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Mexican election could tip balance for energy policy

  • Market: Crude oil, Metals, Oil products
  • 02/06/21

Victory for the ruling party in Mexico's midterm elections this month could further erode the country's draw for international investment after recent energy reforms have led to a wave of lawsuits and complaints.

On 6 June, Mexicans will elect all 500 members of the lower house of congress, 15 of 32 state gubernatorial seats, and thousands of local lawmakers. President Andres Manuel Lopez Obrador's Morena party is trying to increase its current simple majority in the lower house to a two-thirds majority, which would allow it to modify the constitution — including the 2014 energy reform.

Recent reforms by the ruling party have already hurt business confidence. Companies in industries from energy to food to automotive are taking both domestic and international legal action.

"Certainly, the administration's rollback of some of the energy reforms made under the prior administration should raise some concerns with investors, not only in the US but throughout the world," said Jon Barela, chief executive of the Borderplex Alliance, an economic development group in the El Paso-Ciudad Juarez region.

Unsteady outlook

But Morena's chance of a sweep is less solid than it once looked.

Morena is likely to lose its legislative majority amid growing social discontent and the president's declining popularity, political risk company Control Risks said last month.

The party has faced harsh criticism for its handling of the May collapse of a section of an elevated metro line in Mexico City — built during the city administration of Lopez Obrador allies — that killed at least 23 people.

Morena could lose its simple majority and win only 227 seats in the 500-seat lower house — down from the 256 it holds — while opposition parties PAN and PRI could increase their numbers to 81 from 77 and 61 from 48, respectively, according to pollster Oraculus.

But others disagree. The decline in Covid-19 cases and gradual reopening of the economy will work in Morena's favor, countered JPMorgan's Mexico economist Gabriel Lozano, and likely allow the president's party to at least retain the simple majority in the lower house.

"We believe Morena/[Lopez Obrador] will consolidate its power, and will continue to move forward with a populist agenda," Lozano said.

At the state level, Morena is expected to win between six and nine governorships — up from the six it currently holds — while the PRI party that oversaw the 2014 energy reform is forecast to lose seven.

But final results could vary between 10-47pc given a high number of undecided voters in many states, polling companies said.

Fuel for the fire

Election results could help determine the fate of recent changes to the refined products markets that courts have deemed unconstitutional. The government will decide whether to fight challenges in the courts or send new proposals to the next legislature after the election, energy minister Rocio Nahle has said.

The reforms could lead to fewer players in the market, limiting competition, pushing up prices, and increasing state-owned Pemex's market share and power, Mexico's competition watchdog (Cofece) has warned.

Yet the fuels sector could also have an impact on the mid-term election.

Mexico's president has understood the weight of fuel prices on voters, as some of the country's biggest protests in recent years came in response to the lifting of price caps in 2017. He vowed that fuel prices will not rise above inflation, but during April regular gasoline prices increased by 35pc from the same period of 2020, pushed by increases in international prices. That is much more than the inflation for that same period that rose 6.1pc. The government has not been entirely clear on the timeframe it uses to measure this pledge.

The president further highlighted his drive toward fuel self sufficiency recently with Pemex's deal to buy Shell's majority interest in its joint venture 340,000 b/d refinery in Deer Park, Texas, on 24 May — 13 days before the election.

Power upstream

The election could help decide similar legislative challenges for power and gas, and provide hints on upstream policy.

Lopez Obrador's incremental approach to re-establishing Pemex and CFE monopolies — initially timid regulatory changes and directives to energy regulators to favor state companies where possible — have been thwarted by legal action.

Amid the failure to assert his policy aims within the existing legal framework, Lopez Obrador launched a fast-tracked electricity reform in February that sought to definitively establish CFE's market dominance and revoke a number of private-sector generation permits. The law is now subject to more than 30 private sector injunctions and several supreme court challenges.

If courts permanently throw out the new electricity law, Lopez Obrador's only remaining option would be reforming constitutional energy provisions.

A majority could also embolden Lopez Obrador to take steps to reduce existing private sector participation in the upstream industry. The president has vowed to respect the 111 exploration and production contracts awarded in the three upstream auctions, but attempts to revoke existing contracts in the power sector have rattled investors.

