Page 5 - LatAmOil Week 34 2019

LatAmOil COMMENTARY LatAmOil
 Moreover, it has caused problems for Mexico, which does not have enough gas to meet its own needs. It has not only stymied the progress of a project that would have brought much-needed fuel into the country but has also raised ques- tions about the stability of contracts signed with state-owned Mexican companies.
A new solution
But the parties appear to have struck a deal. e Wall Street Journal reported on August 27 that the government had worked out an agreement with four companies involved in building Sur de Texas-Tuxpan and the other pipelines.
Sources close to the talks had said on August 26 that the parties were ready to accept an arrangement suggested by billionaire Carlos Slim, the owner of Grupo Carso, one of two Mexican rms involved in the gas pipeline pro- jects targeted by CFE. According to WSJ, Slim suggested that the power provider pay for the gas it received via Sur de Texas-Tuxpan at a at rate, rather than following a schedule under which payments would start out low and grow higher every year for a period of 20 years.
e plan’s biggest attraction was its prom- ise to save CFE up to $600mn over the life of the contract. Slim’s suggestion appeared to be the best option for removing roadblocks to the construction of pipelines that would allow Mexico to import 40% more gas, while also giving Permian and Eagle Ford shale operators new options for disposing of gas from their oil deposits.
But in the end, CFE managed to secure an even better deal. As WSJ reported on August 27, the power provider teamed up with Mexi- can President Andrea Manuel Lopez Obrador to negotiate an agreement that significantly reduced the price of US gas shipments into
Mexico. This arrangement was even more advantageous than the deal proposed by Slim, as it could save CFE up to $4.5bn over the life of the supply contract, the newspaper said.
Another step to the left?
Both Lopez Obrador and CFE appear to be sat- is ed with the new deal. But there are still ques- tions about the details.
As of press time, it was not clear whether the Mexican power provider had agreed to pay for gas at a at yearly rate, as Slim had suggested, or to start payments at a low level and go higher over a period of 20 years, as envisioned in the original contract. If the parties have indeed chosen the former solution, Mexican consum- ers will have to pay more for gas over the next 10 years than originally anticipated, even with the price cut. As a result, there is a chance that CFE’s willingness to abide by the terms of the new agreement may start to waver within the next few years.
us far, the utility’s approach to the com- panies seeking to build the gas pipelines has echoed the le ist politics and populist style of Andres Manuel Lopez Obrador, the current president of Mexico. Lopez Obrador has sought to reverse the energy and scal reforms enacted by his predecessor, Enrique Pena Nieto, and he has criticised private-sector investments by peo- ple such as Carlos Slim and companies such as TC Energy.
So in the event that the president’s successors share Lopez Obrador’s outlook (or lean even further to the le ), they may make another bid to change the terms of the contracts for Sur de Texas-Tuxpan and other pipelines. ey may even see this as their best option, given that they will probably want to lower the set fee they are obliged to pay under a at-rate plan.™
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excitement about Vaca Muerta may be overstated
MEXICO
Mexico apparently hesitating on oil price hedge programme
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MEXICO’S government revealed last week that it had not yet begun to execute its crude oil hedging programme for 2019. Additionally, a high-ranking representative of the Finance Ministry indicated that it might opt out of doing so altogether this year.
Gabriel Yorio Gonzalez, the newly appointed deputy nance minister, told reporters in Mex- ico City on August 20 that the government was still considering all relevant factors and would inform the public of its intention if it decided to go forward. “We’re evaluating it. And if we suc- ceed at doing it, or if we do it, we’ll communicate thatattheend,”hesaid.
Yorio did not say when such an announce- ment might be forthcoming.
He also declined to respond to questions about whether the government was having trouble executing the hedge programme, saying only that it was “a markets issue I can’t discuss right now.”
e Mexican government has been spend- ing about $1bn on the hedge each year since 2001, purchasing put options in order to lock in petroleum prices and guard against uctuations in commodity prices. It does so a er calculating a pricing formula based on a combination of liq- uid fuels that includes but is not limited to crude oil. is year, it revised the formula to take into accountthepolicyoftheInternationalMaritime Organisation (IMO) on the use of high-sulphur fuel oil (HSFO).
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Week 34 28•August•2019 w w w . N E W S B A S E . c o m
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