Diversification the Key to SuccessMon, 03/05/2018 - 14:01
Q: IEnova has been in Mexico since 1996. How are you positioned today?
A: We see ourselves as first movers in Mexico. We went from being the first private company working in the midstream sector for both liquids and gas, to being the first energy company listed on the Mexican Stock Exchange, our commitment to Mexico is clear. Today we are one of the largest private energy companies in Mexico.
After being awarded the first permit for natural gas distribution in Mexicali, which represented an investment of US$20 million for the company, IEnova has grown its total assets to US$8.4 billion as of March 2018. We have added a significant amount of investment by developing greenfield projects and through acquisitions. As a matter of fact, acquisitions have represented around 30 percent of our growth during the last three years.
Our entire portfolio of projects provides an unleveraged IRR of 9-11 percent, nominal, in US dollars and after taxes. The diversification of our portfolio, in terms of both assets and customers, has been a key element to our success since it has ensured that our total IRR remains in our target range.
In addition, IEnova went from depending on a single asset for more than 50 percent of its adjusted EBITDA generation to now having a broad portfolio, of which transportation represents around 50 percent. This allowed us to grow adjusted EBITDA from US$300 million in 2013 to US$759 million in 2017.
Q: What potential does IEnova sees in the development of pipelines and storage terminals for liquid fuels in Mexico?
A: We see a great market opportunity in the development of liquid product pipelines. There is need for infrastructure to serve the growing demand of a market with 120 million people and an inherent necessity for an open and economically viable liquid fuels market in the country. Beyond the clear need for pipelines to distribute and transport gasoline, we also see a large market opportunity in jet fuel delivery to airports. This fuel is only delivered via pipeline at the Mexico City International Airport, and many airports still need a reliable and secure source of jet fuel. I think we may have the opportunity to take part in the development of that infrastructure, similar to what we are now doing in the gasoline and diesel markets. Since January 2017, we have executed five contracts for liquid fuel storage: three with Valero Energy, one with Chevron, and the last with another world-class company.
Nevertheless, it must be pointed out that for liquid product pipelines to be effectively developed in Mexico, regulation may need to be adjusted to recognize who absorbs the inherent and associated risks of those projects.
Q: How important is the Sur de Texas-Tuxpan submarine pipeline for the country?
A: We won this project in a transparent and competitive CFE auction, and we are developing it in a 40-60 percent JV with TransCanada. The pipeline will provide the country with additional direct access to natural gas from the US. Natural gas demand has been increasing over the past five years, and we expect it will keep growing as power generation becomes more dependent on this fuel. TransCanada is in charge of the development of the project, and we expect it to start operations by the end of 2018.
Q: Why did IEnova choose TransCanada as its partner for the project A: Our partnership with TransCanada is creating positive synergies because we have invested similarly in the country and have a long-term commitment to the economic development of Mexico and its energy industry. When we look for partnerships, our objective is to find complementary skills that we may not yet have developed ourselves. In the case of the Sur de Texas-Tuxpan pipeline, we needed a partner that had previous experience in building marine pipelines.