The election "is an inflection point for Mexican politics," said Barela of Borderplex, who was formerly New Mexico's economic development cabinet secretary. "I can only assume that pragmatism will ultimately win out and that the leaders of the Morena party will realize the business sector is not their enemy. It is in fact the sector which will generate the revenue that they will need to provide the social benefits that they so desperately want to distribute."


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22/11/24

Cop: Brazil eyes $300bn/yr for climate finance goal

Cop: Brazil eyes $300bn/yr for climate finance goal

Baku, 22 November (Argus) — Brazil has set out a suggestion of "at least" $300bn/yr in climate finance to be provided by developed countries to developing nations. Brazilian representatives set out their proposal today, in response to a draft text on a new climate finance goal. Brazil's proposal of $300bn/yr in climate finance by 2030 and $390bn/yr by 2035 are in line with the recommendations of a UN-mandated expert group. Negotiations at Cop are continuing late into the evening of the official last day of the conference, with no final texts in sight. Discussions centre around the new collective quantified goal (NCQG) — the climate financing that will be made available to developing countries in the coming years to help them reduce emissions and adapt to the effects of climate change. The presidency draft text released this morning put the figure at $250bn/yr by 2035, with a call for "all actors" to work towards a stretch goal of $1.3tn/yr. Representatives of developing countries have reacted angrily to the figure put forward in the text, saying it is far too low. Brazil's proposal appears to call for all of the $300bn-$390bn to be made up of direct public financing, which could then mobilise further funding to reach the $1.3tn/yr. It was inspired by the findings of a UN report, Brazil said. The UN-backed independent high-level group on climate finance today said that the $250bn/yr figure was "too low," and recommended the higher $300bn-390bn/yr goal. Brazil's ask would be a significant step up in the required public financing. The $250bn/yr target includes direct public financing and mobilised private financing, and potentially includes contributions from both developed and developing countries. Wealthier developing countries have been hesitant to see their climate financing fall in this category, which they say should be made up exclusively of developed country money, in line with the Paris Agreement. But $300bn/yr would represent an increase in ambition, Brazil said, while the $250bn/yr called for in the draft text would be very similar to the $100bn/yr goal set in 2009, after taking into account inflation. Delegates at Cop look set to continue discussions into the night. A plenary session planned for late in the evening, which would have allowed parties to express their positions in public, has been cancelled, suggesting groups still have differences to hammer out. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Cop: Drafts point to trade-off on finance, fossil fuels


22/11/24
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22/11/24

Cop: Drafts point to trade-off on finance, fossil fuels

Baku, 22 November (Argus) — The new draft on the climate finance goal from the UN Cop 29 climate summit presidency has developed nations contributing $250bn/yr by 2035, while language on fossil fuels has been dropped, indicating work towards a compromise on these two central issues. There is no mention of fossil fuels in either the new draft text on the global stocktake — which follows up the outcome of Cop 28 last year, including "transitioning away" from fossil fuels — or in the new draft for the climate finance goal. Developed countries wanted a reference to moving away from fossil fuels included, indicating that not having one would be a red line. The new draft text on the climate finance goal would mark a substantial compromise for developing countries, with non-profit WRI noting that this is "the bridging text". Parties are negotiating the next iteration of the $100bn/yr that developed countries agreed to deliver to developing nations over 2020-25 — known as the new collective quantified goal (NCQG). The new draft sets out a figure of $250bn/yr by 2035, "from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources". It also notes that developed countries will "take the lead". It sets out that the finance could come from multilateral development banks (MDBs) too. "It has been a significant lift over the past decade to meet the prior, smaller goal... $250bn will require even more ambition and extraordinary reach," a US official said. "This goal will need to be supported by ambitious bilateral action, MDB contributions and efforts to better mobilise private finance, among other critical factors," the official added. India had indicated earlier this week that the country was seeking around $600bn/yr for a public finance layer from developed countries. Developing countries had been asking for $1.3 trillion/yr in climate finance from developed countries, a sum which the new text instead calls for "all actors" to work toward. The draft text acknowledges the need to "enable the scaling up of financing… from all public and private sources" to that figure. On the contributor base — which developed countries have long pushed to expand — the text indicates that climate finance contributions from developing countries could supplement the finance goal. It is unclear how this language will land with developing nations. China yesterday reiterated that "the voluntary support" of the global south is not part of the goal. The global stocktake draft largely focuses on the initiatives set out by the Cop 29 presidency, on enhancing power grids and energy storage, though it does stress the "urgent need for accelerated implementation of domestic mitigation measures". It dropped a previous option, opposed by Saudi Arabia, that mentioned actions aimed at "transitioning away from fossil fuels". Mitigation, or cutting emissions, and climate finance have been the overriding issues at Cop 29. Developing countries have long said they cannot decarbonise or implement an energy transition without adequate finance. Developed countries are calling for substantially stronger global action on emissions reduction. By Georgia Gratton and Prethika Nair Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Singapore light distillate stocks hit seven-week high


