Comment: Investors keep a watchful eye on Mexico’s new leftist leader

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International Investment / Jonathan Clare / October 22

 

Jonathan Clare recalls the strikingly different Mexico of the 1990s, and looks at the country’s prospects today under a new, left-wing, administration.

The Mexico of today is very different from the country I first experienced in the late 1990s. Back then I was based in Mexico City – the local population was still reeling from a banking crisis and severe recession.

Talking to locals in the fashionable coffee shops you would hear of the steady exodus of the middle class from the sprawling metropolis. There was a sense of gloom that the Institutional Revolutionary Party’s long stranglehold on Mexican politics would never end. Investor confidence was pretty low and lawlessness was a constant worry.

The bleak financial news and security risks preyed on people’s minds, but there were some notable compensations, principally the idyllic beaches and a world-class cuisine. Today, high-levels of crime continue to scar the nation, but the country has undergone an economic transformation – and one that has not been confined to the urban and industrial centres in Mexico City and Monterrey, where gleaming office blocks dominate the skyscape.

Since the PRI lost power in 2000, successive governments have worked hard to forge trading relationships with some 44 countries, as far afield as Israel and Japan. The previous perception of a tourism-and agriculture-based economy no longer holds. The country has diversified to include a variety of sectors from chemical, telecommunications and automotive, to energy to name just a few.

 

Taking the lead
Mexico is recognised as the leading emerging market in Latin America, while top Mexican companies are significant players across the Americas, Europe and Asia through a wave of mergers and acquisitions over the last decade. Increasingly, they are helping to drive growth in these markets. CEOs of top local conglomerates I speak to enthuse about the opportunities they have forged by connecting and partnering with research and development centres and companies in the UK, Germany and Switzerland.

Some question whether the recent economic progress, albeit sluggish of late, can be maintained following the election victory in July of the leftist Andres Manuel Lopez Obrador (popularly known as AMLO, an acronym of his initials). His key campaign theme was curbing corruption, which remains a national scourge. More broadly, though, Mexicans are still trying to gauge what his leadership will mean for the country, in particular its impact on foreign investors in the energy sector.

AMLO has sought to salve business fears over the direction he will take by insisting there will be no nationalisation and promising fiscal discipline. But over time he will come under pressure from his support base of those “left behind” by the country’s revival to introduce populist measures. He has already pledged to double pensions when he officially takes office on 1 December.

Indeed, the business community remains nervous about possible attempts to reverse previous administrations’ reforms, many of which have helped Mexico to make some important advances, not least within the telecommunications and energy sectors. However, his critics’ concerns should be tempered by AMLO’s record in office. As mayor of Mexico City in the early 2000s, he proved to be an effective operator, and one would hope that his penchant for organising disruptive political protests during national election campaigns is now a thing of the past.

Fortunately for AMLO, his tenure begins amid some positive developments. The protracted and thorny re-negotiation of NAFTA has been completed. The parties prudently agreed the successor United States-Mexico-Canada Agreement (USMCA) in advance of the new administration being sworn in at the end of year. And the strong economic outlook in the US can only benefit Mexico, as it will continue to be one of Washington’s most important regional trading partners for the foreseeable future.

The trade war between China and the US may also reap dividends for AMLO’s term as US companies look to their immediate neighbour to fill any supply chain gaps. According to the OECD, the Mexican economy is set to maintain its growth rate of over 2% in 2018. The same is forecast to hold in 2019.

 

The benefit of the doubt
In Mexico City and Monterrey it’s business as usual: traffic madness, buoyant trade, and deals still getting done. Looking ahead, there is no doubt there will be a shift in the new government’s approach to ensure the needs of AMLO’s support base are met, but there is likely to be a strong dose of pragmatism and deal-making when addressing the various challenges ahead. In all probability, AMLO will balance the needs of his constituency with keeping the political elite and business community onside.

Critically, the international investment community, for now at least, appears to have given the president-elect the benefit of the doubt, despite all the background noise and fears over the reversal of reforms. Building a consensus is the key going forward, and AMLO will be well advised to maintain close relations with foreign investors, and local business leaders in general, however much his supporters might protest.

The sentiment on the street is that he has shown enough to be trusted to move the economy in the right direction. Nearly twenty years on, in the trendy coffee shops, restaurants and bars of the capital’s upscale districts of Polanco and Roma there is little talk of escaping the city – quite the reverse in fact.

 

International Investment / Jonathan Clare / October 22

 

A 14-year-long oil spill in the Gulf of Mexico could become one of the worst in U.S. history

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Tampa Bay Times / Darryl Fears / October 22

 

NEW ORLEANS — An oil spill that has been quietly leaking millions of barrels into the Gulf of Mexico has gone unplugged for so long that it now verges on becoming one of the worst offshore disasters in U.S. history.

