production also added to losses. During the first half of 2019, Pemex produced 1.641 mbd of crude, 11% below the corresponding figure for 2018. These factors led to Pemex’s losses during the first half of 2019 being 77.5% greater than they were during the first half of 2018.
El Universal
, July 28, 2019.
In recent years, the Pemex budget has declined from historic highs. In 2017, it totaled 17 billion pesos, while last year it only reached 14 billion. Now, the trend has been reversed, as is indicated by this year’s budget totaling 58 billion pesos.
Excélsior
,
July 22, 2019.
Pemex debt totals $107 billion.
El Financiero
, July 6, 2019.
Most figures provided by the government on fuel theft (
huachicoleo
) are accepted at face value. In May, President López Obrador claimed that fuel theft had declined by 95%. However, during the first four months of 2019, Pemex reported losses of more than $2.9 billion due to fuel theft, almost six times more than the total stolen during the first four months of 2018.
Bloomberg Businessweek
, July 1, 2019, p. 43.
Pemex reported that, during the second quarter of 2019, fuel theft was 91% below the rate during the second quarter of 2018.
El Heraldo de México
, July 27, 2019.
This claim notwithstanding, the paper
Reforma
reported that stolen fuel (
huachicol
) was readily available alongside the Mexico City-Monterrey highway. Huachicol is available 24 hours a day. According to the report, dealers can be located online.
Reforma
,
July 28, 2019, p. 1.
From January through May
,
the Mexican Petroleum Stabilization and Development Fund (FMP) received $64.245 billion, 54% more than it received during the corresponding period of 2018. The FMD is the Mexican version of Norway’s sovereign-wealth fund. Both Pemex and private companies that won producton rights in the hydrocarbon auctions pay into it.
El Economista
,
Aug. 20,
2019.
REFORM
The Italian corporation Eni has become the first foreign corporation to produce oil offshore following the energy reform.
offshore.com
, July 8, 2019.
As of June 30, Pemex operated 9,161 gasoline stations, 73.3% of the total. The major private brands were Oxxo Gas, with 541 stations, BP with 450, and G500 with 285. All the other private brands operated less than 2% of total gas stations.
Reforma
,
Aug. 27, 2019, p. 1
negocios
.
During the first seven months of 2019, gasoline imports by private companies reached 13.79 million barrels, a 378% increase over the corresponding figure for 2018.
Reforma
,
Aug. 26, 2019, p. 2
negocios
.
The firm Wacsonblue is now selling gasoline that contains 10% ethanol. This fuel is both cheaper than conventional gasoline and has a higher octane rating.
expansion.com.mx
, July 4, 2019.
Just a little more than a year after the sale of jet fuel was opened to the private sector, that sector supplies 45% of jet fuel. Private sales occur at 10 different airports.
Reforma
,
Aug. 16 2019, p. 1
negocios
.
AMLO
The Mexican president can still turn around investor perceptions but time is short.
Financial Times
, July 11 2019, p. 10.
According to an unconfirmed report in the August 29 issue of the
Financial Times
, López Obrador has made two policy shifts involving oil production. He is willing to allow Pemex to form alliances (farmouts) with private companies, and he is willing to permit private oil companies to explore in the deep waters of the Gulf of Mexico. As Pablo Medina of Welligence Energy Analytics observed: “If Mexico wants to increase oil production, private firms must be accepted. It’s very good news that farmouts may be formed again.”
Reforma
, Aug. 30, 2019, p. 1.
The
government awarded contracts to the U.S. corporation Kellogg, Brown, and Root (KBR); the South Korean Samsung; and the Mexican consortium ICA to begin construction of the Dos Bocas refinery. The total value of the contracts was $349 million, only 4% of the anticipated total construction costs.
Heraldo de México
, July 27, 2019.
Energy Secretary Rocío Nahle declared that the decision to build a new refinery at Dos Bocas, Tabasco, was “irreversible.”
La Jornada
, July 19, 2019.
One of the reasons for criticizing Pemex spending plans is the withholding of information concerning projects such as the Dos Bocas refinery. The Pemex business plan also withholds information. Such lack of openness makes the private sector uneasy and increases criticism, as indicated by the establishment of an active working group known as #TransparenciaColorChapopote, which translates as “#crude-oil-colored transparency.”
El Economista
, July 23,
2019.
Juan Carlos Flores Solís, of the Peoples’ Front for the Defense of Water and Land in Morelos, Puebla, and Tlaxcala (FPDATMPT), explained the group’s on going opposition to the Proyecto Integral Morelos. This is the name given to the pipeline constructed to supply natural gas to the power plant in Huexca, Morelos, as well as to the plant itself. He noted that the builders of the pipeline had failed to consult with indigenous communities along the pipeline route through the states of Tlaxcala, Puebla, and Morelos. He also says that water discharged from the plant could contaminate the Río Cuautla.
El Economista,
July 7, 2019.
In 1994,
AMLO first
came to national attention by blocking Pemex facilities to protest a stolen election. Subsequently, he staged various other protests, culminating in the prolonged occupation of Mexico City’s Paseo de la Reforma to protest what he felt was the stolen presidential election in 2006. López Obrador’s party, Morena, which dominates the state legislature of Tabasco, recently passed a law providing prison sentences of between six and 13 years for blocking public or private projects. This law obviously targets potential protesters who might oppose the new refinery at Dos Bocas. In response to this law, legislator Dolores Gutiérrez Zurita of the Revolutionary Democratic Party (PRD) commented, “Morena has forgotten that protest forms the basis of the left movement in Tabasco and that López Obrador reached the presidency thanks to marches.”
El País
, July 30, 2019.
Bibliography
Bremner, Matthew (2019) “The Huachicoleo Tragedy,”
Bloomberg Business
Week
, July 1 (38-43). [This is the best English-language account of the Tlahuelilpan tragedy.]
Mejdalani, Alexandre Novaes, J. Enrique Chueca, David Daniel López Soto, Yi Ji and Michelle Hallack (2019)
Implementing Net Metering Policies in Latin America and the Caribbean: Design, Incentives and Best Practices.
Inter-American Development Bank.
Yépez-García, Ariel, Yi Ji, Michelle Hallack and David López Soto (2019)
The Energy Path of Latin America and the Caribbean.
Inter-American Development Bank.