Enabling Mexico’s Economic Development Through EnergyBy Cas Biekmann | Mon, 08/10/2020 - 10:32
Q: What is IEnova’s background in Mexico’s energy infrastructure market?
A: In a nutshell, IEnova is a leading Mexican energy infrastructure company. We were the first energy infrastructure company to be listed on the Mexican Stock Exchange and the only energy company that is part of the Mexican Stock Exchange sustainability index. IEnova has a history of over 20 years in the country and has provided services in most of the value chain of the energy industry. Our main focus is to develop critical infrastructure that enables a more reliable and sustainable supply of energy in Mexico. All our assets are contracted long term through take-or-pay contracts, the main basis of our economic viability and cash flow. We have sustained our growth by branching out into different areas of the energy sector. As a result, the company has a very well-diversified asset base. Our clients are also diverse, since we work with both government and private counterparties. But most importantly, behind our performance is a great team that has a strong commitment to Mexico’s development. IEnova has a robust sustainability strategy at the core of all its activities.
Today, our key initiatives are part of three separate business segments. We are present in natural gas, where we operate pipelines, gas storage and distribution facilities. Our other two segments are energy generation and energy storage. In all of these areas, we have different growth strategies. In terms of renewable energy, we have been very active in developing solar and wind facilities. These primarily supply energy to private offtakers: large Mexican industries that want to ensure a reliable and clean supply of energy. We have also been busy developing storage terminals for gasoline, LPG and diesel. Mexico imports a substantial portion of its gasoline. The market recently opened up to new international players. This dynamic requires a great deal of built infrastructure to ensure a reliable supply to the market. Finally, our most important initiative is our Energía Costa Azul liquefaction facility in Ensenada. This is a natural gas facility that was developed originally to bring gas into North America. Now, because of the global market dynamic, we are looking at investing into the facility to allow us to liquify natural gas there. Later, we would distribute this gas to isolated markets in Mexico and abroad. Right now, IEnova is very connected to the North American region. We are among the leaders in terms of cross-border energy infrastructure for both gas and power. This is one of our most exciting initiatives, because it opens a position for us as a global player.
Q: How has the company adapted its social approach to the COVID-19 pandemic?
A: IEnova was one of the first companies to react to the pandemic in Mexico. As early as the beginning of March, we decided to start working differently because our first priority has always been the well-being and safety of our employees. Our approach even shocked some of our employees and a few weeks later, the importance of our actions became clear. Whoever can work from home has been doing so since March and will continue doing so until we can return safely to the office. However, we have many employees who continue to work at our physical operations. We have enforced very strict safety protocols for all employees in place as well. This, combined with our fast reaction, has allowed us to continue operating regularly without any delays.
IEnova has always worked very closely with the communities that surround its projects. Large infrastructure projects obviously are somewhat disruptive to communities. Whenever we enter a community, we seek to understand their concerns and priorities. During the pandemic, we have been very active in helping our communities. We have donated MX$60 million (US$2.6 million) so far to communities in need. We donated over 250 ventilators, crucial to treat patients with COVID-19, as well as medical protection equipment and food. IEnova has a history of working closely with our communities. We think it is crucial to continue helping our employees and cooperating with communities.
Q: How can natural gas be a catalyst for Mexico’s development and what is the company doing to support this?
A: Mexico has the unique opportunity to take advantage of North America’s low gas prices. Although the country is a net importer of gas, the general dynamic and location next to the US, which is an exporter, allows us to turn this into an opportunity. We need to ensure that Mexico has the appropriate infrastructure to import gas from the US and deliver it to end consumers and the industry alike. The latter is especially important because Mexico is an exporting and manufacturing economy. Providing an adequate energy supply is crucial to the country’s growth and hence, the creation of jobs for its citizens.
We are also active in the gas transportation segment throughout the border area. We own pipelines in every border state, from the west coast to the Gulf coast. Through a joint venture with TC Energy (formerly TransCanada), we own a marine pipeline in the Gulf of Mexico. Through this cross-border pipeline network, we are enabling the supply of US gas into Mexico. We also have three gas distribution companies in northern Mexico. Our responsibility is to deliver gas to each household and business. We serve to more than 132,000 consumers. To combat COVID-19, for several months we supplied natural gas services to hospitals for free.
