Mexico’s incoming leftist President could open US-Mexico energy relations

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The Daily Caller /Jason Hopkins / July 2

 

The election of Andrés Manuel López Obrador as Mexico’s next president has investors around the world on edge, waiting to see how the leftist leader will approach the oil and gas industry.

López Obrador handily won Mexico’s presidential election Sunday, capturing over 53 percent of the vote — more than double the percentage of the second-place finisher. His victory brings a new era of progressive populism to the U.S.’ southern neighbor. A member of the National Regeneration Movement Party, López Obrador touts a far-left pedigree: universal access to public colleges, an expansion of welfare programs, increased investment in industries and other big government proposals.

The president-elect’s calls for energy reform, however, has been the most striking to international observers. López Obrador pledged during the campaign to hold a referendum on reforms the country made several years ago that embraced measured degrees of privatization of the country’s oil sector.

Outgoing President Peña Nieto opened the country’s petroleum industry in 2013 to foreign investment, ending a decades-old monopoly held by Pemex, the country’s state-run petroleum company. The move was intended to revive Mexico’s oil and gas production, which is plagued with rampant inefficiency, debt and outdated equipment.

During the 2018 campaign, López Obrador derided these pro-market reforms. While promising to honor existing oil contracts, he believes the country should prioritize nationalization of the industry once again.

“As a long-time ally of national labor unions and a supporter of a strong [Pemex], [López Obrador] may seek to maximize national investment and employment in the sector, hedging Mexico’s political risk, even at the cost of economic efficiency,” David Goldwyn, chairman of the Atlantic’s Global Energy Center Advisory Group, noted Sunday.

Such reforms could have major implications for Mexico-U.S. energy relations, which hold very deep ties.

The U.S. currently exports a large amount of gas across the border and the Mexican government, in turn, sends heavy crude to American consumers. As crude oil imports to the U.S. has declined over the years, the trade imbalance between the two countries has shifted. U.S. energy exports to Mexico now exceeds its imports, according to the Energy Information Administration. These issues may come up as the Trump administration is set to renegotiate key agreements within the North American Trade Agreement with Mexico and Canada.

López Obrador, for his part, is no fan of Trump. The longtime Mexican politician wrote a book entitled “Oye, Trump” (“Listen, Trump”) that blasts the American leader for his calls to build a border wall and his “attempts to persecute migrant workers.” The book includes a number of speeches López Obrador has given. In one such speech, he compared Trump to Hiter, saying “Trump and his advisers speak of the Mexicans the way Hitler and the Nazis referred to the Jews, just before undertaking the infamous persecution and the abominable extermination.”

 

The Daily Caller /Jason Hopkins / July 2

 

Competitive fuel market is still some years off, analysts say

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Mexico News Daily / Mileno / June 25

 

Time, more investment required before gas prices will drop

It will take another two to five years to attain a truly competitive fuel market with lower gasoline prices for motorists, according to industry specialists.

The federal government’s 2013 energy reform opened up Mexico’s retail fuel market to foreign and private companies and there are now more than 2,000 gas stations that operate under a brand other than the state-owned Pemex.

But the increased competition hasn’t translated into cheaper fuel prices as had been expected.

“It was thought that it would be faster but that’s not the case,” said Rodrigo Favela, a consultant and fuel market analyst.

Favela told the newspaper Milenio that based on experiences in other countries, creating a competitive market takes time.

In addition, greater competition in the retail fuel market is not enough on its own to generate lower fuel prices, according to Mexico’s central bank.

In its regional economies report for the last quarter of 2017, the Bank of México said greater investment is needed in the entire gasoline supply chain from the refinery to the gas station in order for prices to drop.

Sebastián Figueroa, CEO of energy operator FullGas, told Milenio that gas stations in the north of the country could start competing on price within one to two years.

He cited proximity to the United States, the presence of existing pipelines, greater ease with which fuel can be imported and lower logistics costs as factors that will likely see fuel prices drop more quickly there than in other parts of the country.

In central states, Figueroa predicted that it would be another three to four years before competitiveness among gas stations increases due to the need for more infrastructure while in the southeast of Mexico, it could take up to five years or more.

