Oscar Olmedo
Zenith Holding México
View from the Top

Capitalizing on North America’s Energy Integration

Mon, 02/25/2019 - 16:22

Q: How did Zenith Holding México expand its footprint across several sectors in such a short time?
A: While Zenith Holding México was born in 2014, most of the companies comprising the group were already operational and had a certain track record prior to joining the holding entity. The effort among our partners is centered around diversification, and we are constantly on the lookout for business niches in Mexico’s most dynamic sectors that are propelling the country’s economic growth. We were naturally drawn toward the country’s energy industry, specifically oil and gas. We participated in some oil production and commercialization activities as well as associated projects in the US. The drop in crude oil prices turned our attention toward commercializing natural gas in Mexico. We reached a joint venture agreement with US-based Twin Eagle to replicate in Mexico what the US has achieved in the last 20 years. Twin Eagle went through the deregulation process in the US, so we understand the next steps Mexico’s natural gas market will take in the foreseeable future. We wanted to capitalize on this experience.
Q: In which natural gas niches is Zenith Holding México looking to establish a strong foothold?
A: Our first stage involves completing our permitting processes, including a qualified supply permit. Beyond selling a product, we see ourselves as a company that wants to create long-term business relationships, providing consulting over the inner workings and enclosed opportunities of the Energy Reform. As is common in a service business, Mexico’s natural gas market is rather standard, including tenured companies providing quality services. The primary differentiator in those cases boils down to price. Our competitive advantage lies in our willingness to educate our clients on detecting the on-hand opportunities available. Covering each link of the value chain, from the upstream to the off-taker’s finished product, we can optimize costs with larger margins. Additonally, we can provide long-term contracts with fixed prices and financial coverage.
Q: What is missing for Mexico’s natural gas market to reach the US’ sophistication levels?
A: From a regulatory standpoint, CRE’s efforts are commendable. Regulatory modifications are ongoing, particularly for permitting purposes. It is understandable given the regulatory framework forms the building blocks of Mexico’s natural gas market consolidation, which remains a work in progress. CRE’s regulatory attributes in natural gas are fairly new and it is building up its own expertise through each new or modified regulation. We are positively surprised with CRE’s commitment toward transparency in the permitting process relating to our business niches.
Transparency will be the bedrock for investment flows as both local and foreign investors’ corruption fears are lifted. This will serve as a reference for other sectors to showcase how well the permitting process works without resorting to corruption. The same can be said for CNH’s Licensing Rounds. We participated in Round 1.3 and were pleased with how CNH carried out the process. Based on our interactions with government agencies and regulators on diverse subjects such as natural gas rates, system balance and open seasons, we noticed greater interinstitutional coordination and alignment is necessary. We think it is only a matter of time before these diverging criteria align.
Q: What is your assessment of Mexico’s natural gas infrastructure?
A: The weakest link in the natural gas infrastructure value chain is transportation. It is an issue that was constantly relegated as low priority in the past. Infrastructure in general has to grow and investment needs to pour in. Texas alone has more kilometers of natural gas pipelines than the entire SISTRANGAS system. Mexico’s southern region needs to be connected with the rest of the country’s pipeline system. PEMEX’s southern compression plants supplying natural gas are facing difficulties in meeting the increasing demand, to the detriment of industrial growth.