Mexico's Energy Future: Gas, Renewables, and Digital Training

Q: Why did Kannbal decide to enter the energy sector, and what are some of the challenges and opportunities you have identified in this space, particularly regarding technology and talent development?

A: The energy sector, and more specifically the oil and gas sector, is perhaps one of those that is a little more behind in the implementation of new technologies. Today there are already major advances, for example, in the use of artificial intelligence for data analysis, reservoirs, and so on. But, when it comes to digital transformation, the industry is still a little behind compared to sectors like finance. 

At Kannbal, a company that has been operating for nine years, specializing in technology and innovation, we decided to launch a business line focused on energy to start working with clients in the energy sector and offer them digital solutions, so their talent can maximize and streamline the learning processes. 

In the energy sector, one of the greatest needs is the development of local talent and the building of technical capacities, but this requires a high level of personnel development and talent and skills acquisition. Traditionally, Kannbal works with very large international clients in the financial, retail, and services sectors. Now, we are trying to contribute our little grain of sand to help energy companies with these improvement processes.

Q: How is Kannbal using digital tools to improve training and talent development in the energy industry, especially for technical personnel? 

A: Many companies, especially when it comes to developing the skills of technical personnel, still use traditional learning models. Today, you have to prepare a crew to board a ship or an offshore platform, and you probably have to give them a safety policy course, technical instructions, and so on. For this, many times you have to send them to a location near the operation. Often you even have to get them on board so they can see the practice in person. So, what do we do? We develop solutions that make that process more efficient through very playful instructional design processes, so that instead of moving a group of 100 people to a site with all the logistics that implies, we can offer a solution, a course or a learning module, where companies give us their content, and we combine multimedia resources, virtual reality, machine learning, and we put all of that into a digital experience so the employee can acquire the same knowledge more efficiently and even take a virtual tour of the facilities they will be learning about. The solutions are very broad, from developing an app, a website, or a virtual university, to talent development or building leadership or communication skills. In the end, the content can be anything, but the solution always comes through technology and digital tools.

Q: What do you see as the main opportunities and challenges in Mexico’s energy sector today, both in oil and gas and in renewables, under the current regulatory framework?

A: There are big opportunities, but there are also big challenges. Focusing on the opportunities, we come from an energy reform that took place two presidential terms ago, which bore certain fruits and allowed for some investment dynamism. It generated attraction and created many opportunities that we still see today with the private operators.

Today, under a new regulatory framework, opportunities have shifted. First, Mexico is a country with a growing population. Our level of energy supply growth between now and 2050 is expected to remain strong. So, there is both the need and the certainty that this energy demand must be met.

How will this happen? That is where we are now. With the new regulatory framework, there has been a significant shift in how the government views private sector participation. Under the previous regulatory framework, there were provisions that allowed for a relatively open market with certain limits on private participation. Today, it is the opposite. Today, private participation is the exception because the new regulations prioritize state-owned companies like CFE and PEMEX.

But that energy demand still needs to be covered, both in electricity and in oil and gas. Our next development path in Mexico is to explore unconventional fields. We have nearby success stories on the US side, where over the past 20 years, companies have completely transformed the oil and gas production landscape, mainly in Texas and Louisiana, we also are seing how Argentina is growing their production thanks to Vaca Muerta They have done this through fracking, which today has improved technologies and much better efficiencies thanks to the experience the Americans have gained. All those reservoirs extend into Mexico.

As we know, our oil production capacity is limited and declining. Deepwater projects are really about taking precision shots. But in the short and medium term, our solution lies in unconventional fields in the Burgos and Misantla basins, and across the northern states, Veracruz, Tamaulipas, and so on. We need to take the lessons learned and start exploring unconventional fields if we want to reach the 1.8MMb/d target set out in the government’s plan.

When it comes to renewables, establishing a solid legal framework and good operational rules so renewable energy producers can participate more actively in the energy mix is another major opportunity. We live in a country with many options for wind and solar energy; practically anywhere you place them, they can be efficient.