In the latter region, the development of the new infrastructure that is needed — such as pipelines —is more complicated because of geological factors, he said.

Considering that fuel prices have actually risen since Mexico’s previously monopolized fuel market opened up, Milenio asked the president of the Senate’s energy committee whether energy reform should be considered a failure.

Salvador Vega Casillas, of the opposition National Action Party (PAN), rejected that suggestion but said it was a mistake to liberalize fuel prices at a time when the value of the US dollar was high against the peso. Gasoline prices were fully deregulated by November 30 last year.

However, Figueroa said that if the government had waited any longer to free prices, more problems could have been created for the sector because a subsidized model is not sustainable.

He maintained that the reform is a positive for Mexico, charging that having only one participant in the downstream sector led to inefficiency whereas competition forces gas stations to offer better deals to motorists.

Federal Energy Secretary Pedro Joaquín Coldwell has also contended that an open and competitive market is the best way to achieve gasoline prices that are accessible to all Mexicans.

Favela explained that there are three main factors that determine the price of petroleum at the pump: international crude oil prices, the prevailing exchange rate and logistics costs.

In order to generate a more competitive market, he argued, all petroleum companies should have non-discriminatory access to the nation’s oil terminals and ports.

Despite opening up the domestic fuel market to new players, the majority of Mexico’s petroleum infrastructure is still controlled by the state oil company Pemex.

The average price of regular — or Magna — gasoline has risen 17% this year, according to the consultancy PETROIntelligence, from 16.24 pesos per liter at the beginning of January to 19 pesos. Prices were as high as 19.11 pesos on Friday in Guadalajara.

 

Mexico News Daily / Mileno / June 25

 

Electronic cyberattacks in Mexico raise alarm bells ahead of Sunday’s election

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Bloomberg / Eric Martin with assistance by Michael Riley from Bloomberg / June 25

While Mexicans will cast their vote July 1 by paper ballot, electronic systems will be used to tally and transmit the results, which the electoral authorities will then release to trusted media outlets. The slightest disruption to the voting process can sow doubt and distrust, said Ron Bushar, vice president of government solutions for cybersecurity services company Mandiant. Tensions are already high in the country given that polls show Mexicans are likely to elect a leftist for the first time in almost five decades. That candidate, Andres Manuel Lopez Obrador, has accused his rivals of fraud and collusion to keep him from winning in the past two presidential elections, while his opponents say that his presidency would be a disaster for Mexico’s economy. Such polarization is fertile ground for cyber criminals. “The outcome of an election almost doesn’t matter” for hackers, Bushar said. It’s about “calling into question the legitimacy (of the process) or creating a lot of tension between the political parties.”

A warning came last December, when former U.S. National Security Adviser H.R. McMaster said that there was evidence of Russian interference in Mexico’s campaign, although he didn’t elaborate on how Russia was seeking to influence the process. Russia was mentioned again this month when candidate Ricardo Anaya’s team said a website it created to publish information questioning ties between Lopez Obrador and a contractor, was shut down by “an attack”. The Anaya campaign said the hack originated in Russia. The campaigns of Lopez Obrador, Anaya and Jose Antonio Meade didn’t immediately respond to requests for comment.

Achilles Heel

“Cybersecurity continues to be a potential Achilles heel of Mexico’s electoral process,” said Arturo Sarukhan, a former Mexican ambassador to the U.S. Part of the concern stems from other hacks in Mexico recently. The state-owned export promotion bank Bancomext suffered an attempted cyber theft of $110 million in January. In April and May, hackers succeeded in infiltrating five financial institutions including Grupo Financiero Banorte SAB and stole at least $15 million from lenders. “I think the election system is really vulnerable, more vulnerable than the banks,” said Israel Reyes, an international consultant in cyber security, who worked this year as a contractor for Mexico’s National Polytechnic Institute as part of a broader plan for election day commissioned by the country’s national electoral institute, known as INE. Reyes said he’s concerned that the institute is unprepared to respond to a cyber attack or systems failure. The project Reyes worked on alongside specialists from Harvard and the MIT was terminated in March by the Polytechnic Institute, which cited inadequate time to complete it.

