Stronger Regulators, Processes Key To Growth

Q: What role does Frap want to play in the industry’s development?  

A: We are looking to work with the new operators and companies responsible for drilling wells in the Gulf of Mexico. Many IOCs are bringing in companies to carry out procedures such as permits and licenses. For example, Shell has an international firm that carries out these processes for it, with everything centralized in Houston. Therefore, we must compete against large firms like EY and PwC. These firms have many years of experience but what companies sometimes forget to consider is that the Energy Reform is new for everybody Frap wants to become a leader in both regulatory and environmental frameworks, while supporting the authorities to reinforce the sector. We want to position ourselves as a leading consultancy and boost the quality of the industry. We differentiate ourselves by the work we do and with our deep understanding of the sector. Frap has experience with the regulatory framework and in actually carrying out the necessary permits. 

Q: What main challenges will Frap Servicios Integrales and oil and gas companies encounter during the next year?

A: In 2019, we will face similar challenges because we not only process permits but we also lobby the authorities to help move things along more quickly. The biggest worry my clients have is the lack of interest among politicians when new technologies or processes are presented to them. That could result in investment fleeing the country. The legal principal states that if it is not written in the law then it is permitted but that is not entirely true in Mexico. For instance, if I begin doing pyrolysis in Mexico, the projects will not be regulated. If I want to develop an industrial plant, I have to conduct environmental and social impact studies. The sector is worried about the empathy of the authorities.

Another challenge is the development of social and environmental studies for oil and gas operations. Oil and gas companies must conduct both these impact studies, even if their operations are offshore. ASEA does not have authority in deepwaters, the entity responsible for these studies are SENER and SCT, which are not prepared to process them. Social impact studies must be carried out by experts that know their way around the Mexican market. 

Q: What is your view of the oil and gas landscape and the federal administration’s impact on companies and regulators?

A: When the Energy Reform was implemented, approximately 200 new business units were also created. Each of these are unique in terms of regulatory framework and each have their own permits and studies that must be carried out. The Energy Reform was intended to expand the Mexican sector and remove the monopoly held by PEMEX and CFE. It brought in new competitors and now covers the entire supply chain of both the electricity and hydrocarbons sectors. PEMEX and CFE cannot be only providers and participate in more than two areas throughout the supply chain, which is what both CFE and PEMEX are currently doing. 

The new administration told the country that it would stop all projects and cut down budgets and that is exactly what it is doing.  The budgets of CRE, ASEA, CENACE and CNH were all cut. The budget cuts for these agencies translated to a reduction of staff, which in turn delayed even further the permits that companies were waiting for. After the Energy Reform, many companies immediately began doing the paperwork to obtain storage, commercialization and transportation permits and they should have had the plan already done. Nevertheless, CRE, CNH and ASEA were also learning along with the new reform; they allotted many permits without the specifications being met. 

At the moment, many companies are approaching me to set up operations in renewable energies that are not contemplated in the Energy Reform. Other companies are approaching me to start pyrolysis operations, which is the process of converting hydrocarbon waste into gasoline or diesel. 

Frap Soluciones Integrales is a consulting firm that specializes in regulation, project development, storage, distribution and management of hydrocarbons in Mexico. It provides support for the development of social and environmental studies.