Between 300 and 700 barrels of oil per day have been spewing from a site 12 miles off the Louisiana coast since 2004, when an oil-production platform owned by Taylor Energy sank in a mudslide triggered by Hurricane Ivan. Many of the wells have not been capped, and federal officials estimate that the spill could continue through this century. With no fix in sight, the Taylor offshore spill is threatening to overtake BP’s Deepwater Horizon disaster as the largest ever.

As oil continues to spoil the Gulf, the Trump administration is proposing the largest expansion of leases for the oil and gas industry, with the potential to open nearly the entire outer continental shelf to offshore drilling. That includes the Atlantic coast, where drilling hasn’t happened in more than a century and where hurricanes hit with double the regularity of the Gulf.

Expansion plans come despite fears that the offshore oil industry is poorly regulated and that the planet needs to decrease fossil fuels to combat climate change, as well as the knowledge that 14 years after Ivan took down Taylor’s platform, the broken wells are releasing so much oil that researchers needed respirators to study the damage.

“I don’t think people know that we have this ocean in the United States that’s filled with industry,” said Scott Eustis, an ecologist for the Gulf Restoration Network, as his six-seat plane circled the spill site on a flyover last summer. On the horizon, a forest of oil platforms rose up from the Gulf’s waters, and all that is left of the doomed Taylor platform are rainbow-colored oil slicks that are often visible for miles. He cannot imagine similar development in the Atlantic, where the majority of coastal state governors, lawmakers, attorneys general and residents have aligned against the administration’s proposal.

The Taylor Energy spill is largely unknown outside Louisiana because of the company’s effort to keep it secret in the hopes of protecting its reputation and proprietary information about its operations, according to a lawsuit that eventually forced the company to reveal its cleanup plan. The spill was hidden for six years before environmental watchdog groups stumbled on oil slicks while monitoring the BP Deepwater Horizon disaster a few miles north of the Taylor site in 2010.

The Interior Department is fighting an effort by Taylor Energy to walk away from the disaster. The company sued Interior in federal court, seeking the return of about $450 million left in a trust it established with the government to fund its work to recover part of the wreckage and locate wells buried under 100 feet of muck.

Taylor Energy declined to comment. The company has argued that there’s no evidence to prove any of the wells are leaking. Last month, the Justice Department submitted an independent analysis showing that the spill was much larger than the one-to-55 barrels per day that the U.S. Coast Guard National Response Center (NRC) claimed, using data supplied by the oil company.

The author of the analysis, Oscar Garcia-Pineda, a geoscience consultant who specializes in remote sensing of oil spills, said there were several instances when the NRC reported low estimates on the same days he was finding heavy layers of oil in the field.

“There is abundant evidence that supports the fact that these reports from NRC are incorrect,” Garcia-Pineda wrote. Later he said: “My conclusion is that NRC reports are not reliable.”

In an era of climate change and warmer open waters, the storms are becoming more frequent and violent. Starting with Ivan in 2004, several hurricanes battered or destroyed more than 150 platforms in just four years.

On average, 330,000 gallons of crude are spilled each year in Louisiana from offshore platforms and onshore oil tanks, according to a state agency that monitors them.

The Gulf is one of the richest and most productive oil and gas regions in the world, expected to yield more than 600 million barrels this year alone, nearly 20 percent of the total U.S. oil production. Another 40 billion barrels rest underground, waiting to be recovered, government analysts say.

About 2,000 platforms stand in the waters off the Bayou State. Nearly 2,000 others are off the coasts of its neighbors, Texas and Mississippi. On top of that are nearly 50,000 miles of active and inactive pipelines carrying oil and minerals to the shore.

And the costs are high.

For every 1,000 wells in state and federal waters, there’s an average of 20 uncontrolled releases of oil – or blowouts – every year. A fire erupts offshore every three days, on average, and hundreds of workers are injured annually.

BP has paid or set aside $66 billion for fines, legal settlements and cleanup of the 168 million-gallon spill – a sum that the oil giant could, painfully, afford. But many companies with Gulf leases and drilling operations are small, financially at-risk and hard-pressed to pay for an accident approaching that scale.

One of them was Taylor Energy.

– – –

Taylor Energy was a giant in New Orleans.

Owned by Patrick Taylor, a magnate and philanthropist who launched an ambitious college scholarship program for low-income students, it was once the only individually owned company to explore for and produce oil in the Gulf of Mexico, according to his namesake foundation.

Taylor made what was arguably his most ambitious transaction in 1995, when he took over an oil-production platform once operated by BP. Standing in more than 450 feet of water, it was about 40 stories tall. Its legs were pile-driven into the muddy ocean floor and funnels were attached to 28 drilled oil wells.

At its peak, the oil company helped make Taylor and his wife, Phyllis, the richest couple in the Big Easy.

