Mexico is working to contain the fallout of perceived US policy shifts on its newly opened energy sector.
The unexpected victory of Donald Trump in the 8 November US election sent the value of the Mexican peso tumbling before it recovered slightly in response to Trump's softened tone toward the North American Free Trade Agreement (Nafta), which he has pledged to renegotiate, and other heated campaign issues.
The 2014 oil price collapse had already left Mexico's state-run oil company Pemex in a tight financial spot long before the US election. But the weakened peso and potential US tax and trade policy changes add to concerns about the operating environment for the distressed company.
Mexico's finance secretary Jose Antonio Meade and state-run Pemex chief executive Jose Antonio Gonzalez Anaya met with foreign investors, financial analysts and credit rating agencies in Mexico City in recent days in an effort to allay concerns about the firm's financial health.
"In spite of the external environment, the growth of our country has proved resilient," said Meade, citing the recent US presidential election, currency volatility, and the 2014 drop in global oil prices.
Pemex reported a 118.3bn peso ($5.8bn) third quarter loss, and is faced with implementing a 100bn peso budget cut next year – the second in two years. Its crude production has been declining since reaching a peak at 3.4mn b/d in 2004. The firm is targeting 1.944mn b/d for 2017.
Credit rating agency Fitch Ratings said Pemex faces the threat of insolvency. "The company's indebtedness may be approaching a level that will be unsustainable by a normal corporation and if the debt trajectory continues, it could make Pemex insolvent in the medium term," Fitch senior director Lucas Aristizabal said in a recent conference call.
The weakened peso renders imported refined products more expensive for Mexico, and there has been some speculation that a Trump administration would attempt to impose duties on US gasoline or pipeline gas exports or import tariffs to finance a border wall to deter illegal immigration.
But the many US oil and gas companies invested in the opening of Mexico's energy sector are seen as a check on Trump's proposals. This is especially true for growing US pipeline gas exports to Mexico.
"I doubt he would try to shut down any of the gas pipeline projects, there are too many economic interests involved," said Javier Gutierrez, deputy director of modernization at state-owned utility CFE, during the Platts Mexico Energy conference this week in Mexico City.
Several cross-border gas pipelines including the Nueva Era pipeline, to be operated by US firm Howard Energy Partners and Grupo Clisa, the Sur de Texas-Tuxpan pipeline and Tuxpan-Tula pipeline, both to be operated by TransCanada and US Sempra subsidiary IEnova, are expected to start operations in 2017-18.
"Running for office and governing are two different things, and Mr. Trump is advised by people who have a keen interest in the energy business that are not going to let him jump off a cliff," says Kenneth Irvin, a partner at law firm Sidely Austin that represented Mexican state-run utility CFE in negotiations for each of the pipeline contracts.
Cross-border electricity interconnection projects are also expected to continue as planned, Jeff Pavlovic, the Mexican energy ministry's director general of electricity coordination, told Argus on the sidelines of the conference. "It's an economic question at the end of the day, and so if it makes economic sense I imagine it will go ahead," he said.