‘Attack Map’

The most likely attack in Mexico is one that would involve multiple information requests, known as a Distributed Denial of Service attack, which would overwhelm and crash INE’s website. That’s the kind of attack that the Anaya campaign said it suffered during the presidential debate on June 12. INE is working to mitigate risks, said Jorge Torres, INE’s chief of information services, who has worked there for almost two decades. “We have personnel with lots of experience in these issues, and we also have third parties auditing.” On the wall of his office at the institute’s headquarters in Mexico City, Torres has eight screens that constantly monitor INE’s information systems, including a “Digital Attack Map” showing daily cyber attacks around the world. The only part of the electoral system connected to the Internet is INE’s main website, which itself won’t even have a vote count but will provide a list of media outlets that can provide the preliminary tally, Torres said. Other communications systems run on an internal network and are protected, he said. INE has been simulating attacks on its systems to try to detect any vulnerabilities ahead of the vote. The institute also hired Scitum, a company owned by billionaire Carlos Slim, who controls Mexico’s biggest phone company and a majority of its telecommunications infrastructure, to double-check its work. Scitum didn’t return e-mails and phone calls asking about its tests. “There can always be risks, but we look to minimize them as much as possible,” Torres said.

 

NAFTA negotiations: Mixed feelings for US companies on Mexican border

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America CGTN / Steve Mort / June 18

 

The U.S., Canada, and Mexico say talks on the North American Free Trade Agreement (NAFTA) will press ahead despite Washington’s steel and aluminum tariffs. But recent tensions between the U.S. and Canada are casting doubt on whether a deal is possible.

At Allen Russell’s warehouse in the border city of El Paso, materials are processed for shipment to factories in Mexico. His company depends on those shipments being tariff-free under NAFTA, so he rejects President Trump’s claim that the trade deal is the worst ever made.

“It is not the worst trade deal. It has done more for North America than could even have anticipated.”

Russell’s business provides U.S. corporations with manufacturing facilities employing around 8,000 people in Mexico, where labor costs are lower. He fears that without NAFTA, his cost of doing business will rise.

“The American consumer is going to pay the bill,” according to Russell. “The product is just going to be more expensive. It doesn’t mean anybody is going to move from Mexico to the US to produce the product.”

The US-Mexico border region is one of the largest in the world. Its population exceeds 2.5 million, with an economy to match. Mexico is Texas’ largest export market, with cross-border trade worth hundreds of billions annually.

More than 1/5 of that trade crosses the border in El Paso.

Thomas Fullerton, a professor at the University of Texas at El Paso, studies the region’s economy and the potential impact should NAFTA talks fail.

“It will throw a monkey wrench into how things operate rather seamlessly at this point,” he explained. “Existing operations will probably remain in place, but the level of investment and business formation will plummet.”

But not everyone is so sure. Nicole Grado’s company sells packaging. Up to 90 percent of her customers ship internationally. She’s looking for ways to diversify her business and says she’s confident other US companies could thrive without NAFTA.

“There would be changes, but I think it’s like everything: you adjust to those changes and you adapt,” the CEO said. “You figure out ways to continue moving forward.”

While the outcome of the NAFTA talks remains far from certain, business on the border continues. El Paso’s economy is projected to grow two percent in 2018.

But most here hope a long-term deal can be reached soon, to avoid the lingering uncertainty hanging over this region’s economy.

 

America CGTN / Steve Mort / June 18

 

Enbridge (ENB) Commences Mex-Border Pipeline’s Offshore Work

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Zacks Equity Research / June 14

 

Enbridge Inc. (ENB – Free Report) recently started construction work on its Valley Crossing natural gas pipeline’s border crossing offshore part, per Reuters. The $1.6 billion pipeline that lies between Mexico and Texas is scheduled to come online in October.

The energy infrastructure company is currently working on a 305-meter part of the pipeline’s offshore section, while the rest 165-mile onshore and offshore section is ready for operation. The company has plans to start the pipeline’s commissioning process soon.