That investment was obliterated on Sept. 15, 2004, when Hurricane Ivan unleashed 145 mph winds and waves that topped 70 feet as it roared into the Gulf. Deep underwater, the Category 4 storm shook loose tons of mud and buckled the platform.

The avalanche sank the colossal structure and knocked it “170 meters down slope of its original location,” researcher Sarah Josephine Harrison wrote in a postmortem of the incident.

More than 620 barrels of crude oil stacked on its deck came tumbling down with it. The sleeves that conducted oil from its wells were mangled and ripped away. A mixture of steel and leaking oil was buried in 150 feet of mud.

Less than two months after the storm, Patrick F. Taylor died of a heart infection at 67, leaving a fortune for philanthropy and a massive cleanup bill.

Taylor Energy reported the spill to the Coast Guard, which monitored the site for more than half a decade without making the public fully aware of the mess it was seeing. Four years after the leak started, in July 2008, the Coast Guard informed the company that the spill had been deemed “a continuous, unsecured crude oil discharge” that posed “a significant threat to the environment,” according to a lawsuit between Taylor Energy and its insurer.

Taylor Energy made a deal with federal officials to establish a $666 million trust to stop the spill.

It would be a delicate, risky operation. Taylor and the contractors it hired were asked to somehow locate wells in a nearly impenetrable grave of mud and debris, then cap them. Failing that, it could create a device to contain the leak.

But they were forbidden from boring or drilling through the muck for fear that they would strike a pipe or well, risking the kind of catastrophe on the scale of the BP disaster a few miles south. That precaution slowed the pace of the salvage operation.

“We had no idea that any of that was going on,” said Marylee Orr, executive director of the Louisiana Environmental Action Network.

Taylor Energy spent a fortune to pluck the deck of the platform from the ocean and plug about a third of the wells. It built a kind of shield to keep the crude from rising.

But no matter what it did, the oil kept leaking.

– – –

In 2010, six years after the oil leak started, scientists studying the BP spill realized something was amiss with the oil slicks they were seeing.

“We were flying to monitor the BP disaster and we kept seeing these slicks, but they were nowhere near the BP spill,” said Cynthia Sarthou, executive director of the Gulf Restoration Network, which monitors the water from boats and planes.

Satellite images confirmed the oddity.

“It was there all the time, longer than the BP spill,” said John Amos, founder and president of Sky Truth, a nonprofit organization that tracks pollution.

Under the Oil Pollution Act, companies are obligated to report hazardous spills to the NRC, which maintains a database of chemical pollution.

No law compels the companies or the federal government to raise public awareness, but the Clean Water Act clearly calls for citizen involvement.

Environmentalists took Taylor Energy to court.

In their lawsuit, the conservationists called the agreement between Taylor Energy and the federal government a secret deal “that was inconsistent with national policy.”

That policy, they argued, was made clear in the Clean Water Act, which mandates “public participation in the . . . enforcement of any regulation.” Citizen participation, the act says, “shall be provided for, encouraged and assisted.”

Taylor Energy and the Coast Guard – which is part of a Unified Command of federal agencies that includes the Interior Department, National Oceanic and Atmospheric Administration and the Environmental Protection Agency – did not live up to the policy. In fact, the public wasn’t made aware of the spill even after a private firm tested fish in the area and submitted an assessment to Taylor Energy in 2009 that said “there is an acceptable risk to humans if fish from the . . . area are consumed.”

“Taylor has failed to provide the public with information regarding the pace and extent of the oil leaks and Taylor’s efforts to control the leaks,” the lawsuit said.

It would take another three years before the government revealed an even deeper truth. Taylor Energy had been playing down the severity of the spill. An Associated Press investigation in 2015 determined that it was about 20 times worse than the company had reported.

Taylor Energy had argued that the leak was two gallons per day; the Coast Guard finally said it was 84 gallons or more, and was almost certainly coming from any of 16 wells.

“There’s a fine for not reporting, but none for underreporting,” Amos said. “If it’s only three gallons a day, who cares, that’s a trivial problem.”

– – –

Nearly a decade after the oil platform went down, the government determined that the actual level of oil leaking into the Gulf was between one and 55 barrels per day. Now, the new estimate dwarfs that: up to 700 barrels per day. Each barrel contains 42 gallons.

Despite that finding, NOAA is still in the early stages of a resource assessment of marine life that could explain the impact of the Taylor Energy spill, and is more than three years behind a deadline to issue a biological determination of the BP spill’s impact on marine life.

In July, Earthjustice, a nonprofit legal organization that represents conservation groups, sued NOAA for failing to produce a timely study.

Like Eustis, Amos said Atlantic coast residents should be wary. But in that region, where beaches and tourism enrich nearly every state, distrust over offshore leasing and drilling is bipartisan.

