Ricardo Navarro
Senior Vice-President, Latin America
View from the Top

Natural Gas Better Power Generation Option than Diesel

Wed, 01/21/2015 - 13:10

Q: How does the recent acquisition by Generac impact the value proposition of Ottomotores for the Mexico oil and gas industry?

A: Generac has been growing significantly in North America for the last 10-15 years, establishing a primary position in the gas market. As part of its strategy to add market share in priority world markets, Generac is targeting leading companies in local markets around the world. In Mexico, Generac sees Ottomotores as a leading company in the diesel market with whom synergies can be created. Among these is the fact that Generac’s solid cost structure can help Ottomotores improve its own cost position. On the production side, both companies have centered on identifying what products already developed by Generac can be added to the Mexican market. For instance, Generac’s entire gas product line has immediately become available to Ottomotores. This expansion strategy has lead Generac to reach a leadership position in a wide variety of products, such as light towers, after the acquisition of Towerlights in Italy and Magnum Power Products in the US. It is this leadership position that benefits Ottomotores. The struggle in this process is that different mentalities between US and Mexican operators have entailed a series of adjustments over the last year and a half.

Q: What are the main products you have added to your portfolio in the last 18 months?

A: Historically, Ottomotores has been a company that sold diesel to industrial companies and service providers. Generac is not looking to change this reputation since it is a gas leader in the US, where it services residential users and large retailers like Home Depot and Lowes. We have new huge business lines that we can bring into Mexico, as long as we understand the needs of the country and its end users. Besides residential products, we will also be attacking niche markets with our industrial gas division. Almost no customers in Mexico have Generac engines, meaning we can increase our presence here dramatically. For the oil and gas sector, we will make large investments in our light tower business, and will focus on our mobile generators rental business, as well as heavy-duty continuous power machines, which are all in demand for use in oil and gas operations.

Q: What are the main trends in the Mexican market that influence your portfolio decisions?

A: Ottomotores has been operating in Mexico for a long time. We understand the market requirements, have seen them evolve, and even set certain market standards. Over the last ten years, Mexican standards for the equipment we provide were essentially Ottomotores’ standards. However, in that same period, very little innovation took place although the Mexican market was screaming out for new products. Now, new developments in the oil and gas sector mean that Generac will be able to leverage its experience to help move the needle. We will use its knowledge of Mexico to develop products for launch in the country and to distribute these through the right channels. A trend that we are trying to create is to lead a switch from diesel generation to using natural gas across Mexico. There will be some resistance but we have arguments that we think will be convincing. Our industrial clients, including those in the oil and gas sector, are definitely comfortable with diesel as they like what they already know. As such, the real task to get them to switch to natural gas is to thoroughly explain the benefits. Natural gas has no emissions, requires no fuel tank, and it causes less wear and tear on the machinery, so it offers several advantages diesel. Alongside this, we have Bi- Fuel generators, which use natural gas but can also run on diesel, like common generators, if need be. Actually, the oil and gas sector has been more willing than most to consider such a switch. Oil and gas companies see that using natural gas is cleaner and simpler as well as being more convenient since the gas can be tapped from the pipeline or the well. This has led to our oil and gas clients lining up to convert to our gas generation units.

Q: What do you expect to be your most popular products in the Mexican oil and gas sector in 2016 and beyond?

A: Our continuous gas generators being fed from the well are going to be a huge success. We are targeting clients that buy all manner of generators, from stationary and prime power to continuous power generators. Alongside these, we have invested heavily in new developments for our light tower portfolio to maintain our leadership position in that segment. The light towers will also help our clients see that we are not only a power generation company.