Jorge Machuca
Cummins Power Generation Mexico and Central America
View from the Top

Natural Gas Potential Being Overlooked in Post-Reform Craze

Wed, 01/21/2015 - 13:13

Q: Where do you see the biggest opportunities emerging in the post-Energy Reform landscape?

A: I see many opportunities for the production of electricity based on natural gas. It is a very clean fuel and allows for up to 97% efficiency through technologies such as cogeneration. Imports of natural gas from Texas will be increasing in the next few years because Mexico either does not tap into its own gas reserves or has protection in place to allow PEMEX or CFE to produce that gas. Even if Mexico did decide to kickstart its own natural gas extraction, particularly through the development of its shale gas resources, it would first need to make heavy investments in infrastructure like roads and telecommunications to facilitate the development of this market. The scarcity of water and sand is also a problem, as they are needed for fracking processes. Given the absence of water in the north, fracking will be difficult. In the short term, companies providing services for the natural gas market coming across the border will thrive. In the medium term, should extraction truly get under way in Mexico, companies like Cummins providing drilling modules and other such equipment will see a rise in demand.

Q: How much of a market do you see in Mexico for natural gas to be used for power generation?

A: To a certain extent, the potential of natural gas for this purpose has been overlooked in the country. However, cogeneration and other gas-based technologies are gaining momentum. Cummins will be working with private companies on producing cheaper electricity by taking advantage of cogeneration. PEMEX is also beginning to take into account that the associated gas being burnt off in its platforms can be used to produce electricity. Internal combustion engines that make use of this gas can replace the need to bring diesel to the platforms.

Q: Which Cummins products do you expect to be the main drivers of demand in the oil and gas industry?

A: Trucks powered with Cummins engines will certainly be in major demand in the oil and gas industry, especially as unconventional projects will get started. In this industry, players normally have to deal with heavy loads, and Cummins has the most powerful engines in the transportation market. However, our engines are also outstanding in the offshore segment, where vessels transport people back and forth between shore, platforms, and drilling rigs. As more platforms are installed in Mexican shallow and deepwater development takes off, this market will need more boats, which means more engines can be supplied by Cummins. As for pipelines, we are already working on the installation of compressor stations powered by strong 91-95l Cummins engines along the Los Ramones pipeline. I also expect Cummins to be working with private companies to produce cheaper electricity by taking advantage of the rising need for cogeneration and trigeneration. While these new opportunities will benefit large companies like ExxonMobil and Shell, companies providing all manner of onshore and offshore services will also be able to take advantage of the market’s expansion.

Q: What are the differences between the microturbines of Capstone and the products put forward by Cummins?

A: Our products are very different. Turbines are more sophisticated and require more expertise to be used while internal combustion engines are well-known, spare parts are easy to obtain, and many technicians know how to repair them. If a microturbine breaks down on a platform far out at sea, companies will struggle to rapidly access the technicians and spare parts needed to repair it. An internal combustion engine has the same principles and components for small and large engines. There might be variations in technologies or efficiency, but repairing an engine involves the same fundamental components. Microturbines have been trying to crack the Mexican market for ten years and have not yet succeeded.

Q: What are the main trends in terms of the buying versus leasing of equipment?

A: There will be demand for both. Private companies are willing to buy electricity at a competitive price as long as they do not have to invest in infrastructure. In the medium term, that same logic will apply to the leasing and renting of Cummins’ power generation equipment. The uncertainty of how electricity rates or the price of natural gas will behave in the future also plays a part. We are already collaborating with different companies that offer leasing of equipment.