Governors, state lawmakers and attorneys general lashed out at the administration’s proposal. New Jersey passed a law that forbids oil and infrastructure in state waters three miles from shore, crippling any effort to run pipelines from platforms to the shore. Other states passed similar laws.

In the Carolinas, where Hurricane Florence’s winds topped 150 mph and produced a monster 83-foot wave as it neared landfall, governors who represent both political parties implored Interior Secretary Ryan Zinke to rethink the plan.

Meanwhile, in the Gulf, Taylor Energy was down to a single employee – its president, William Pecue.

At a 2016 public forum in Baton Rouge, Pecue made the case for allowing the company to walk away from its obligation to clean up the mess. Taylor Energy had been sold to a joint venture of South Korean companies in 2008, the same year it started the $666 million trust. A third of the money had been spent on cleanup, and only a third of the leaking wells had been fixed. But Pecue wanted to recover $450 million, arguing the spill could not be contained.

“I can affirmatively say that we do believe this was an act of God under the legal definition,” Pecue said. In other words, Taylor Energy had no control over the hurricane.

But Ivan was no freak storm.

It was one of more than 600 that have been tracked in the Gulf since records were kept in the mid-1800s, according to NOAA.

Fourteen years after the Taylor spill, and 10 years after the Deepwater Horizon disaster, the federal government still doesn’t know the spills’ full impact on marine life. And there is no economic analysis showing the value of the oil flowing into the sea and potential royalties lost to taxpayers. Activists also want an analysis to determine if oil is ruining marshland and making its way to beaches.

“Even though oil did not reach a lot of these beaches [during the BP spill], the fact that the public heard about it, it killed the beach economy for quite some time,” Sarthou said. “You don’t want to go to a beach with tar balls or oil washing up.”

At the time, Sarthou was unaware that Garcia-Pineda was conducting a study in the Gulf that would show the spill was far worse than imagined – up to 10 times worse than what the federal government was reporting.

As the saga in the Gulf plays out, wary officials on the Atlantic coast are anxiously watching President Donald Trump’s proposal to offer federal offshore leases.

It would take at least a decade for Atlantic drilling to start. The industry would first want to conduct seismic testing to determine the amount of oil and gas in the ground. Depending on the results, companies would bid for the leases. Interior has yet to approve seismic testing, which some studies say harms marine life, including large mammals such as dolphins and whales.

Oil and gas representatives say energy development off that coast could provide South Carolina with $2.7 billion in annual economic growth, 35,000 jobs and potentially lower heating costs for residents struggling to pay their bills.

During a federal informational hearing in South Carolina to explain the Trump administration’s plan in February, Mark Harmon, the director of a state unit of the American Petroleum Institute, stressed that point. “Ultimately, it means the potential for jobs and reinvestment in the community,” he said.

Once the oil industry gains a foothold in a region, it’s game over, said Chris Eaton, an Earthjustice attorney.

“A major part of the economy starts to change” as jobs with pay approaching $100,000 transform a tourism market to oil. “If it gets going, that train isn’t going to stop,” he said. “Let’s talk about what’s happening in the Gulf before we move into the Atlantic.”

 

Tampa Bay Times / Darryl Fears / October 22

 

United States seeking Mexican steel export quotas: negotiator

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Reuters / Frank Jack Daniel / October 15

 

MEXICO CITY (Reuters) – The United States is seeking to impose quotas on Mexican steel exports as part of a negotiation to remove metals tariffs, the chief trade negotiator of Mexico’s incoming government said on Monday, adding the issue needed to be resolved within weeks.

The administration of U.S. President Donald Trump imposed the tariffs on Canada and Mexico in June, citing national security reasons. Although the three countries agreed a renewed trade deal earlier this month, the measures remain in place.

Jesus Seade, who represented Mexico’s President-elect Andres Manuel Lopez Obrador in the wider trade talks, said the current Mexican government was leading the metals talks but that he had spoken to U.S. Trade Representative Robert Lighthizer on the matter.

“I have had a couple of calls with Lighthizer, and it is along those lines, to manage volumes etc with Mexico and with Canada,” Seade said in an interview with Reuters, declining to give more details about the content of the discussions.

Seade said the issue of tariffs on Mexican steel had to be resolved before the new government takes office on Dec. 1.

“There is a month-and-a-half left, so it needs to be resolved now,” he said.

Mexico’s economy ministry, which leads trade talks, did not immediately respond to a request for comment.

Mexico is a net importer of steel from the United States, although it did export $2.5 billion of iron and steel to its northern neighbor in 2017, according to the U.S. Census Bureau.

In March, the United States signed a deal with Seoul where in exchange for an end to steel tariffs, South Korea agreed to cut exports by 30 percent of the past three years’ average.

During talks on the new United States-Mexico-Canada Agreement (USMCA), U.S. officials told Canada they wanted a similar arrangement for steel and aluminum, one source told Reuters last week, declining to give specific details.

