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Mexico's Energy Transformation Takes Hold

S&P Global Platts

Energy: What to Watch in 2019

S&P Global Platts

Insight Lithium-ion Batteries Enter the Fast Lane

Voters reject most state energy initiatives, including anti-drilling, carbon fee

Midterms 2018: Election brings mixed results for energy interests

Mexico's Energy Transformation Takes Hold

Mexico is in the process of liberalizing its energy industry, which is key to the country’s long-term economic growth. Production and investment declines over the last several years have had a major impact on GDP and government revenues. Just ve years ago, oil-related scal revenue through transfers from PEMEX accounted for about 40% of total government revenue. Today it accounts for just over 15%.

Mexico’s oil and gas production remains down about 40% from peak levels, and the country’s effort to stop declines and return to growth has not yet had an impact. Crude oil production at 2.0 million b/d in June was far below a peak of 3.4 million b/d in 2004. Mexico’s dry natural gas production peaked in 2010 at 5.1 Bcf/d, but is down to only 3.2 Bcf/d this year, forcing the country to rely heavily on US pipeline gas and LNG imports.

Through a series of upstream oil and gas auctions, Mexico has awarded dozens of E&P contracts to a number of companies and consortia, which has already led to some signi cant nds by US independent Talos Energy and Italy’s Eni.

Unable to meet growing demand with local production, Mexico is opening its re ned products markets to competition. Imports of US petroleum products over the rst four months of 2017 were up over 125% year-on-year. Mexico is in the process of expanding its re ned products pipelines and terminals, and allowing outside access to existing assets.

Pipeline imports of US natural gas make up nearly 60% of total Mexican natural gas supply, compared to just 22% in 2010. Platts Analytics expects that US natural gas imports will rise to nearly 70% of total supply by 2022.


Natural gas pipeline import capacity has grown 145% since 2010 to 10.8 Bcf/d. By 2022, import capacity is expected to reach 14.2 Bcf/d. Mexico’s natural gas market is in a massive state of ux. Gas trading is still in a nascent stage of development after getting off the ground in July. Gas buyers are hesitant to leave Pemex. Current supply/demand conditions suggest that areas of supply shortage and/or transportation constraints could experience premium prices. Industrial customers have expressed concern about the recent lifting natural gas price caps on rst-hand sales and the possibility of price spikes in some regions. Prices in constrained areas theoretically could increase a level near fuel oil at roughly $9/ MMBtu.

Breaking the Mexican gas market up into 10 Cell RegionsTM, Platts Analytics expects that the strongest natural gas price premiums will form in the Peninsula, Western, and Central gas regions, with large differentials expected between Baja California and Baja California Sur.

Mexico’s wholesale power prices sustained healthy margins over US power prices in 2016, but prices have climbed even higher in 2017 as the natural gas market has tightened pushing more expensive fuels into the power generation supply stack to meet growing demand. Mainland Mexico prices jumped $24.48/MWh, or 56%, on average across all control regions to average $67.62/MWh during the rst half of 2017.

Table: Revenues Expected from Mexico's Energy Reform to Date ($ million)

Round One
First 2,700
Second 3,100
Third 1,100
Fourth 34,400
Trion 11,000
Round Two
First 8,200
Second 1,100
Third 1,000
Seismic 2,500
Natural gas & petroleum
Gas pipelines 12,000
Petroleum products - transport, storage 4,000
Distribution and sale of petroleum products 12,000
First auction 2,600
Second auction 4,000
Generation 97,000
Transmission 12,800
Distribution 9,600

Source: CRE

Energy: What to Watch in 2019


S&P Global Platts Analytics Issues Two Special Reports

Pricing across the global energy markets will face headwinds in 2019, with a weaker and more uncertain macroeconomic framework deflating price formation in general, according to two special reports just issued by S&P Global Platts Analytics. Such headwinds will require the industry and portfolio managers to take a big-picture approach.

See the Executive Summary of the S&P Global Platts Analytics special report 2018 Review and 2019 here. Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here.

"One of the key lessons learned in 2018, painfully by some, is that market sentiment can shift violently without much change in fundamentals, requiring a steady, holistic perspective," said Chris Midgley, global head of analytics, S&P Global Platts. "It is clear that this volatility will remain a feature across the energy markets in 2019, particularly as IMO 2020 nears."

Particularly blustery headwinds are in store for markets where prices finished 2018 at elevated levels, and well above costs, such as North American natural gas and global coal. However, if the supply side can adjust to the reality of slowing demand growth, energy prices can find support. For natural gas liquids (NGLs), the ongoing logistical constraints at the US Gulf Coast are likely to manifest on continued price volatility, particularly for ethane and liquid petroleum gas (LPG), over the next year despite strong global demand.

