Mexico Natural Gas Gross Domestic Product

Mexico President Andrés Manuel López Obrador said during his morning press conference on Monday his government was planning to launch an infrastructure plan in the next two weeks.

No details were provided, but immediately prior to the coronavirus shutdown a long-awaited public-private infrastructure plan including energy projects worth close to $100 billion was expected to be announced. Then everything was put on hold.

Now the plan is being seen not only as a way to forge ahead with some of López Obrador’s pet projects, such as the Maya train system that would traverse the Yucatán Peninsula. It also is seen as a way to jumpstart the virus-battered economy. 

Discussions with business chamber Consejo Coordinador Empresarial (CCE) are ongoing to finalize the plan, which will include energy projects, López Obrador, or AMLO, said.

“We are talking to business people, with the Consejo Coordinador Empresarial and with all the business chambers, and in 15 days we will present the project to reactivate the economy,” he said. He noted that Covid-19 had stalled projects that were going to be developed by the private sector.

Earlier this year Energy Minister Rocío Nahle, who is under quarantine after testing positive for coronavirus, said there would be room in the plan for the private sector to invest in Mexico’s oil and gas sector. 

By far the biggest energy infrastructure project in Mexico is the 340,000 b/d Dos Bocas refinery underway in the president’s home state of Tabasco. Nahle has said the project remains on track and within the budgeted $8 billion. Companies such as ICA Fluor, Samsung Engineering and Italian-Argentine engineering firm Techint are involved in the construction.

Some analysts have criticized the Dos Bocas refinery as being wasteful and a job creation program for the president. The project accounts for about 13% of projected Petróleos Mexicanos (Pemex) capital expenditures from 2019-2023, and it is said to take money away from Pemex efforts to halt years of declining oil and gas production.

Also expected to be within the infrastructure plan are projects to refurbish the nation’s six other refineries, where utilization rates fell below 40% in 2019.

Other energy projects could include liquified natural gas (LNG) plants to export U.S. gas to Asia. Last week, López Obrador singled out three Pacific Coast sites as possible locations for these plants.

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Economic Crisis

The infrastructure plan announcement comes as Mexico suffers through an unprecedented economic crisis. Mexico’s gross domestic product contracted an annualized 53.2% in 2Q2020, its largest quarterly drop on record, according to the Federal Reserve Bank of Dallas. The country had entered into recession even before the coronavirus.

Meanwhile, Mexican business chamber Confederación Patronal de la República (Coparmex) earlier this month warned that current Mexican energy policy is damaging to investor confidence at a time when the country desperately needs to jumpstart economic activity.

In a sliver of good news, BofA Global Research analyst Carlos Capistran said in a report Tuesday the worst might be behind the country, thanks in particular to economic ties to the United States. 

Auto exports from Mexico to the United States are almost back to pre-pandemic levels, despite falling more than 90% year/year in April and May. Remittances from the United States to Mexico actually increased 10.6% year/year in dollars in the first six months, despite a large increase in U.S. unemployment.  

The Mexican economy collapsed 10.5% in the first half of the year compared with the same period last year, “however, there was recovery in June 2020 and we expect some growth in the second half of the year.”

BofA Global Research forecasts 0.2% growth in Mexico in the second half of the year compared to the first half, followed by 2% economic growth in 2021.