Canada rejected the demand and made clear any cap on the metals would have be at a level higher than current exports to allow room for shipments to grow.

 

Reuters / Frank Jack Daniel / October 15

 

Mexican President-Elect Pledges to Save Country’s Oil Sector

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Sputnik News / October 15

 

MEXICO CITY (Sputnik) – Mexican President-elect Andres Manuel Lopez Obrador has pledged to save the country’s oil sector just like former Mexican President Lazaro Cardenas, who headed the country from 1934 to 1940, had done.

In March 1938, Cardenas announced the nationalization of the oil industry, and only in 2013, the Mexican Congress approved an energy reform opening the oil sector to private companies, including the foreign ones.

“We will produce oil because oil and gas production has been decreasing since the beginning of the energy reform. We will save the oil industry like Gen. Cardenas did in 1938,” Lopez Obrador posted on Twitter late on Sunday.

In September, Lopez Obrador, who won the election in July and will assume office on December 1, pledged that crude oil production would increase up to 2.6 million barrels per day from the current level of 1.8 million barrels per day by the end of his six-year-long administration.

In August, Pemex, Mexico’s major oil and gas company, produced oil at the average level of 1,816 million barrels per day, which is a 5.9 percent decrease year-on-year, and a 28 percent decrease compared with the notch registered in August 2013.

 

Sputnik News / October 15

 

How President Trump’s Trade Deals Could Lift the US Economy

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Market Realist / Mark O’Hara / October 8

Trade deals

President Donald Trump has long lashed out against existing trade deals, calling them unfair to the United States. The Trump administration has been working to renegotiate several trade deals, and the focus has been on reducing the country’s massive trade deficit by moving its manufacturing onshore.

UMSCA

The Trump administration has used tariffs as well as tariff threats to obtain trade concessions. Less than halfway into his presidential term, Trump has renegotiated NAFTA and KORUS FTA (the United States–Korea Free Trade Agreement).

Under the new NAFTA—renamed USMCA (the United States–Mexico–Canada Agreement)—the United States is expected to gain access to Canada’s historically protected dairy industry. It also calls for more regional content in automotive manufacturing.

Under the new KORUS terms, South Korea relaxed the norms for automotive imports from the United States. It also agreed to a quota to obtain long-term exemptions from the Section 232 steel tariffs in the United States (QQQ).

Section 232 tariffs

Trump’s trade rhetoric has received support as well as opposition. Retail and tech giants such as Walmart (WMT), Alphabet (GOOG), Apple (AAPL), and Amazon (AMZN) are lobbying against these tariffs. However, the new trade deals have allowed the Trump administration to obtain incremental benefits that are expected to support US jobs. We’ve seen plant restarts in the US steel and aluminum industry after the Section 232 tariffs were implemented.

 

Market Realist / Mark O’Hara / October 8

 

UPDATE 7-Gulf of Mexico offshore platforms evacuated ahead of hurricane

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CNBC / Gary McWilliams and Liz Hampton / October 8

 

(Adds Anadarko Petroleum cutbacks)

HOUSTON, Oct 8 (Reuters) – Energy companies on Monday halted nearly a fifth of Gulf of Mexico oil production and evacuated staff from 13 platforms as Hurricane Michael intensified and headed for a path up the eastern U.S. Gulf.

Offshore producers including Anadarko Petroleum Corp , BHP Billiton, BP and Chevron Corp evacuated workers from oil and gas platforms in the Gulf.

Forecasters predicted the storm would become a Category 3 hurricane with sustained winds of 111 to 129 miles per hour (178 to 208 km per hour) and bring heavy seas to producing areas.

Companies turned off 324,190 barrels per day of oil and nearly 284 million cubic feet of natural gas at midday on Monday, according to a survey of producers. Five drilling rigs were moved out of the storm’s path, the Bureau of Safety and Environmental Enforcement said.

U.S. oil prices ended mostly flat as traders discounted any long-term effect on output by the storm, projected to be the first major hurricane to enter the U.S. Gulf this year. Crude futures on Monday settled at $74.29 a barrel, down 5 cents.

The storm’s current path is taking it away from refinery-heavy areas along the central and western Gulf.

Anadarko, Chevron and BHP Billiton shut-in production and evacuated staff at two platforms each. BP shut down production at four.

The platforms evacuating personnel and stopping production include Anadarko’s Horn Mountain and Marlin, Chevron’s Blind Faith and Petronius, BHP’s Shenzi and Neptune and BP’s Atlantis, Mad Dog, Na Kika and Thunder Horse facilities, the companies said.

Norwegian state oil company Equinor evacuated its Titan production platform and Exxon Mobil Corp removed staff from its Lena production platform, the companies said. Exxon said it did not expect the staff reduction to affect output.

