Taking the Lessons from Los Ramones ForwardFri, 10/13/2017 - 16:21
Q: How does TAG Pipelines deal with rights of way processes and communities?
A: Right of way is not a risk, it is a certainty. You know something will go wrong and some complication will arise. In the case of the pipeline construction industry, community relationships are essential. By engaging communities, you acquire one of the most important assets of infrastructure, namely right of way. This is a topic that should be approached carefully and fairly. As a result of the Energy Reform, an additional requirement is now the social impact assessment that CRE demands. While many people see this as an additional burden on project development, I see it as positive. There is a reason behind this. Sometimes companies have not treated communities in a fair way. These specific regulations make sure communities are not left with the feeling that they gain nothing from a project. This is an important part of the equation. Companies must take into account the Equator Principles, which state that whatever the EBITDA of a project, a company must devote a certain part of that EBITDA to social work in communities. In the particular case of TAG Pipelines, we are 100 percent part of PEMEX, so it makes sense for us to observe such regulations.
Q: What did you learn from the Los Ramones project?
A: That project was a huge achievement for TAG Pipelines and we gained a lot of know-how. We learned many important lessons, from rights of way acquisition to stakeholder management. One challenge that was successfully confronted was lack of financial resources on the side of PEMEX. Nationally, there was a need to boost import capacity for natural gas into Mexico. This transportation capacity was created with limited financial resources. In the end, PEMEX kept a very small share of the project. That was always the intention and it was very successful. Mexico needed that capacity so it created a company with the technological project skills to make it viable. We still have that knowledge. The lesson is that any logistical needs that may arise can be met by using those same human resources because we still have those capacities and they can be further developed in the future.
Los Ramones was oriented toward creating importation capacity in the north. Now, I see more opportunity a little more to the south for natural gas. Production has been decreasing in the southeast during the last five years. The southeast, which typically produced the largest volumes of natural gas, does not have enough now. The question is how to modify the existing infrastructure to bring natural gas in. Although CNH has bidding processes in place for the southeast of the country, that will take time. These issues need to be solved before new production capacity arrives.
That being said, I do not see our activity restricted to building pipelines. We view ourselves as an infrastructure company. For example, storage is one of the key elements missing from the Mexican natural gas landscape. There are several places that require the development of storage capacity. Monterrey and the large consumption centers of central Mexico are lacking in this area, as is the southeast. One area of opportunity is liquid fuels. Mexico City has only three storage supply terminals for these fuels, while Houston has 29. Some estimates suggest a lag of 30 years in terms of liquid fuels infrastructure. This is a huge area of opportunity.
Q: What is your main concern when building a pipeline?
A: Our main concern is right of way, that is the most critical element. That is where you usually run into complications and really need to focus all your attention. Yes, there are always issues with the EPC contractor, you need to solve certain things from an environmental perspective, you need permits from SEMARNAT, but these are generally part of the project management process. Right of way is not only complicated because of the ejido land ownership regime; negotiating with private owners can be even more complicated. This is the key element a pipeline company needs to focus on.