/
Analysis

Green Shoots in the Supply Chain

Tue, 01/21/2020 - 17:19

The downturn that wreaked havoc across the global oil and gas industry did not spare Mexico. The oil-reliant towns and cities along Mexico’s Gulf Coast were heavily affected as activity decreased and companies that the country’s supply chain relied on closed. “The crisis hit the sector so bad that half the fleet was on standby and there was not enough work for more than two years. Over 30,000 people lost their jobs, who in many cases were incredibly specialized,” says Luis Ocejo, Senior Managing Director of Maritime Business at Grupo TMM. With the prosperity of supply chain players directly linked to the activity of operators, investment made by operators is key. The industry-wide uncertainty caused by the change of administration and CNH’s decision to suspend the bidding of two rounds totaling 46 blocks, hampered supply chain growth as companies hesitated to invest in an undecided market. However, by 2Q19, with the president signaling his desire for private players to continue supporting Mexico’s oil and gas development, prospects began to look brighter. Exploration and development drilling by both PEMEX and private operators accelerated, while in July, Eni became the first IOC to start offshore production since the beginning of the Energy Reform. Most importantly for supply chain businesses, PEMEX made a watershed announcement that it would develop 23 new fields set to require 128 wells to be drilled over the next two years, a monumental increase on the 23 fields it has developed in the last decade.

To increase production and support offshore activity, maritime service providers play a central role. However, port infrastructure bottlenecks have remained a problem during the last year as bureaucratic processes continued to cause problems for maritime companies, an issue companies want addressed. Salvador Caceres, Director General of Ciudad del Carmen-based H&R Naviera, a logistics agency , explains the dangers that arduous port procedures provoke: “The principal risk is financial losses due to delays. Once a unit arrives at a port, especially from abroad, it has to go through a whole series of procedures. These involve different parties at the port, from customs agents to the harbormaster […]. The back and forth circulation of documentation to the authorities that is currently required for clearance is not optimal.”

A lack of standardization and systematization makes port and customs procedures a haphazard affair. At the heart of this issue is Mexico’s lack of digital infrastructure. Taking processes online to deliver increased efficiency and systematization would enhance communication between authorities and quicken logistics, says Oceamar General Director Priscilla Castañeda. “The management of equipment at ports is a vital question and needs to be controlled through sound protocols that provide efficiency and security. Either the government increases its abilities or it hires the help of private agencies to do the evaluations.”

Activity off Mexico’s eastern coast means that capacity development among suppliers and service providers must be coupled with infrastructure development. The Port of Matamoros, managed by API Tamaulipas is being constructed to service the winners of deepwater blocks in the Perdido Basin during the licensing rounds. Jesús de la Garza, Director General of API Tamaulipas, notes that the port will become the first port in Mexico to support offshore activities while also supporting commercial and industrial operations within a 500km radius when it becomes operational in 2020.

NATIONALS POISED TO STRIKE
Increasing the prominence of national procurement is an important point for the new administration, which believes national companies must play a central role in the development of the country’s oil and gas industry. “Many new opportunities have emerged for local companies that survived the downturn and we are keen to take advantage of them,” says José Altonar, CEO of Altopetrum & General Oil de México.

Before the Energy Reform, PEMEX contracts supported thousands of national companies, and as a consequence, the nationalized market cultivated a single-client dependency. This resulted in widespread closures once PEMEX withdrew investment during the industry downturn. National companies are now seizing on the chance to expand their client base and balancing their security for a healthier future. Pedro González, Technical Leader at Paraiso-based Kasoil, explains the situation for the local company: “We have diversified our client and project portfolio. Last year, 90 percent of our services were offered to PEMEX and 10 percent to other operators. Now, we are approaching a 50-50 distribution. We are more than ready to take advantage of a strengthened PEMEX but we are also providing more support to the ongoing work of the licensing-round winners.”

National companies are also beginning to unify through clusters to overcome their smaller stature and compete for the contracts at hand. By forming clusters, companies can share technologies and services, enabling an expansion of their service portfolio and obtaining work that would previously be outside their scope. José Luis Valencia, Administrative Manager at Mexican heavy-lift and transport company GAVSA, based in Villahermosa, explains the benefits a cluster offers. “We have taken the step of organizing ourselves so that we can compete against the large international companies that have monopolized the market in recent years.”

DELIVERING A QUALIFIED WORKFORCE
The development of local content able to deliver the specialized knowledge necessary for offshore exploration, field development, and early-production works was another pressing matter. The 13 percent local content requirement during exploration and 25 percent for production stages must be met. But moving out of PEMEX’s shadow and into the multiclient market brings its own challenges. According to Virgiolio Ruiz, President and Founder of Grupo Hegemonía in Ciudad del Carmen, the quality of Mexico’s local content must be improved. “Compared to other countries, Mexico lacks human capital preparation,” he says.

The connection between industry stakeholders and academia also will be essential for the improvement of industry personnel in the medium and long terms. The Instituto Tecnológico de Petróleo y Energía (ITPE), a Yucatan-based educational institution, is one of many organizations developing links between Mexico’s educational institutions and industry players. Adrien Caudron, ITPE Director General, notes that these links are becoming easier to forge and more fruitful as the market matures. “Some of the prestigious partners we are already working with are UNAM, IPN, IFP and Texas A&M University. On the business side, we work with companies like PEMEX, Shell and ABB,” Caudron says.

With the arrival of global players, international standards of project management are expected. However, Mexico currently lags far behind its regional competitors when it comes to qualified project managers in the market. “Uruguay has a population of 2.5 million and 1,000 are PMI-certified project managers. One the other hand, Mexico has between 3,000- 4,000 project managers for a population of 120 million,” says Rafael Diaz, Project Manager at Servicios, Technologías e Innovacíon (STin).

The recovery of Mexico’s oil and gas supply chain continues apace with many local companies who survived the downturn once again gearing up to provide services to a much-changed market. The adaption to a multiclient market will still take time, but with the diversification of services, the integration of international standards to supply chain practices and the training of Mexican talent, the foundation for industry growth is taking shape.