Hess Corp and Royal Dutch Shell said they were monitoring the storm and would take action as needed. Shell was securing some drilling operations on Monday but facilities were staffed and operating, spokeswoman Kimberly Windon said.

The storm’s intensity is being fed by warm sea surface temperatures and a lack of upper-level windshear, forecasters said. Those conditions should result in 15-foot to 20-foot waves, “enough to be disruptive of oil production operations” west of the storm track, said John Tharp, operations supervisor at Weather Decision Technologies.

Shipping ports including Gulfport and Pascagoula, Mississippi; Mobile, Alabama, and Pensacola, Florida, were open on Monday, but the U.S. Coast Guard warned of gale-force winds in the next 48 hours.

Offshore production in the Gulf accounts for 17 percent of total U.S. crude oil output, according to the U.S. Energy Information Administration. Natural gas production from Gulf offshore operations provides 5 percent of the U.S. total.

Over 45 percent of U.S. refining capacity is located along the Gulf Coast, along with 51 percent of the nation’s natural gas processing plant capacity, the EIA said. (Reporting by Gary McWilliams and Liz Hampton in Houston Editing by Jonathan Oatis and Dan Grebler)

 

CNBC / Gary McWilliams and Liz Hampton / October 8

 

USMCA: Who are the winners and losers of the ‘new NAFTA’?

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Washington Post / Heather Long / October 1

Trump and Trudeau can tout this as a major victory ahead of key elections in their countries. It’s a lot less clear whether ‘NAFTA 2.0’ is good for Mexico and U.S. automakers.

The United States, Canada and Mexico finalized a sweeping new trade deal late Sunday, just hours before their Oct. 1 deadline. President Trump was up early Monday tweeting that the agreement is “a great deal for all three countries,” and Prime Minister Justin Trudeau said Sunday night that it was a “good day for Canada.”

The deal is expected to take effect around Jan. 1, 2020. Congress has to approve it, a process that will take months, but confirmation looks likely, given that Republicans are pleased Canada got on board and some Democrats are pleased with the stronger labor provisions.

Here’s a look at who’s smiling — and who’s not — as the world sees this news.

Winners:

President Trump. He got a major trade deal done and will be able to say it’s another “promise kept” to his voters right before the midterm elections. And he won the messaging game — he persuaded Canada and Mexico to ditch the name “NAFTA,” for North American Free Trade Agreement, which he hated, and to instead call the new agreement “USMCA,” for United States-Mexico-Canada Agreement. It’s not a total trade revolution, as Trump promised, but USMCA does make substantial changes to modernize trade rules in effect from 1994 to 2020, and it give some wins to U.S. farmers and blue-collar workers in the auto sector. Trump beat his doubters, and his team can now turn to the No. 1 trade target: China.

Prime Minister Justin Trudeau. There might not be a lot of love lost between Trump and Trudeau, but in the end, Trudeau didn’t cave much on his key issues: dairy and Chapter 19, the treaty’s dispute resolution mechanism. Trudeau held out and got what he wanted: Canada’s dairy supply management system stays mostly intact, and Chapter 19 remains in place, a win for the Canadian lumber sector. On dairy, Canada is mainly giving U.S. farmers more ability to sell milk protein concentrate, skim milk powder and infant formula. On top of the substantive issues, Trump went out of his way to criticize the Canadian negotiating team in the final days of deliberations, which Trudeau can play up as a sign of just how hard his staff fought on this deal.

Labor unions. This agreement stipulates that at least 30 percent of cars (rising to 40 percent by 2023) must be made by workers earning $16 an hour, about three times the typical manufacturing wage in Mexico now. USMCA also stipulates that Mexico must make it easier for workers to form unions. The AFL-CIO is cautiously optimistic that this truly is a better deal for U.S. and Canadian workers in terms of keeping jobs from going to lower-paying Mexico or to Asia, although labor is looking carefully at how the new rules will be enforced. It’s possible this could accelerate automation, but that would take time.

U.S. dairy farmers. They regain some access to the Canadian market, especially for what is known as “Class 7” milk products such as milk powder and milk proteins. The United States used to sell a lot of Class 7 products to Canada, but that changed in recent years when Canada started heavily regulating this new class. USMCA also imposes some restrictions on how much dairy Canada can export, a potential win for U.S. dairy farmers if they are able to capitalize on foreign markets.

Stock market investors. A major worry is over, and the U.S. stock market rallied Monday with the Dow gaining nearly 200 points.

Robert E. Lighthizer. Commerce Secretary Wilbur Ross and Treasury Secretary Steven Mnuchin couldn’t get major trade deals done for the president, but U.S. Trade Representative Lighthizer did. He led negotiations with South Korea on the revamped U.S.-South Korea trade deal (KORUS) that the president just signed, as well as on the “new NAFTA.” Lighthizer is proving to be the trade expert closest to Trump’s ear.

