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Interview

Adan Herrera Rodriguez, Director General, Foster Wheeler Mexicana, Mexico

The Director General of Foster Wheeler Mexicana speaks about the company and country’s increasing challenges within the oil and gas sector and what the company’s future strategy will look like in order to confront these challenges head on.

Some 45 years ago, the company was launched in the city of Mexico as part of AXIS Group. What are your company’s core activities?

Foster Wheeler Mexicana (FWM) was launched in Mexico City in late 1969 and is part of AXIS Group. Today, we serve the oil industry, providing direct-fired heaters and steam generators to the refining and petrochemical sectors. In addition to this, we are also present in the power industry, catering directly to Mexico’s Comisión Federal de Electricidad (CFE), the state-owned electric utility.

Having been with FMW for over four decades now, what would you say have been some of the company’s defining moments in its history?

The first thing that comes to mind is when the company was acquired by a group of Mexican private investors. As you might know, large companies can often have multiple levels of hierarchy and the decision making process can be quite ineffective. The acquisition changed that and allowed us to make faster and more effective decisions in order to respond to our client’s needs. Following the acquisition, FWM was actually able to grow at a steady pace while also broadening its product offering.

As if to counter that balance, Pemex concurrently segmented its own operations, which resulted in the creation of four entities: Exploration and Production, Gas and Basic Petrochemicals, Refining, and Petrochemicals. Needless to say, this complicated the sales process for us since it created much overlap and repetition. However, with mounting pressures on Pemex to enhance its efficiency and streamline its processes, there is a discussion now about reverting back to the single organizational model through the pending reforms.

How has the way you work with Pemex changed over the recent past?

In the past, Pemex itself would manage the entire procurement process for its projects through an entity dedicated to construction. This however is not always the case today. Although in some cases we still maintain a direct relationship with Pemex, they now award the engineering, procurement and construction (EPC) projects to large contractors, who in turn subcontract some of their work or equipment to specialized providers such as FWM.

As a member of the Axis Group—active in the design and manufacturing of equipment in the refining and petrochemical sectors—how does the group of companies complement each other? What synergies have you realized amongst one another?

FWM in itself is a technology company. Together with the Groups three subsidiaries, we have the capability and technology to design and manufacture the equipment our customers demand. More specifically, FWM is engaged in the design of our boilers and fired heaters, where as Peabody engineering, an Axis Group company, designs the burners that we use in our products. Axis Industrial, the third unit of Axis Group, manufactures the products we design for final delivery to the customer.

If you had to highlight one project that best illustrates FWM’s capabilities, which would it be?

We have just completed a large petrochemicals project for a new project in Cangrejera for which we built their equipment for the CCR platforming process. More specifically, we supplied them with a mammoth five-in-one heater in a project that was started earlier this year costing some $30 million subcontracted by Dragados of Spain. This project involved a lot of design work, carried out by us and our US counterparts but manufactured exclusively in Mexico. In fact, Dragados recently contracted us to perform a revamp of two heaters.

As a fully integrated company with decades of experience in the downstream sectors, what do you believe is the root cause of investment shortfalls—in 2012, only nine percent of Pemex’s budget went to Pemex Refinacion?

This is becoming an increasing concern for us. As in most other countries of the world, the demand for energy and refined products in Mexico is steadily rising, placing more pressure on the country’s downstream sector. Unfortunately however, the supply side of the equation has remained unchanged from some time already, prompting Mexico to engage in more and more imports each year.

One thing stifling Pemex’s ability to invest in the downstream is the difficulty associated with the procurement of new equipment, let alone Greenfield projects. This is primarily a consequence of a rigid procurement structures and bureaucracies. To illustrate, Pemex is more than six years overdue on its plans to modernize and reconfigure its downstream assets and infrastructure. Add to these inefficiencies the inherently long lead-time of such infrastructure projects, and you end up with a situation in which progress can be extremely slow.

CFO of Pemex announced a budget of $25.3 billion for 2013, of which approximately 21 percent ($5 billion) will be directed to the refining and petrochemicals sectors. What proportion of these investments were you able to capture?

The year 2013 in general has been a rather sluggish year in terms of downstream investments from Pemex, and therefore to FWM as well. For instance, Pemex is in the midst of completing a so-called clean fuels initiative, which seeks to improve the quality of refined fuels but is so far two years behind schedule.

Interestingly, the ongoing energy reforms in Mexico are being treated as a political issue, when in fact it is a technical one. The debate now includes a wide range of stockholders who essentially do not know much about the technical issues at hand and only serve to hinder the entire process. Unlike in most other countries, oil is strongly a political issue and as such suffers from much inefficiency and technological gaps. Needless to say, the inability to implement changes quickly enough has negative consequences on both Pemex and the wider industry. As a whole, I would be rather optimistic if the reform is implemented as is, but I fear that in reality, the changes will unfortunately only be minor ones.

Ultimately, Mexico needs to act quickly if it wishes to avoid future challenges. With the increase in North American unconventional production, the capacities of their refineries, which process significant amounts of Mexican oil, are filling up. If at the same time Mexico does not increase the capacity of its own refineries, then it will no longer be able to conveniently and cheaply process its oil and will have look towards more costly refining alternatives further abroad. In addition to this, with oil being such a significant contributor to the governments revenues, Mexico can also stand to incur large financial loses. With so many factors at play, the future seems rather uncertain right now.

As the company celebrates its 45th year anniversary, what are your ambitions for the development of FWM over the foreseeable future?

Generally speaking, we were rather optimistic about the future with the plans to build a new $10 billion refinery in the eastern state of Hidalgo. However, although these plans have not been officially scrapped, they do not appear in the Pemex’s updated five-year business plan released recently.

By contrast, there are many redevelopment plans in the pipeline to boost Pemex’s downstream efficiency and capability and we see many opportunities there. In any case however, we must wait and see the final outcome of the energy reforms to know for certain and see how this will impact the downstream investments in Mexico.

 

To read more interviews and articles on Mexico, and to download the latest free report on the country, click here.

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