LPG, such as propane and butane and used in transportation fuel, refrigeration, heating and cooking, is rapidly facing US export capacity constraints, especially along the US Gulf Coast. For LPG feedstock propylene, there is clear potential for high volatility globally over the next 12-18 months.

Analysts at S&P Global Platts see weakening prices of Henry Hub natural gas. The slowdown in US demand growth will exceed that of supply. But if winter temperatures prove to be colder than normal, near-term prices will need to move higher to bring on enough supply to replenish depleted storage levels.

For global liquefied natural gas (LNG), it will be end-user-backed LNG demand that faces particular struggle to cope with the speed and force of new supply entering the market in 2019. Non price-responsive demand in Asia will be easily met and JKM spot physical prices (reflecting LNG as delivered into Japan, Korea and China) will sag next year.

Access the full S&P Global Platts Analytics Top Factors to Look Out For in 2019 for Energy here. Among the 22 key take-away themes:

  • NGL supply growth will strain the North American energy system
  • Saudi Arabia will need to be nimble to balance 2019 oil supply
  • US oil supply limited by pipelines
  • Oil demand slowing: trade war, industrial slump
  • 2019 LNG supply additions largest since the Qatari mega-trains
  • US gas supply growth to exceed demand growth even with LNG exports
  • Global solar growth slowing
  • Shipping disruption looming - IMO 2020
  • New Russian gas pipeline advantage over Ukraine
  • US coal demand to decline again in 2019
  • Growth in new refineries and complex capacity likely to weigh on refinery margins especially in Asia

Year 2019 will certainly be one of transition for crude and refined oil products as it will lead into 2020 when roughly three million barrels per day of high-sulfur fuel oil must be “destroyed” (including enhanced usage of HSFO in power generation) due to the International Marine Organization (IMO) mandate of eco-friendly shipping fuels in use at sea. A similar amount of middle distillate/low sulfur fuel must be created (by refinery changes and by running more crude oil. The increase in refinery capacity between now and 2020 is large, but mostly needed to cover normal demand growth. Expect prices of light sweet crudes to be bid up in 4Q19.

Insight Lithium-ion Batteries Enter the Fast Lane

Nov. 29 2018 — Both the transportation and power industry have been facing significant changes, driven by a combination of policy and technological factors, and S&P Global Platts Analytics sees lithium-ion batteries playing an instrumental role in these transformations.

When it comes to batteries, there have been and will continue to be synergies of power storage and transport sector battery technology. In the power sector, large deployments of wind and solar photovoltaics will increase the need for storage to manage their intermittency. Recently, the US has seen several RFPs in which developers have bid projects combining solar PV assets and lithium-ion batteries – a trend discussed recently in S&P Global Platts Analytics’ U.S. Power Storage Outlook.

Because of the often-siloed nature of the energy sector, there is a need for some perspective regarding the relative size and importance of the sectors. The fact is that energy sector applications of batteries are and will continue to be dominated by uptake in the transport sector.

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Voters reject most state energy initiatives, including anti-drilling, carbon fee

In a dramatic 2018 midterm election, voters gave Democrats control of the U.S. House of Representatives and rejected high-profile state ballot measures that would have limited oil and gas drilling in Colorado and created a fee on carbon dioxide emissions in Washington state.

On the federal level, Democrats won the majority of seats in the House, meaning they will control that chamber for the first time since the 111th Congress that ended in early January 2011.

A Democrat-controlled House could bring heavy oversight of the Trump administration's efforts to roll back air and water quality rules and other regulations affecting the energy sector. Democrats may also pursue an infrastructure bill that includes energy-related provisions, although lawmakers will be challenged to agree on how to fund the legislation.

But Republicans held onto control of the U.S. Senate and even expanded their majority in that chamber. Continued leadership of the Senate will allow the GOP to more easily confirm Republican nominee Bernard McNamee to the Federal Energy Regulatory Commission, which is currently split between two Republican and two Democratic members.

Midterms 2018: Election brings mixed results for energy interests

Washington, D.C., Nov. 07 2018 — Reflecting a deeply divided political landscape, results were decidedly mixed on the wide range of oil, natural gas and power issues at play in the raucous and sharp-edged US midterm elections, which came to a head Tuesday.

Democrats regained control of the House of Representatives, Republicans held the Senate, and voters decided on new gasoline tax hikes, limits on drilling both onshore and offshore, power market structures and more.

In a key, high-impact ballot measure tussle, Colorado voters turned back a push to severely limit drilling for oil and gas in the state's burgeoning Denver-Julesburg Basin. Elsewhere, voters in California and Missouri rejected gasoline tax increases, while a carbon tax was defeated in Washington.