Losers:

China. Trump is emboldened on trade. A senior administration official said Sunday that the U.S.-Canada-Mexico deal “has become a playbook for future trade deals.” The president believes his strategy is working, and he’s now likely to go harder after China because his attention won’t be diverted elsewhere (at least on trade matters).

U.S. car buyers. Economists and auto experts think USMCA is going to cause car prices in the United States to rise and the selection to go down, especially on small cars that used to be produced in Mexico but may not be able to be brought across the border duty-free anymore. It’s unclear how much prices could rise (estimates vary), but automakers can’t rely as heavily on cheap Mexican labor now and there will probably be higher compliance costs.

Canadian steel. Trump’s tariffs on Canadian steel and aluminum remain in place for now, something Trudeau has called “insulting” since the two countries are longtime allies with similar labor standards.

Unclear:

Mexico. America’s southern neighbor kept a trade deal in place, but it had to make a lot of concessions to Trump. It’s possible this could stall some of Mexico’s manufacturing growth, and it’s unclear whether wages really will rise in Mexico because of this agreement. Big energy companies can also still challenge Mexico via Chapter 11, something that could constrain Mexico’s new government as it aims to reform energy policies.

Ford, GM, Chrysler and other big auto companies. There’s relief among auto industry executives that the deal is done, but costs will be high for big car companies: The steel tariffs are still in place on Canada; more car parts have to come from North America (not cheaper Asia); and more car components have to be made at wages of $16 an hour. It remains to be seen how car companies are able to adjust and whether this has long-term ramifications for their bottom lines.

Big business. Many business groups are relieved that Trump got a trilateral deal and didn’t end up tearing up NAFTA entirely, as he had threatened to do. And they like a lot of the trademark and patent provisions. But the details of USMCA include some losses for big business. Some regulatory compliance costs will probably rise, especially for automakers, and big business lost Chapter 11, the investor dispute settlement mechanism that companies have used to sue Canadian and Mexican governments (the one exception is that energy and telecommunications firms still get a modified Chapter 11 with Mexico).

Washington Post / Heather Long / October 1

Feature: Mexico’s oil industry cautiously optimistic of future energy policy

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S&P Global / Daniel Rodriguez / Edited by Pankti Mehta / October 1

 

Mexico City — Oil and gas executives attending last week’s Mexican Petroleum Congress (CMP) in Acapulco told S&P Global Platts that they were cautiously optimistic about the future of the country’s energy reform, pointing to higher oil prices and some clarification of President-elect Andres Manuel Lopez Obrador’s policies.

The conference took place as Lopez Obrador held a closed-door meeting with the country’s association of hydrocarbon producers, AMEXHI, on Thursday in Mexico City.

The incoming administration gave a firm message: Mexico will continue the energy reform and private upstream investment as long as they can deliver results by boosting output.

The meeting cleared some uncertainties that had built up since Lopez Obrador’s electoral victory in July. Obrador has been historically opposed to private investment in Mexico’s energy sector.

PRIVATE OPERATORS TO PRODUCE 280,000 B/D: LOPEZ OBRADOR

According to a video of the meeting obtained by Platts, Lopez Obrador told operators that the future of the reform rested on their shoulders.

“We want to give you the opportunity to invest and work on this reform,” Lopez Obrador said. However, companies must invest and boost output to prove the success of the country’s new energy model.

The president-elect said his goal is that private operators produce 280,000 b/d of crude oil and 305 MMcf/d of the natural gas by the end of his term in 2024. “That would be the ideal. We aren’t asking for more and we are happy with that level,” he said.

This is a very conservative projection compared to the 430,000 b/d estimate shared by outgoing Energy Secretary Pedro Joaquin Coldwell at the inauguration of CMP.

At a webcast press conference Thursday, Mexico’s future energy secretary Rocio Nahle said that auction rounds would be halted. She said the country first needs to evaluate the 110 contracts awarded to date because they have not helped boost domestic production.

“It would be irresponsible to continue auctioning areas without a previous production gain [from awarded areas],” Nahle said.

OPERATORS ARE CALM WITH INCOMING GOVERNMENT

AMEXHI members are allies of the state and can collaborate with Pemex to “continue strengthening Mexico’s energy security,” Alberto de la Fuente, AMEXHI’s president, said in a statement Thursday.

This message of partnership was also shared by senior executives from BHP Billiton, BP, Chevron, DEA Deutsche Erdoel, Equinor, and Shell at the CMP.

“We aren’t here to replace Pemex but to complement it and help to achieve the incoming administration’s goal of boosting oil output,” Steve Pastor, BHP Billiton’s president for petroleum operations, told Platts last week at the CMP.

De la Fuente denied that private operators were uncertain over the review of contracts awarded by the country’s National Hydrocarbon Commission (CNH).