22/11/24
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22/11/24

Singapore light distillate stocks hit seven-week high

Singapore, 22 November (Argus) — Singapore light distillate and middle distillate inventories rose to multi-week highs while residual fuel stocks fell to a three-week low for the week ending 20 November, according to Enterprise Singapore. Singapore's light distillates stocks rose to a seven-week high, boosted by increased naphtha imports and an onslaught of gasoline cargoes from Saudi Arabia into the city-state. Naphtha imports rose by 21pc on the week to 1.98mn bl. Kuwait, India, and the UAE were the top three suppliers to Singapore this week. Kuwait likely exported more naphtha to Asia this month, as an issue at its reformer resulted in more spare naphtha on hand for exports. More Saudi Arabian gasoline cargoes entered Singapore, adding to stocks. Singapore received another 800,000 bl of gasoline from the Mideast Gulf nation after already receiving similar volumes last week. Middle distillates stocks rose further to a six-week high, as jet fuel exports fell while imports rose. Swing supplies of jet fuel continued to arrive from India, with a 494,000 bl India jet fuel cargo imported into Singapore in the past week. Singapore's onshore fuel oil inventories retreated to a three-week low after climbing for two consecutive weeks, as imports fell sharply this week. But total inventories for November remained marginally higher at 17.78 mn bl,compared to 17.55 mn bl last month. Brazil, Indonesia, and Iraq were the top origin countries for fuel oil arrivals, while the majority of exports were bound for the Philippines and Hong Kong. No exports were recorded to China this week. By Aldric Chew, Asill Bardh, Cara Wong and Lu Yawen Singapore onshore stocks (week to 20 November '24) Volume ± w-o-w ± w-o-w (%) Light distillates Stocks 15.16 1.04 7.37 Naphtha imports 1.98 0.35 21.36 Naphtha exports 0.61 0.60 8,689.57 Gasoline imports 3.04 -0.53 -14.91 Gasoline exports 4.74 -0.35 -6.91 Middle distillates Stocks 10.27 0.63 6.56 Gasoil imports 0.61 -1.12 -64.79 Gasoil exports 3.48 1.36 63.82 Jet fuel imports 0.5 0.1 39.34 Jet fuel exports 0.20 -0.28 -58.34 Residual fuels Stocks 16.98 -1.37 -7.45 Fuel oil imports 2.19 -4.36 -66.61 Fuel oil exports 1.23 -2.04 -62.53 Source: Enterprise Singapore Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Pemex's lean Zama spending undercuts goals