Significance of the Pipeline

The Valley Crossing pipeline has a shipping capacity of 2.6 billion cubic feet of natural gas per day (Bcf/d). It will transport gas from Texas to Mexico’s growing energy market. Following the energy reform in Mexico, the country witnessed a rising interest from international oil and gas companies.

Energy-related imports have risen in the country over the past few years. Mexico’s year-to-date average gas import from the United States currently stands at 4 Bcf/d.

The pipeline is designed to supply clean burning gas primarily to the Mexican state-run utility company, Federal Electricity Commission aka CFE, which has around 37 million clients. Moreover, the pipeline is expected to open new market opportunities for the gas producers in Texas. As a result, Enbridge’s cash flow is expected to benefit immensely.

There’s More

The Valley Crossing pipeline would to be connected to the Sur de Texas-Tuxpan pipeline in the Gulf of Mexico, and is expected to create a huge pipeline network between the United States and Mexico. The Sur de Texas-Tuxpan pipeline is currently being built by a joint venture between Sempra Energy (SRE – Free Report) and TransCanada Corp. (TRP – Free Report) .

Price Performance

Calgary Canada-based Enbridge has lost 14% in the past year compared with 7.4% decline of its industry.

Zacks Rank and One Stock to Consider

Enbridge Energy carries a Zacks Rank #3 (Hold). Investors interested in the Energy sector can opt for a better-ranked stock like Delek US Holdings, Inc. (DK– Free Report) that sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Brentwood, TN-based Delek is an energy company. The company’s top line for 2018 is anticipated to improve 39.2% year over year, while its bottom line is expected to increase 230.2%.

 

Zacks Equity Research / June 14

 

Mexico minister calls for ‘flexibility’ in reworking Nafta

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The Daily Star / Reuters, Tokyo / June 12

 

Mexican Economy Minister Ildefonso Guajardo said on Monday the only way countries re-negotiating the North American Free Trade Agreement (Nafta) will find a solution is through “sufficient flexibility” to narrow differences.

Guajardo said US, Mexican and Canadian negotiators will be “engaging strongly” in July to reach an agreement that is “feasible, workable and benefits the three nations involved.

“The only way we will find that solution is if countries involved have sufficient flexibility to be able to find that narrow strip where we have to land,” he said.

“An agreement that does not give us certainty, does not give us rules that have to be obeyed and mechanisms to settle disputes will not be of help for the business community.”

He said there was a “high chance” there will be an agreement on renegotiating Nafta, but the timing depends on how flexible each country can be.

The United States, Canada and Mexico have been in months of negotiations to rework Nafta, which President Donald Trump says harms his country.

White House economic advisor Larry Kudlow has said Trump will seek to replace Nafta with bilateral deals with Canada and Mexico, something both countries say they oppose.

US trading partners have been furious over Trump’s decision to impose tariffs on steel and aluminum imports from Canada, the European Union and Mexico as part of his “America First” agenda.

Fears of a global trade war come as Trump’s decision to back out of the G7 joint communique torpedoed what appeared to be a fragile consensus on a trade dispute between Washington and its top allies.

 

The Daily Star / Reuters, Tokyo / June 12

 

Risk And Reform: Observing Effective Controls In Mexico’s Rapidly Transforming Energy Sector

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Forbes / Armando Ortega / 11 Junio

 

MEXICO CITY—For decades, the most relevant compliance legislation for international companies operating in Mexico was the US Foreign Corrupt Practices Act. Now, as a result of major national economic and legal reforms enacted during President Peña Nieto’s administration from 2012-2018, Mexico’s compliance environment has undergone a transformation. As foreign investment pours into Mexico’s recently opened oil and gas sector, legal entities are now criminally liable for any offenses or irregularities committed in their name, making the case for a robust compliance strategy that includes due diligence investigations into possible business partners.

