Fernando Calvillo
President and CEO
Fermaca
/
Insight

Seizing Opportunities Beyond Mexico's Borders

Wed, 02/24/2016 - 12:32

“The natural gas industry did not see much change after the Energy Reform. Nonetheless, the industry has taken an interesting turn due to the lack of natural gas production in Mexico, the promotion of gas-fired power generation, and the pricing and availability of gas in the US.” Fernando Calvillo, President and CEO of Fermaca, believes this dynamic will allow his company to become an international player, as it is building its first cross-border pipeline between Mexico and the US. Fermaca has undertaken the so-called Roadrunner project in a joint-venture with OneOk, a leading gas company in the US, and it is expected to be operational in the first quarter of 2017. “This project depends on the certainty of gas supply in the US. In fact, we believe that sooner or later, an integrated energy hub will be established between Canada, the US, and Mexico, a development we hope will be facilitated by the Roadrunner project,” Calvillo explains.

The main reason OneOk was chosen as Fermaca’s partner in the Roadrunner project is the close relationship both companies have built over the years. In fact, OneOK was Fermaca’s first partner. Additionally, OneOk has a large, competitive, interconnected system across Oklahoma and Texas that not only achieves several systemic solutions by transporting gas into Mexico, but also taps into several gas sources, providing a balance between its receipt and delivery points. “In the end, it comes down to trust and OneOk is our most trusted partner,” Calvillo comments.

In his view, gas production in Mexico cannot sustain sufficient electricity generation, so the country has no choice but to import. The Roadrunner project rests on the fact that this undertaking generates equal opportunities for both Fermaca and its US partners by transporting gas to the Mexican market. “Bringing LNG from remote regions would be more expensive than building a pipeline from Southern Texas to Mexico. Access to gas at a price between US$3- 5 will continue to benefit Mexico’s power producers and industrial consumers. At the same time, US gas production and transportation will benefit from close, stable and long-term outlets across the border that allow continuing business with high-value products in most shale plays while selling and transporting the gas profitably. That is why we have chosen to undertake this project,” Calvillo details.

While the Roadrunner project is consolidated, Fermaca is focusing on the construction of the Encino-La Laguna pipeline, which has already begun. Calvillo says his company is striving to meet two delivery dates, as one segment is scheduled to begin operating in April 2016, and the second part is anticipated for the first quarter of 2017. As construction stands today, the project is expected to be delivered on time. “We are using improved procedures and techniques to those that we used in the Tarahumara project, the first pipeline delivered to the federal government on time and within budget.”

Fermaca wants to keep its business development focused on future projects, including any new tenders from CFE, CENAGAS, and PEMEX. Being a pipeline company provides Fermaca with opportunities beyond the natural gas segment.

As a midstream company, Fermaca is also interested in crude oil and refined products. “We look forward to the opportunity to work with PEMEX again, possibly in the crude oil sector. The major players of the oil and gas industry focus on producing barrels of crude oil, so outsourcing pipelines, systems, and tanks is a common practice. We are relying on our extensive experience, our reputation, and perseverance to gain contracts with many of these future players of the Mexican oil and gas industry,” according to Calvillo, adding that his company is already in contact with players that wish to outsource some of these activities.

As for the other two entities, Calvillo points out that CFE does not operate pipelines, which is why the energy company tenders capacity and the transportation service itself. In his view, CFE has done a remarkable job tendering transparent and competitive projects. As for CENAGAS, Calvillo believes this entity should focus on being a system operator rather than being an owner of infrastructure. “Both CFE and CENAGAS should delegate significantly to private companies in order to implement their plans. We have high hopes that we will build, own, and operate more pipelines within the next two or three years. By the following year, Fermaca will have close to 1,300km of interconnected pipelines in operation, and a substantial compression capacity.