21/11/24
News
21/11/24

Pemex's lean Zama spending undercuts goals

Mexico City, 21 November (Argus) — State-owned oil company Pemex's limited budget for developing one of Mexico's most-promising new oil fields is putting Mexico's crude production and refining goals at risk through 2030. First production from the Zama field will likely not start until at least 2028 instead of late next year, as forecast earlier, based on a timeline in a recent presentation from Pemex. Pemex continues to work on the basic engineering for the Zama field because of the lack of cash, staff of hydrocarbon regulator CNH said last week. The latest delay on Zama echoes criticism from when Pemex took over operating the field in 2022 that it did not have sufficient experience or funds to carry on with the project, said industry sources. "Unfortunately, the Pemex budget is always a shadowy mystery," said a person close to the project who asked not to be named. "There is no transparency or certainty regarding when they do and do not honor payment commitments." Zama is a shallow-water field unified in 2022 between Pemex area AE-152-Uchukil and the discovery made in 2017 by a consortium led by US oil company Talos Energy. Pemex holds 50.4pc of the Zama project while Talos and Slim's subsidiary Grupo Carso have 17.4pc, German company Wintershall Dea 17.4pc and British company Harbour Energy 12.4pc. The state-owned company expects to spend $370.8mn to develop Zama in 2025, 64pc less than the original $1.05bn budget proposed by Pemex for next year, according to data from CNH. The regulator cleared the change last week, but commissioners questioned the CNH staff about the new delays. Pemex's original development plan showed that the company forecast the first crude production by December 2025, with 2,000 b/d and about 4mn cf/d of gas. The original plan forecast Zama hitting peak production of 180,000 b/d in 2029, making it Mexico's second-largest crude producer, only under the Maloob field. President Claudia Sheinbaum and Pemex's new new chief executive Victor Rodriguez flagged the importance of shallow-water field Zama and ultra deep field Trion to support Pemex's oil production target of 1.8mn b/d in the upcoming six years in a presentation last week. Pemex's new plan is focused on feeding its own refining system rather than crude exports. The company expects to increase gasoline, diesel and jet fuel production by 343,000 b/d, according to the plan, but it did not give a timeline. Pemex produced 491,000 b/d of gasoline, diesel and jet fuel in the first nine months of 2024. Mexico's proposed 2025 federal budget also shows lower spending for Zama, at Ps3.1bn ($154mn) for 2025, even less than the figure approved by CNH on 14 November. Neither Pemex not Talos responded to requests for additional comment. "Zama is the story of the triumph of ideology over practicality," said a Pemex source who asked not to be named. The state-owned company is studying how to bring in new investors to the project once congress approves secondary laws to implement recent energy reforms, the source said. But uncertainty over the legal framework and the general deterioration of Mexico's business climate will make this more difficult, the Pemex source added. The involvement of Mexican billionaire Carlos Slim, who acquired 49.9pc of Talos Energy share in Zama last year, brought new hopes that work at Zama could finally accelerate. Instead, Slim's entrance slowed the project, as the new partner had to review the project, a former regulator who asked not to be named said. Talos Energy, the lead operator when the field was discovered over seven years ago, is now "frustrated" by the poor progress of the project. "We have Mexico, a great discovery in Zama, we're seven years into it, and still have not made a final investment decision on it," said Talos Energy interim chief executive Joseph Mills, in a conference call with investors last week. "So a lot of frustration there, as you can imagine." By Édgar Sígler Pemex 2024 crude output, throughput '000 b/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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US alleges Nippon dumped HRC at higher rates


21/11/24
News
21/11/24

US alleges Nippon dumped HRC at higher rates

Houston, 21 November (Argus) — The US government alleged that Japanese steelmaker Nippon Steel dumped hot-rolled (HR) flat steel products at higher rates than previously determined. The US Department of Commerce's International Trade Administration (ITA) determined that during the period from October 2022 through September 2023, Nippon sold HR steel flat products with a weighted-average dumping margin of 29.03pc, up from the 1.39pc dumping margin the ITA determined for the prior period of October 2021 through September 2022. Tokyo Steel Manufacturing, which was also investigated, was determined to have not sold HR flat steel below market value, unchanged from a prior review. US imports during the period from October 2022 through September 2023 of the investigated items from Japan were 202,000 metric tonnes (t), down from the 293,600t imported in the same period the prior year, according to customs data. The original investigation into imports of Japanese flat-steel products was concluded in 2016. The ITA is now reviewing the time period of October 2023 through September 2024 and expects to issue the final results of these reviews no later than 31 October 2025. The US imported 235,700t of the investigated products from Japan during that time, customs data showed. By Rye Druzchetta Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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