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Mexico kicks off $7.7 billion refinery construction amid trade tariffs from the U.S

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Mexico is kicking off the construction of its $7.7 billion (150 billion peso) oil refinery amid a call by President Andres Manuel Lopez Obrador for the country to become self-sufficient in energy production.

The nation “depends too much on buying foreign gasoline,” the president, commonly known as AMLO, said at an event Sunday in Paraiso, Tabasco, where the seventh refinery will be built. The bidding process for the six phases of the refinery begins at the end of June.- READ MORE: worldoil.com. Is the new Oil Refinery good for Mexico but bad for American Business?

This comes as Trump plans to put tariffs on Mexico for, in Trump’s words, Mexico has not done enough to stem the flow of illegal immigration. No word yet if the cancellation of the new refinery project would help stop any tariffs from taking effect on the 10th of June or if they would be part of any new “Trump Deal”.

The Mexican government tried to defuse a major trade conflict with Washington on Friday, The rushed meeting comes amid a chaotic 48 hours, in which Trump defied numerous aides and ordered them to impose tariffs on Mexico.

Veteran leftist Lopez Obrador, who took office in December, predicted that Trump, who is also engaged in a worsening trade war with China, would ease up on his demand.

“I tell all Mexicans to have faith, we will overcome this attitude of the U.S. government, they will make rectifications because the Mexican people don’t deserve to be treated in the way being attempted,” Lopez Obrador told reporters.

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Geopolitics

Mexico’s Crude Oil Problem

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Mexico’s economy has a high dependence on hydrocarbons. 89% of the country’s energy production is made from fossil fuels. It’s a large producer of oil, natural gas, and coal, however, Pemex is producing less and consumes more. This increases the vulnerability of Mexico’s economy. In 2004, Mexico produced 3.4 million barrels of oil on average per day and in 2018 production contracted to 1.8 million barrels per day, that is, the extraction of crude oil was reduced by half. In 2018 the lowest level of production of the last 38 years was reached and in 2019 the trend continues to fall.

Pemex production of natural gas has also been reduced consistently since 2014, which has increased Mexico’s dependence on gas sold by the United States, as this is one of the least expensive and cleanest fossil inputs to generate electricity. Mexico needs to increase its oil production, but it won’t be an easy task because it requires access to wells with a depth greater than 500 meters, and Pemex only has experience in drilling wells with a depth of up to 100 meters.

One of the biggest Problems Mexico faces is the current need for Pemex to import refined fuels more and more, This is the reason AMLO wants to build a refinery so as not to be dependent on a foreign country for its energy needs. Yet, Mexico’s elite is against this, A Government investigation of those against the plan has not been done, as to see if they benefit from keeping Mexico dependent on foreign companies. If that wasn’t enough American rating agency’s are also against Mexico’s move of Energy independence.

Trying to find a balance of investing in infrastructure and exploration is going to be Mexico’s biggest challenge.

Mexican President Andres Manuel Lopez Obrador said Thursday his government will reduce the federal budget burden taken on by state oil firm Petroleos Mexicanos (Pemex).

With the purpose of reducing the fiscal burden of Petróleos Mexicanos (Pemex)

The proposal includes gradual reductions in taxes of Shared Profit (DUC), which is 65%, to a lower rate of 54% for two years.

“These amounts are equivalent to 45.8% of the total accumulated debt maturities for the period 2019 to 2021,” the text highlights, and represents 61.8% of Pemex’s entire annual investment.

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PEMEX

Carlos Urzúa’s shows his loyalty with the old Guard?

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The departure of the former finance minister, Carlos Urzúa, will not only leave a gap in the federal government but also in the Pemex Board of Directors. The finance minister occupies a permanent seat and, historically, the vision of this unit influences the decision making of the national oil company.

The company’s finances, which deepened its losses in the first five months of the year compared to the same period of 2018, show the delicate financial situation facing the oil company, in the midst of this resignation.

The national oil company has been preparing the presentation of the new business plan of the current administration, a document expected by the markets and rating agencies, which have criticized the decisions taken so far by the government in relation to the Pemex strategy.

The exit of Urzúa will generate uncertainty within the financial sector, which saw the official having a more moderate view than other members of President Andrés Manuel López Obrador Presidential team.

This calls into question the timing and where Carlos Urzúa’s loyalty was, was it with the past guard that wanted to keep Pemex dependent on foreign refineries? Would has to wonder if in the future we will hear about a corruption prob involving Carlos Urzúa.

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