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© 2019 by The British Chamber of Commerce in Mexico.

National Supply in the Mexican Energy Sector

October 6, 2017

On 5th September, the British Chamber of Commerce, in collaboration with the National Hydrocarbon Commission (CNH), Economic Secretariat (SE) and the Energy Secretariat (SENER) hosted a breakfast conference on the opportunities and requirements for national suppliers in the Mexican energy sector.

 

 

 

Head of the Energy Group and General Director for BP Mexico Chris Sladen opened the event and emphasised the importance of national content in the sector as an opportunity to create jobs in Mexico. He explained that the Chamber has been working with CNH & SENER to help accomplish this. Finally, Chris thanked Rafael Daryanani of Grupo Didsa for his work organising the event.

 

Rafael then took to the stage to kick off the discussion, but not before taking the opportunity to congratulate Shell on the opening of their first petrol station in Mexico that same day. He then invited Jesús Salvador Carrillo from the CNH to start the discussion. Jesús Salvador Carrillo's presentation covered the size and specifics of the opportunity available in the Mexican energy sector, especially in light of the Energy Reform that has invited private companies to win contracts for E&P in the Gulf of Mexico. He shared estimated demand for contracts currently being signed and the states the demand is going to. From the tender rounds 1.1, 1.2 and 1.3, he relayed that offshore was worth $379.2 million USD and onshore $632.3 million USD. A large share of this investment ($300 million USD) will likely go towards well drilling, not including boats and equipment. Administration and services totalled $190 million USD, especially given the auditing required - amongst other support - for companies to comply with current and future regulation in the sector. More exciting figures are expected as the projected demand for the signing of round 1.4 is announced. Also, next year, contracts for 2.1, 2.2 and 2.3 will be received. Some of the rounds are delivering plans and contracts that extend up to 20 years meaning long term and continuous investment in the sector.

 

With the “size of the prize” well established, Hector Marquez Solis of SENER continued the presentations by explaining the challenges involved in finding the right providers for the supply chain. Work is being done to create and update a register of providers that meet a list of minimum requirements for the sector. They are also collaborating with the Secretary of Development to make sure they can guide Mexican companies on what they need to do to meet the requirements in a transparent way. As many of these companies will be found in the gulf states, as that is where demand is, understanding the peculiarities of each state and working towards harmonisation of processes and strategy with local governments is essential. Hector also thanked the private sector for having been so forthcoming on their needs. The next steps will involve defining the specific demand – i.e. ‘how many metres of pipes are needed?’ or ‘how many valves?’ He also invited companies to indicate which providers have the most potential as support will be provided to such supply companies to help them secure their place in the supply chain. This was a recurring theme as all panellists praised and stressed the need for continuous and open dialogue between both the private sector and government.

 

Claudia de la Cerda, also from SENER, added to the discussion by explaining that, while there are now new opportunities for local suppliers looking to sell to the new, private-sector players in the market, there are still plenty of opportunities with National Company PEMEX which has been “reactivated” since the reform. PEMEX has four new investments - two onshore, one offshore and one for deep water. In total, PEMEX has 509 exploration blocks and 82 fields so there is plenty of business available to Mexican companies wanting to supply to PEMEX.

 

Lucia Bustamante of Shell Mexico and Schlumberger’s Jesús Lamas offered their perspectives from the private sector. Lucia explained that Shell already has their own processes and procedures in place to recruit national suppliers. She was also keen to dispel the myth that Shell only negotiates global contracts with international companies at an international level. The company in fact has its own strategic supply office to assess supply in Mexico. They have identified world class companies and consequently certified them so they could help satisfy Shell’s global demand. Jesus was also positive about national content but said that there is a need to resuscitate the local supply chain. Years ago, there was $2.5 billion USD annual investment in 180 Mexican drilling machines but today there are only 30 such machines and so new investment is required. For Lucia, it is also important for suppliers to learn how to supply, not just to PEMEX but also “learn the language of Shell” and other new private sector players.

 

 

 

The debate then moved on to defining national content. Juan Eduardo Balboa from the Economic Secretariat explained that his institution released the formula for national content to make sure there are business opportunities for local providers. It is true that PEMEX has the largest slice of the pie, but they are no longer the only player- there are 45 new companies in the market and all should be creating opportunities in Mexico for Mexicans. Suppliers should be asking themselves how much of their content is local? PEMEX has 6000 providers yet 30-40% are simply distributors who import equipment from abroad and possibly have 0 local goods. They may have the human capital that complies with the national content requirements but not the infrastructure. Maria Adamelia Burgueño Mercado from the CNH added that this is also an opportunity for Mexico. In the USA, the sector has managed to dramatically lower their costs by developing their local markets. Lucia also explained that, for Shell, local suppliers is not about philanthropy but about strategy.

 

Jesus added that the formula is a delicate balance: If the national content requirement is too low companies will not invest, however if it is too high, it could lead to inflation and protectionism.

 

The chamber would like to thank all the participants for developing such an enriching and eye-opening debate. We also thank all those who attended and the Energy Group for organising such an excellent event.

 

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