In the statement, he said that AMEXHI members left the meeting with the incoming administration with the knowledge that Lopez Obrador will honor their contracts.

However, some industry members expressed their frustration to Platts at the conference about an apparent lack of understanding from the incoming administration on the long-term nature of the upstream industry.

INCOMING ADMINISTRATION WILL SEEK TO CUT RED TAPE

At the meeting with AMEXHI members, Lopez Obrador said his administration would work with regulators to cut the red tape and quicken the development of new projects.

“Some of you have told me permits take too long, and regulators delay your investment plans as well as Pemex’s activities,” Lopez Obrador said. “We are going to solve all bureaucratic roadblocks.”

Juan Carlos Zepeda, CNH’s president commissioner, told reporters Friday there was space to make the regulatory process leaner and more efficient while protecting the wellbeing of the country’s fields and hydrocarbon resources.

“We share views with President-elect Lopez Obrador and the industry … we are working toward that path without neglecting our responsibility of protecting Mexico’s reservoirs,” Zepeda said.

Right now, Mexico is more efficient than the US when it comes to the development of wells as CNH only requires notice from the operators instead of regulatory approvals, Zepeda said.

Also, CNH is working on a new process to expedite the approval of exploratory and development programs, which is currently under public consultation, he added.

A major regulatory roadblock for Mexico’s upstream sector has been Pemex’s framework to farmout projects via CNH auctions, Pemex senior officials said at CMP.

Zepeda said he supports the idea of Pemex being able to choose its own farm out partners. However, the company should maintain transparency levels upheld by CNH.

 

S&P Global / Daniel Rodriguez / Edited by Pankti Mehta / October 1

 

Canada trade minister pushes quick ratification of trade deal with Asia Pacific

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The Business Times / AFP / September 18

 

[OTTAWA] Canada’s trade minister on Monday signalled that the government will push ratification of the Trans Pacific Partnership quickly through parliament, as stalled North American free trade talks have raised concerns it could lose its privileged access to the US market.

“Rapid ratification of the TPP” will mean “farmers, ranchers, entrepreneurs and workers across the country can finally tap into new markets,” trade minister Jim Carr said in a speech to parliament.

Signed in March without the United States, the Trans-Pacific Partnership will come into effect 60 days after ratification by at least six of the 11 signatories – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The trading bloc represents 500 million consumers and 13 percent of the world’s economic output.

Ottawa wants to be among the first six TPP signatories, but is facing pushback from the powerful union representing Canadian auto workers. Unifor wants stricter labour standards written into the pact and for negotiations with the United States and Mexico to revamp the North American Free Trade Agreement completed first.

High-level talks ended last week with no deal, and no date has been set yet for Canada’s foreign minister Chrystia Freeland to return to Washington to continue negotiations.

For Canada, implementing the TPP is “of paramount importance,” said Mr Carr, if only to act as a counterbalance to growing US protectionism under US President Donald Trump, who has threatened to cut Canada out of a new continental trade deal if Ottawa didn’t give in to his demands.

“This is not just a new trade agreement for Canada, it is also a message we send to the rest of the world: trade is important, the rules are important and we will not give in to protectionism,” the minister said.

 

The Business Times / AFP / September 18

 

Chevron signs contract for refined fuels terminal in Mexico

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Hydrocarbons Technology / September 17

 

Chevron Combustibles de México has signed a long-term contract with Sempra Energy’s Mexican subsidiary, Infraestructura Energética Nova (IEnova), to use 50% of the initial capacity of the proposed Topolobampo refined fuels marine terminal.

IEnova is developing the refined fuels terminal in Sinaloa, Mexico, with an initial capacity of one million barrels.

Pursuant the contract, subsidiaries of Chevron will have storage capacity of 500,000 barrels of refined fuels.

In addition, Chevron will have an option to purchase up to 25% of the equity in the terminal following the commencement of commercial operations.

IEnova also signed a contract with an undisclosed US refiner for the remaining 50% of the facility’s initial storage capacity.

“The Topolobampo project provides an important supply source of refined fuels for Mexico.”

IEnova executive chairman Carlos Ruiz Sacristán said: “The Topolobampo project provides an important supply source of refined fuels for Mexico. Together, working with our customers, this terminal will increase reliability of supply, create jobs and provide benefits to millions of Mexican consumers.”

IEnova received a 20-year contract in July this year from the Topolobampo Port Administration Terminal to develop, construct and operate the marine terminal in Sinaloa.

The terminal involves an estimated investment of $150m and is expected to become operational in the fourth quarter of 2020.

Last week, IEnova reached a deal to allow British Petroleum to use 50% of the one-million-barrel initial capacity of the refined fuels Baja Refinados terminal, which is to be constructed in Baja California.

Earlier this year, Chevron booked the other 50% initial capacity of the Baja Refinados facility.

 

Hydrocarbons Technology / September 17