Q: How critical is natural gas to Mexico’s energy mix, and what infrastructure investments are needed to secure supply and support growth?

A: More than 70% of electricity generation in Mexico comes from natural gas, and most of that gas is imported. As Director of Strategic Alliances at TC Energy I was very involved in the Puerta al Sureste gas pipeline. Its construction is now complete, and it is currently in the process of obtaining a permit from the Ministry of Energy to begin operations. This project will supply 1.3Bcf of gas to the southeast. There are solutions underway for the southeast region of the country, and I focus a bit on the southeast because it is an area that needs more attention to balance development with energy supply.

The Yucatan Peninsula, for example, is growing at a faster pace than the rest of the country. Energy demand there is already exceeding capacity and is projected to double by 2030. The solutions currently being provided by CFE, such as the combined-cycle plants under construction, will fall short, in my opinion.

So, natural gas becomes the transition fuel. Today, the world is moving toward natural gas, and for at least this decade and the next, it will continue to be the primary transition fuel due to its environmental advantages. In Mexico’s case, we have a significant weakness: the gas we produce domestically, and I am talking about dry natural gas, is produced in very limited quantities by PEMEX. A large portion of that gas is consumed internally by the NOC for its own extraction processes. That is why most of our natural gas is imported.

What we need now is investment in storage projects. There are already defined projects that have been on the table since the administration prior to López Obrador’s, using abandoned fields that can be perfectly adapted for storage. That is where we need significant investment to provide the country with greater energy security. Right now, we only have enough gas stored to last two or three days if the supply from the United States were to be cut off. We are completely exposed.

Q: What are the main challenges and requirements for investing in renewable energy projects in Mexico today, and how do transmission limitations impact those opportunities?

A: I think one of the major concerns is where to invest, because companies are highly dependent on the grid. You need to be in locations where it is economically and technically feasible. And as we know, Mexico has essentially stopped investing in transmission networks over the past two decades. We are facing a significant lag.

Today, with the regulatory changes, the topic of binding planning has become a necessary path that everyone participating in the renewable energy sector must follow. You can no longer present a project that is not aligned with the Ministry of Energy’s plan. So, there are restrictions in that regard.

When the electricity reform took place in 2013, the electric market was practically born, creating a certain level of dynamism that attracted investment. Today, the door is relatively open again with the new rules.

Another topic I have discussed with many leaders in the sector and across several companies is legal certainty. That is a key factor for being able to invest. We are still in the process of developing the regulations, detailed rules, and contract models to assess the feasibility of investment. The more legal certainty we have the more investments can be unlocked.

Q: What is your view on Mexico’s oil production goals? What conditions would need to be in place to achieve or even surpass the government’s target, and how does PEMEX’s financial situation factor into this? 

A: By doing the right things, we can reach the 1.8MMb/d goal by the end of the administration. But if we are ambitious and we create the right rules and legal certainty to trigger investments in unconventional fields, there is significant potential there. In fact, the oil reserves in all those unexplored fields and in offshore areas are much greater than what we currently have. So, the potential we have today is much larger than what is visible.

If we do things right, we could perhaps even surpass the 2MMb/d mark. That would be the best-case scenario. But I think the target this government has set is reasonable in terms of the tools they have to achieve it. Without a doubt, one of the most critical aspects is the financial situation of PEMEX and CFE, especially PEMEX. Its debt level is unmanageable, and they will have to make tough decisions that we probably will not like. One possible option is to convert some of the company’s debt into public debt to give it breathing room and a better chance to improve.

In the case of renewable energy, as long as the regulatory framework allows for sufficient certainty to attract investment, I believe there is a great opportunity. By 2030, renewables could perhaps make up as much as 40% of the energy mix.

Kannbal Consulting is a Mexican consulting firm founded in 2016 in Mexico City. It specializes in learning, digital content, animation, and e-learning, supporting companies in the financial, healthcare, retail, energy and startup sectors.