IEnova’s diversification strategy in Mexico

On what areas has IEnova recently been concentrating?
Since 2016, our focus has been on diversifying our portfolio, both in terms of the type of assets we develop and our customer base. We originally started out having a very large portfolio of gas infrastructure projects, primarily pipelines, but also distribution and storage. We have leveraged on the experience of our regulatory, development, engineering, construction and operations teams to increase and diversify our portfolio of assets and clients.

How have these capabilities allowed IEnova to grow in other market sectors?
We have translated that capacity to other areas and we have grown into Mexico’s interesting and fast-growing renewable energy market. We have also grown into the refined products infrastructure market. We continue to be an energy infrastructure company, but now we have the ability to develop different types of energy infrastructure and to work with different types of customers.
We’re generating power for large industrial and commercial offtakers. In the refined products segment, we’re developing infrastructure for important international refiners that are new to Mexico’s retail market. We are developing infrastructure facilities through which these international players can bring their own products to the market and sell them through their new retail space. We’re developing this type of infrastructure both in the Gulf of Mexico and on the Pacific coast.
We have been very successful at continuing to grow our infrastructure business by diversifying our asset base and our customer base. We’ve grown steadily and with discipline. Our diversification strategy is what has allowed this steady and continuous growth within the same business model.

What does IEnova look for in a client or partner?
The quality of our customers is very important. We take a very long-term view of these projects and, obviously, we need to invest substantial amounts of resources. We think of these projects with a 20- to 40-year view. That’s why customers really matter to us.
For example, in the refined products segment, our customers are Chevron, BP, Marathon, Valero and Trafigura. They are all top players with long-term commitments to Mexico. This spans to other segments. For us, it’s not only the quality of our assets, but the quality of our customers that differentiates us from other companies.
In some cases, customers have asked to have some kind of equity interest in these assets, which is a win-win situation for us.
In some cases, a partner is someone who brings expertise or execution capacity that we don’t have ourselves. Or, as in the case of international refiners such as Chevron or BP, they provide the best international practices. We very much value partnerships that bring new capabilities to the table.

What key challenges and opportunities exist in the transportation and storage sector?
The opportunities are very good. The international refiners are racing very successfully to the newly opened market to secure retail positions. Every day you can see new BP, Shell, Total, etc petrol stations.
However, they lack the necessary infrastructure to bring their own products to the market. That means many of them continue to rely on Pemex for their supplies. That is fine, but they want to diversify their supply sources and they want to be able to bring products from their own refineries, mainly in the US, into Mexico. To achieve that, they need infrastructure, and that’s where IEnova comes in.
In this regard, we are developing terminals in Veracruz, Topolobampo, Manzanillo and in Baja California. It’s a win-win situation, both for Mexico and for our company. There is more competition, more fuel available and more choices. It’s good for consumers.

How do you think Mexico’s energy industry will evolve under the new government?
It’s still very early in the game. We need to wait for the new government to take office and appoint key officials. Obviously, we already know who they will appoint at the first level, but we need to wait for the next level and for this new government to fully understand the issues and establish a position. The information we have right now is very generic. However, we’re in the infrastructure business and Mexico needs energy infrastructure such as pipelines for power generation and to import petrol.
This is even more true if you look at several public policy decisions made during the administration of Enrique Peña Nieto; for example, in terms of increasing refined products inventories, which is critical for ensuring supply. The natural gas storage policy is also critical in ensuring sufficient natural gas supply and, in turn, power generation.
Not only is there an obvious need for infrastructure, but the recent public policy decisions also point to that need. Infrastructure is necessary for the country to continue to grow and be competitive. From this point of view, I think the opportunities will remain, especially considering that IEnova has diversified its portfolio so we can move in different directions, be it power, gas or refined products. We’re always looking for new opportunities further down the road.

What is IEnova’s approach to renewable energy projects?
This boom within renewable energy is very good news for Mexico. It’s not only clean power, but is also is very economical and efficient. It’s the best of both worlds.
Because we have a diversified portfolio, we’re selective about the renewable projects we engage in. For us, it’s not about how big we are in renewables, but about maintaining the same business profile and model, as well as the return rate we get across the board. We look at renewables a little bit differently than a purely renewable energy company would, because we’re selective about the type of contracts, projects and customers.
Our focus on renewable energy is very much about the large industrial offtakers that want power at a firm and fixed price.

How is the domestic power matrix likely to develop?
Overall, renewable energy growth is great for Mexico. It will continue to grow, but in a selective and disciplined way. But, there should be a nice combination of natural gas and renewables. We see very mature markets, for example, as in California, which is full of solar and wind power and where gas continues to play a critical role because of the intermittence of the resources.
Gas is fundamental to the success of renewable energy. Mexico is fortunately located in the area with the cheapest gas in the world, which is also very abundant. In the context of the US exporting gas to Mexico, it’s a win-win situation. US producers need the Mexican market and Mexico is benefiting from low-cost gas. There are also expectations that Mexico will increase its gas production.

What is your outlook on Mexico’s energy industry?
The opportunities in Mexico are incredible because of the size of the market and the economy, as well as the geographic situation and the fact that there is such a need for energy infrastructure for the country to continue its growth, for the economy to continue its development and for the industries to continue being competitive. We develop infrastructure to enable a more efficient supply of energy to the market and to the industry, and in that regard, there is so much to do; it’s simply a matter of being disciplined and careful.
Large infrastructure projects are challenging, but I think IEnova is proof that there is a very solid business to be developed in Mexico, to the benefit of country.