A changing landscape: Mexico’s Energy Reform

Mexico enacted a historic reform program in December of 2013 that opened its oil and gas sector to foreign investment following 75 years of government ownership. Mexico’s energy reform plan was part of a broader, cross-sector effort by President Enrique Peña Nieto to boost the Mexican economy. Since its implementation, there have been three bidding rounds—the latest of which closed in March 2018—that have raised a total of $161.3 billion for investments that will take place until 2025. Fourteen percent of total investment is for public-private partnership projects between domestic and international companies and the Mexican state-owned oil company, Petróleos Mexicanos (Pemex). With these investments, Pemex expects to significantly increase Mexico’s current production of 2 million barrels per day to a hypothetical 3.4 million barrels per day.

There is significant international interest in the process, with 34 companies securing bids. The US, with nine companies, and the UK, with four, lead the pack. Royal Dutch Shell, Qatar Petroleum, British Petroleum and Chevron are just a few of the major multinationals that have a stake in Mexico as a result of the energy reform.

Although significant opportunities are opening up in the sector, it is key that international investors understand the complexities involved with the energy reforms, as they are occurring amid a rapidly changing regulatory environment and era of overall reform resulting from the Peña Nieto years, and as part of a broader shift in sentiment among the Latin American public in the fight against corruption.

The National Anticorruption System and the new compliance environment

In what can be best understood as a citizens’ effort, a set of new legislative and constitutional reforms have been introduced in Mexico since May 2014, culminating in the establishment of the National Anticorruption System (SNA) in July 2016. The SNA is defined as a coordinating body between various institutions, including the Superior Audit of the Federation and the Federal Court of Administrative Justice, among others, to create mechanisms of collaboration and coordination to effectively prosecute corrupt practices.

The SNA is still in its early stages; a Specialized Prosecutor’s Office in Combating Corruption has yet to be properly established, and the Mexican Congress has yet to elect the Anticorruption Prosecutor. However, despite the lack of distinct progress, parts of the legal reforms introduced to create the SNA already have far-reaching implications.

 

Forbes / Armando Ortega / 11 Junio

 

 

 

Mexico’s central bank chief sees risk from protectionism to economy: paper

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Reuters / Reuters Staff / june 4

 

MEXICO CITY (Reuters) – Protectionist trade measures could hit Mexican economic growth and inflation, Mexico’s central bank governor said in comments published by newspaper Reforma on Monday, in the wake of U.S. import tariffs on Mexico, Canada and the European Union.

 

Mexico now faces new tariffs of 25 percent on steel and 10 percent on aluminum after temporary exemptions expired, prompting Latin America’s second biggest economy to slap tariffs on U.S. products such as pork and cheeses.

 

“It’s an element of risk, the fact that protectionist measures are beginning to spread and that it generates a less favorable environment for international trade,” Mexico Central Bank Governor Alejandro Diaz de Leon said.

“The fact of this risk – which is already materializing in some actions against international trade – is an element of worry due to its influence on the side of growth and on the side of inflation,” he added.

The flurry of tariff hikes come as talks drag on among Mexico, Canada and the United States to overhaul the North American Free Trade Agreement (NAFTA).

 

Reuters / Reuters Staff / june 4

 

 

Rangeland Energy Begins Operations at its South Texas Energy Products System (STEPS) Terminal Facility in Corpus Christi, Texas

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Oil and Gas 360 / june 5

 

SUGAR LAND, Texas

Rangeland Energy III, LLC (“Rangeland”) today announced that operations commenced at its STEPS terminal in Corpus Christi, Texas, on Monday, June 4. Rangeland also announced that in June the company will begin loading diesel onto railcars for a leading refined products customer. The diesel will be delivered to third-party inland terminals in Mexico via the Kansas City Southern Railway(NYSE: KSU).

“Rangeland is looking forward to facilitating the transportation of diesel to destinations in Mexico for a major industry player,” said Rangeland President and CEO Christopher W. Keene. “This is the first customer to contract with us for services at the STEPS facility. As we continue to build out the STEPS project, we are working with other key marketers, refiners and producers to provide services into and out of STEPS.”

