Generating Power from Wasted Flaring GasWed, 01/22/2014 - 09:38
President Enrique Peña Nieto gave the oil and gas industry a late Christmas present in his New Year’s Eve message, pledging that Mexico would enjoy the benefits of the Energy Reform in 2014. After his company was battered by difficult market conditions in 2013, this came as a relief to José Pablo Mendoza Escalante, CEO of Octopus Group. He now says that his firm is well-positioned to take advantage of the new conditions following the Energy Reform, since Octopus has a technological ace under its sleeve.
Mendoza Escalante says his company has hit on the potential to generate power from flaring gas, which is seen as a mere byproduct by most petroleum companies. So far, Octopus’ main line of business has been selling a range of equipment such as oil, gas, and solid separators and pig launchers and receivers. However, Mendoza Escalante’s negative view about how gas operations are being handled is such that the opportunity created by flaring gas will be the firm’s main focus during 2014. “Even though it is said that conventional reserves will last for almost 40 more years, there is a growing awareness of the need for other energy sources and gas will be the transition fuel.” Many wells drilled before the 1960s did not have piping infrastructure, leading residual gas to be burned off. Such is the case in the fields surrounding Poza Rica, the place where Mendoza Escalante says Octopus’ power generation business originated. “Instead of burning gas, we turn it into electricity. The entire field could be powered with the amounts of gas being burned off. I believe our idea has great potential in the energy market because both PEMEX and the private sector will want to take advantage of residual gas,” he explains. The increasing popularity of these solutions is linked to the high costs of electricity required to produce oil, boosting the potential of Octopus’ project. The company is already working with PEMEX E&P, performing onsite operations at over 1,000 small wells located north of Poza Rica. These consist of connecting electricity generating equipment to valves that would otherwise release gas into the air.
Octopus’ flaring technology has received praise from PEMEX, increasing the chance of it becoming more popular in the industry. Nonetheless, Mendoza Escalante points out that PEMEX cannot afford this technology en masse, meaning it is not yet close to becoming a regular market presence. “Octopus’ best option, given the circumstances, is to find financing mechanisms and let the customer know that instead of buying diesel or LPG to run its engines, it can pay a fee to have our firm turn flaring gas into electricity,” says Mendoza Escalante. “Imagine that Octopus began implementing this strategy in Chicontepec. The group would need US$750 million to switch from 1,400 diesel engines to electric motors at 300 sites, enabling all of PEMEX’s systems to run with electricity produced from gas otherwise wasted due to flaring.” Given the limited current competition for such a project, Mendoza Escalante is highly confident about the viability of such a scheme. Asides from power generation, Octopus conducts different activities through various companies within its group. The group is negotiating contracts with COMESA and Tecpetrol to supply pig launchers and receivers, and is also providing separation services for ICA Fluor in Dos Bocas as well as for ENX Compressors and Petrofac. Its diversified product portfolio gives the firm the periodic opportunity of testing out new equipment, such as cyclones that provide better efficiency inside separators. As part of Octopus’ development strategy, the firm is switching from selling goods to providing services, and Octopus has already signed two contracts to provide integrated solutions for major clients.
Octopus is not afraid of large international players entering the market following the Energy Reform. Nevertheless, Mendoza Escalante would welcome a joint venture with a foreign partner, but does not view a foreign firm wanting to buy Octopus is viable. Having local connections and contracts is important in the industry, thus joint ventures are a more appealing strategy for international companies. “Local expertise, one of Octopus’ most attractive characteristics, is not something they can buy,” states Mendoza Escalante. To illustrate the benefits of collaborations between national and foreign companies, Mendoza Escalante gives the example of International Piping Systems (IPS) belonging to Louisiana based Turner Industries. IPS has two large plants that produce 15,000 spools per month. In the case of Mexico, it would need one of those plants for 22 months to provide the spooling needed by a specific refinery. Even if Octopus decided to shift its business line exclusively toward spooling, duplicate its load and work round the clock, the firm would only be able to produce 600 spools. This difference in scale means that Octopus would need to find a partner with the resources to take advantage of such opportunities. “Octopus is aiming to marketing itself in order to get the attention of key international players. Opportunities usually come when you make yourself visible in the industry,” concludes Mendoza Escalante.