Q: Where and how is the company identifying opportunities regarding critical storage infrastructure?
A: Underground storage is critical for Mexico, since the country has no storage capacity at all at the moment. If we were to experience a disruption in the gas load due to bad weather or major maintenance, it would result in severe disruptions. Storage can mitigate these disruptions. One particular policy requires Mexico to possess a certain amount of storage. The administration has yet to take further steps and decide how they wish to implement this policy. Regardless, we are very interested in participating on the ground to define what the ideal location would be. Some options include depleted oil reservoirs or salt caverns. We have done quite a bit of field work already but there are some decisions that need to be made before we can move forward on this front.
Q: Where does the company identify the biggest opportunities regarding wind and solar energy?
A: First of all, it is a fact that Mexico has great solar and wind resources, which allow us to produce renewable energy at very competitive costs. Renewables in Mexico can compete with conventional energy without needing subsidies. Secondly, Mexico has a very large industrial and manufacturing economy, which requires a clean and efficient energy supply. The combination of these two means there is definitely room to continue growing Mexico’s renewable energy. We have been somewhat selective in our growth in this sector, but even then, we have a portfolio of close to over 1,000 MW of renewable energy. This is mainly focused on industrial consumers, where we develop our assets and contracts based on their specific needs.
Q: What are the key components of IEnova’s community approach?
A: To begin, one has to understand the community’s needs and concerns. You need to make sure that you communicate clearly. At times, misinformation is par for the course. Therefore, it is necessary that the community understands exactly what you as a company are going to do and what benefits you intend to provide them. For example, we have a wind farm located on the border with California, in La Rumorosa, Baja California. When we started this project, we were concerned about how the community would react. But when we approached them, they told us that the land we wanted to lease was not suitable for agriculture or cattle. This area is known to have security issues, such as trafficking of illegal goods or even people. The community considered our investment as a means to address their concerns. First of all, they received a portion of the project’s revenue. Secondly, we built illuminated roads and arranged security details. All the illegal trafficking has moved elsewhere as a result. In another example, we built a community center with a library in a very isolated community. We also bring doctors who provide medical checkups. As a result, we receive calls from community members whenever one of our wind turbines stops rotating. They want to see it fixed because they are part of the project and want to see it fare well. We also built a solar project in that same area. During its inauguration, neighboring ejido owners approached us to ask if we could build solar panels on their land as well. If you align your interests, it pays off. This is not simple: you need to invest time and money and listen well.
Q: What is the company doing to identify cross-border opportunities, such as the company’s Sierra Juarez wind farm?
A: This is part of our DNA. Our largest shareholder is Sempra Energy from California. Our first business was building the cross-border pipelines from California into Baja California, which brought natural gas into the region for the first time. This is why we slowly moved east, from California into Sonora, Chihuahua, Coahuila, Nuevo Leon and Tamaulipas. We always knew how to work cross-border integration. The Energía Sierra Juarez wind farm was our first cross-border renewable energy project. We are now able to identify similar cross-border opportunities that provide a win-win scenario for both sides.
Q: What are IEnova's goals for 2020 and beyond?
A: 2020 is, of course, a very unusual and difficult year for the world, and for Mexico in particular. My absolute biggest priority is the safety of everyone at IEnova. In today’s environment, the company is also striving to operate normally despite challenging circumstances. We will continue to support our communities through these difficult times. Finally, we have to be quite mindful of our financial condition, ensure we maintain our credit rating and have strong liquidity. As always, we will have to be disciplined in our development but will continue this process. Going back to the basics is the name of the game. Our commitment to Mexico remains as strong as ever, regardless of the challenges.
IEnova is the Mexican subsidiary of Sempra Energy. It promotes development, construction and operation of large energy infrastructure projects in the country. It is one of the most prominent private energy companies in Mexico.