The federal government wants this reform to be a success, therefore, they are working with companies to push the projects forward.

Doors to growth are open

June 22, 2017

Tania Ortíz Mena, chief development officer of Infraestructura Energética Nova (IEnova), talks to TOGY about the recent energy reform and the feasibility of alternative energy sources in Mexico. A local subsidiary of Sempra Energy, IEnova’s operations span the hydrocarbons and electricity supply chain in Mexico.

Within the midstream sector, the company is involved in natural gas and LPG pipelines and distribution, as well as LNG and LPG storage. Ortíz Mena touches on growth in the country’s energy industry and the growing competitiveness of renewables such as solar power in terms of cost. While Mexico waited some time to delve into the development of a renewables sector, the country’s entrance is welcomed considering the continuing low price of oil. Diversification remains a sound business strategy for oil-dependent countries.

• On clean energy: Without a doubt, Mexico has very aggressive clean energy goals. That is in the law. However, it is important that it is economic and not only driven by a legal obligation.

• On prepping for access to gas: Obviously, gas will continue to predominate. It is not my opinion, but everyone else’s opinion, that the USA will continue to have an abundant gas supply at very competitive prices. Mexico is building the infrastructure to have access to that gas. Gas will continue to be important.

Ortiz Mena also discussed growth in Mexico’s hydrocarbons market and the attractiveness of that market to international operators. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Tania Ortíz Mena below.

Do domestic contractors have the capacity to carry out projects such as the Sur de Texas-Tuxpan pipeline?
There are very few construction companies worldwide that have the capability to build an underwater pipeline of this magnitude. Special vessels are required, and there are only a couple of those specific types of vessels worldwide that can handle welding the pipeline on the vessel and then laying it on the seabed.
From that point of view, it will definitely be very large transnational companies that will have the responsibility, but when you get ashore and into the more standard works, that is where we hope to see a role for local companies.

 

What is happening with Mexico’s power auctions?
The process is very transparent. You can execute long-term dollar-denominated contracts that are attractive to investors. For these reasons, there are so many players in that field.
Right now, the challenge with the projects is execution. There are a lot of new and smaller players, which may not be able to execute the projects. Still, the opportunity is very exciting.
In addition to the Cenace [National Centre for Energy Control] auctions, large industrial offtakers also have the obligations of clean energy certificates under the law. This means they are also looking to buy energy directly from renewable energy facilities. Right now, there is a huge move towards selling renewable power to the CFE [Federal Electricity Commission], but beyond the CFE, there is a very interesting industrial market that can be served.

Are renewables as feasible as conventional energy sources for power generation?
Mexico made a very smart decision in waiting until renewables were competitive to really launch strong renewables programmes. Renewables in Mexico are very different from those in other countries such as the USA, Spain or other European countries. Under the new law, renewables in Mexico do not depend on any subsidies, tax, or other type of incentive. They are economic on their own.
The decline in renewables prices, particularly in solar, is very impressive. Solar energy prices have declined more than 10 times in the past 10 years. Right now, renewable energy prices compete with conventional energy. It is not only an environmental policy decision to buy clean energy, but also an economic decision.
In other markets, when there is a lot of government intervention in terms of subsidies or other types of incentives, you get to a point where you figure out that it is not in the market’s best interest to have that energy in the portfolio. Right now in Mexico, renewables are competing with conventional energy simply because of the decline in renewables prices.
Moreover, Mexico does not have dumping duties against solar panels imported from China, the largest producer, which is the case in the USA. This means that renewables are very competitive here.

Is natural gas a transitional fuel that will lead the country to become greener?
Without a doubt, Mexico has very aggressive clean energy goals. That is in the law. However, it is important that it is economic and not only driven by a legal obligation. Obviously, gas will continue to predominate. It is not my opinion, but everyone else’s opinion, that the USA will continue to have an abundant gas supply at very competitive prices. Mexico is building the infrastructure to have access to that gas. Gas will continue to be important.
Right now, we are really rolling out a renewables portfolio, but renewables are intermittent sources of energy. If the sun is not shining, there is no energy. If the wind is not blowing, there is no energy. You need a source that provides stability while the other sources are switching back and forth. Until there is another technological revolution where you can store energy economically in very large amounts, you need conventional fuels combined with all of those renewables. There is really no other solution to date. I presume that in the next decade or so, we will find other solutions for the intermittency of renewable resources.

How does social risk impact onshore energy projects and what strategies can be used to mitigate that risk?
Social, community and land issues are certainly a challenge, particularly when you are building a pipeline. If you are building another type of facility, it is one piece of land. Once you have bought it, then everything happens inside. However, when you build a 500-kilometre pipeline, you may be dealing with more than 800 landowners. You are going to different municipalities in different states. It can become very complicated.
Mitigating social risk is a matter of doing a good assessment early on. Whenever IEnova starts a project, we do a social and environmental feasibility study. We walk the route and do an analysis to see what types of communities are there, what types of needs they have, if there are any issues and so on. Then, we are very proactive in engaging with the community and ensuring that we are very open and communicate what we are doing. We understand their concerns and try to address them. It is about working hand-in-hand with the community very early on.
If you are in the town of Zapotlanejo, you need someone from there who understands the dynamic and knows the people. If you try to bring in someone from Mexico City or from Taiwan and try to solve these issues, it is going to be very hard to understand. I am not saying that it is simple, but you need to be very close to the ground, communicate early on, reach out, answer questions and address issues. It is ongoing. This is critical not only during the construction phase, but also during operations.

How does Mexico’s growth compare to other countries in Latin America?
Mexico is a premium market if you consider its size, especially the energy companies, which are looking for scale. If you look at smaller countries, maybe in Central America or the Caribbean, you may be able to do one project, but not 10 or 20. These would decrease interest, so, scale is important.
More important is how profound this energy reform was. It included absolutely everything from exploration and production to retail, from energy generation to energy sales to industrial customers. The reform was very thorough and took place in an industry that was almost completely closed to private investment.
The country has a lot of immediate needs, particularly in terms of energy infrastructure and energy supply, to grow at the speed that it should be able to grow at. The opportunities are remarkable. Very importantly, the authorities want the projects to be done. The federal government wants this reform to be a success, therefore, they are working with companies to push the projects forward.

For more information on IEnova in Mexico, including the company’s USD 800 million development expenditure including the Texas-Tuxpan pipeline project, see our business intelligence platform, TOGYiN.
TOGYiN features profiles on companies and institutions active in Mexico’s oil and gas industry, and provides access to all our coverage and content, including our interviews with key players and industry leaders.
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