Energy Infrastructure, Improved by Intelligent Matchmaking

Q: How has Enix adapted to the COVID-19 pandemic and what impact have you seen for your clients and their operations?

A: We have adapted, as most of the industry, doing Home office, which is quite effective. As a matter of fact, we made the decision to let people work remotely before the government suggested it. And this work dynamic has increased our productivity at a time when we have been very busy due to what is going on in the Industry. As for the impact on the sector in general, as expected, the demand for energy has decreased worldwide due to a slowdown in economic activities. This has an effect on existing operators in the market. It has also delayed the start of new projects, which were positioned to respond to higher energy demands. Nonetheless, demand will eventually increase. The pandemic is not permanent, rather a combination of temporary events. Unfortunately, here in Mexico we are facing additional problems. During this period, with the pretext of Covid, the Government has issued a series of policies and regulations against renewable energy projects owned by the private sector. This has raised a lot of concerns and increased uncertainty for investors.

Q: In Europe, domestic energy use has picked up significantly. Could this offset the loss in energy demand normally generated by Mexico’s industry?

A: The Mexican energy market differs from that in Europe. More affluent nations have a higher domestic energy use. Mexico is still a developing nation, so its energy use for industrial and business purposes is much higher in comparison. Of course, there is an increase in domestic energy use but other activities such as tourism or commerce, which account for a larger part of the national energy demand, have dropped dramatically.

Q: A crisis can also provide opportunities. Has Enix identified any new prospects?

A:  Definitely. For instance, with COVID-19 and the oil price crisis, it has been clear the need for storage of oil and fuel oil produced by Pemex. The private sector has the opportunity to develop this infrastructure just because the government is focused on the production of oil and refining. We, at Enix, see potential for new projects in this field. Now, at the global level I see an opportunity for the development of more renewable energy projects. The demand reduction of oil could accelerate the transition to a less carbon intensive matrix. Regarding electricity generation, we have seen that lower oil prices imply a lower electricity price as well. Even if this can be seen as a disadvantage for renewables in the short term, they remain the most profitable projects. Also, renewable energy has the technological curve in its favor, improving the outlook on costs. At the same time, with the lockdown, CO2 emissions have decreased globally as well, allowing people to get a glimpse of a cleaner world. I’m convinced that all of this will favor renewables, even in Mexico where the government is currently blocking them with restrictions that are not sustainable in the medium and long run.

Q: What needs to change in the energy sector to take advantage of these opportunities?

A: In the electricity sector, the only thing that is needed is the government abolishing all the new regulations that go against the private sector and particularly the renewable energy developers. As for the hydrocarbons industry, regarding regulation, no change is needed. The fact is that PEMEX requires better storage infrastructure. Operators, marketing partners and the company developing infrastructure need to be in contact. Infrastructure developers need to identify companies that need their services and find areas where infrastructure is needed. This infrastructure should have to be built near fields of production or import/export zones. PEMEX and marketers have already approached developers and vice versa, so further regulation is not necessary to boost infrastructure. Compliance with the existing regulations is key, so infrastructure developers should approach a company like ours that understands how regulation works to guarantee compliance.

Q: Have the company’s services or client base changed due to COVID-19’s impact on the energy sector?

A: There has been an interesting effect. In the Power Sector, most of our existing clients are requiring juridical advice to either defend themselves against the new regulations or to deliver their arguments regarding COVID-19 as a basis for force majeure and what this implies in terms of delays for their projects and deliverables. All of this requires juridical and regulatory support.

In the hydrocarbons sector what we are seeing is new projects in those areas where the Government is not focused. Most of these projects are facing delays due to crisis but remain necessary for the country. In any case, most of them continue alive and willing to move, at least in terms of preparing all the documentation that they need, an area where they require our support and recommendations.

Q: How does the company envision the reactivation of energy projects once the crisis passes?

A: We have not done detailed forecasts in this regard, although we do believe that the sector could reactivate soon if the government stops showing hostility towards the private sector, particularly against renewable generators. It is important to stress that the shortage of infrastructure and the need for new investments did not suddenly disappear during the pandemic. In fact, to satisfy demand, existing infrastructure would need to be doubled to reach a relatively acceptable level. Even though demand has dropped in some areas or industries by up to 20 percent, infrastructure remains inadequate and still needs to be enhanced. The need for these types of projects has not been affected by the pandemic and needs to be addressed somehow soon.

Q: What measures can the government take to alleviate uncertainty for investors in Mexico’s energy sector?

A: The most important factor is delivering a clear message that the government values and appreciates the importance of Mexico’s private energy industry. This could be accomplished by abolishing the new regulations against renewables. Additionally, it would be necessary to relaunch the announcement of new energy projects, which has been delayed or cancelled. I think revisiting announcements of this nature from the government and the Ministry of Energy and sending clear messages regarding their interest in private-sector participation would be important to really remove any lingering uncertainty. However, this appreciation is shown with actions rather than words. The government has to show initiative in these collaborations.

Q: Experts argue that the pandemic could completely change the paradigm of how people live their lives and use energy. Can there be a paradigm shift for Mexico´s future?

A: I do believe this shift might happen; Mexico is not exempt to macro tendencies. What we are experiencing right now could cause significant disruptions, including in energy demand and how it is composed. There are opportunities to make energy use more efficient. After the pandemic, not everything will remain the same. Demand for energy will increase but what will this demand consist of, you could ask. Once CO2 emissions for the year are published, we will see reductions globally. This will surely be appreciated, like a breath of fresh air for the planet. Likely, some developments that were further away in the global outlook will be accelerated instead.

Enix is a specialized consulting company with a focus on project development and regulatory advisory for the energy sector. Its dynamism and complexity have multiplied with the enactment of the Energy Reform.