About STEPS

STEPS is an integrated hydrocarbon logistics system that receives and stores refined products, liquefied petroleum gas (“LPG”) and other hydrocarbons at a new terminal hub located in Corpus Christi, Texas, and transports them to terminals primarily located in Mexico. During the initial phase of the project, refined products and LPGs will be received in the Corpus Christi terminal then shipped to third-party inland terminals located in Mexico. In subsequent phases, marine facilities in Corpus Christi and Mexico will be added to the system, along with the infrastructure to accommodate additional commodities including crude oil, condensate and fuel oil. The STEPS project expands upon and leverages Rangeland’s successful track record of developing similar infrastructure in the Bakken Shale and Permian Basin.

The terminal site in Corpus Christi is strategically situated along the Kansas City Southern Railroad mainline within five miles of the Port of Corpus Christi and the Valero, CITGO and Flint Hills refineries. Inbound products initially will be delivered by truck or rail, followed later by pipeline and barge. Refined products and LPGs will move out of the STEPS Corpus Terminal primarily by rail, but the terminal could eventually connect to pipelines and vessels.

About Rangeland Energy

Headquartered in Sugar Land, Texas, Rangeland Energy was formed in 2009 to focus on developing, acquiring, owning and operating midstream infrastructure for crude oil, natural gas, natural gas liquids and other petroleum products. The company is focused on emerging hydrocarbon production areas across North America, with a current emphasis on the Gulf Coast and Canada. The Rangeland team represents more than 200 years of combined midstream experience and is backed by an equity commitment from EnCap Flatrock Midstream. Visit www.rangelandenergy.com for more information.

 

Oil and Gas 360 / june 5

 

Netherland Sewell Adds Mexico City to the 2018 Oil & Gas Property Evaluation Seminar Lineup

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Oil & Gas 360º / May 29

 

NSAI Oil & Gas Property Evaluation seminars coming to London, Singapore and Mexico City this summer

Netherland Sewell & Associates (NSAI) has again expanded the reach of its popular Oil & Gas Property Evaluation Seminars for financial professionals, with the new addition of a seminar in Mexico City on September 5-6, 2018.

“We are very excited to introduce the NSAI Oil & Gas Property Evaluation seminars to Mexico,” said NSAI SVP & CFO Scott Frost. “With the country opening its hydrocarbon sector to foreign investors and international partners, the time is right for NSAI to host a seminar in Mexico.”

Seminars deliver a basic understanding of the upstream oil and gas industry

The two-day seminars are designed to help energy finance professionals gain a deeper understanding of the various aspects of the evaluation of hydrocarbon reserves and learn how to use reserves reports and studies.  Participants can expect to gain a basic understanding of the upstream oil and gas industry, including basic geology of different plays, reservoir evaluation basics, reserves and resources definitions, understanding hydrocarbons-in-place, recovery factors and rates, operating expenses and capital costs, and more.

The seminar speakers are NSAI professionals that have significant career expertise in reserves determination methods, the economics of hydrocarbon extraction, and petroleum geology. The seminars are popular with financial institutions that invest in energy development as well as banks that are involved in making lending decisions for oil and gas exploration and production projects.

Below is the 2018 NSAI Oil & Gas Property Evaluation seminar calendar:

  • May 7 & 8 and 9 & 10, 2018 – Dallas (Both sessions had record attendance with a waiting list)
  • June 26 & 27, 2018 – London: Grange City Hotel
  • July 10 & 11, 2018 – Singapore: Singapore Exchange – SGX Auditorium
  • September 5 – 6, 2018 – Mexico City: Asturiano Polanco Banquet Room

NSAI encourages energy industry and oil and gas financial professionals to pass this information on to colleagues who may benefit from attending. “We are excited about the opportunity to meet again with petroleum industry financial professionals and would like to thank you for recommending our seminars to your colleagues,” said NSAI SVP Joseph Spellman.

Scott Rees, NSAI Chairman and CEO, told Oil & Gas 360® that the firm has graduated about 6,500 people during 38 cumulative years of seminars in Dallas, London and Singapore. “We are glad to be adding Mexico City to that list,” Rees said.

Interested parties may learn more and register at NSAI’s website.

 

Oil & Gas 360º / May 29