Borja Zarraga – Power, Oil & Gas Business Manager, SENER, Spain
Borja Zarraga, Manager of the Power, Oil and Gas business unit at SENER, documents the competitive advantage gained from focusing on technology and complex projects rather than on construction and simple solutions, the internationalization path of SENER, the up and coming Floating Storage Regasification Unit market, and the virtual pipeline projects of SENER in Bolivia. He also tells us about the synergies that exist between the company’s four business units, and SENER’s leading role in the thermo solar sector.
SENER celebrated its 60th anniversary last year. You describe yourself as an engineering and technology company, which is different from most EPCs. Can you start by introducing SENER?
“SENER is no traditional EPC firm. We subcontract the assets needed to build projects we are mandated for.”
Indeed, SENER is no traditional EPC (Engineering, Procurement and Construction) firm. We subcontract the assets needed to build projects we are mandated for. When SENER was founded in 1956, its activities were purely directed towards the maritime sector. SENER is now the third largest EPC firm in Spain and a top 10 engineering player worldwide. Soon after its establishment, the company diversified into the other three business units that compose its current activities. All SENER operations are marked by a strong focus on technology. Indeed, we have chosen to compete in a market where our technological competencies are valued above price competitiveness. If this had not been the case we would have been faced with competition capable of producing similar products to ours at a fraction of the price.
For example, the marine business unit focuses on high value submarine projects rather than on ferry building. Also, SENER has developed a tool now used by a third of worldwide shipyards as the reference for ship maintenance lifecycles. Additionally, the infrastructure engineering segment has targeted safety, communications and control services for high-speed transportation and underground trains discharging transporters from the burden of security rather than solely focusing on turnkey projects, accessories or road construction. As a matter of fact, this is the most important part of SENER’s civil technology activities.
SENER’s third and most technological advanced business unit is the Aerospace division. In this case, the decision was made to specialize in critical missions. More specifically, SENER provides electromechanical systems and communications devices, vital to a mission’s success, to ESA (European Space Agency), NASA and EADS (Airbus). Currently, SENER has nearly 300 devices in space, amongst them are the Gaia umbrella and the communication system for the Curiosity mission on Mars.
Last is the Power, Oil & Gas business unit that I am responsible for. This field of activities represents around 75 percent of our annual turnover. We are a Spanish company, but the revenues generated by these operations are 98 percent international. Moreover, we conduct 90 percent of our research and development (R&D) in Spain. More specifically, our Oil & Gas and Marine research is in Madrid and Bilbao focuses on Power.
What complementarities exist between the different business lines?
EPC activities in the Oil & Gas sector require technological, contracting and engineering approaches. Though we can be responsible for very large budgets, we stand alone from all of the EPC firms in the sectors in which we operate. I can say this comes from the fact that our technological knowledge is drawn from multiple fields of expertise and synergies between the business lines are a big plus for us. Indeed, each business unit can rely upon the others to develop new business opportunities. For example the NOORo III thermo-solar plant was helped by the expertise of our aerospace and defence engineers. We had to deploy 7000 unique 200sqm heliostats pointing at precise specific directions for the next 30 years. Thanks to the help of our colleagues in the aerospace business unit we are now the leading player in the thermo-solar sector.
How important are oil and gas operations to SENER? Can you give us some examples of benchmark projects?
The Power, Oil & Gas business unit is the most important in terms of SENER’s revenues and is particularly international. Thirteen years ago, SENER entered the LNG (Liquefied Natural Gas) sector; building the Sagunto terminal in Valencia (Spain) in collaboration with ACS for Saggas. In light of the successful USD one billion joint venture in Valencia, ACS and SENER have continued their collaboration past the original project. For instance, we have continued collaborating for the first and second capacity increase projects in Valencia. Then we participated in the construction of the Gate terminal in the Netherlands as a contractor for BOPAX working with Techint, an Argentine-Italian engineering and construction company. Afterwards, we were contracted for the construction of the largest LNG terminal ever constructed in Europe, in Dunkirk (France). Eventually we participated in the construction of the Zeebrugge (Belgium) and Bilbao projects too. The inside and outside tanks we built were entirely our own design. Now that we have been in the market for several years, we have realised how big the market potential was.
Can you elaborate on your future plans for the oil and gas business unit?
I see LNG as a great opportunity for SENER, around the world. However, this opportunity might not be in the traditional inland gasification we have been used to so far with LNG. Indeed, the inland gasification infrastructures are not adapted to every part in the world in terms of demand for LNG. Instead, FSRUs (Floating Storage Regasification Units) and similar virtual pipelines could be the next very big thing. For instance, in Bolivia, where unforgiving geography can create increased prices for physical pipelines, we have created a virtual pipeline comprised of an inland liquefaction plant and a stream of 30 trucks that carry the gas to different parts of the country, where Satellite Regasification Terminals are installed.
Another example could be Indonesia and its multiple islands. For the last three years, six percent of our revenues have been invested in R&D activities, many of which are directed to small and mid-size FSRUs. In this case, expertise and inter-business unit synergies stemmed from the Marine unit. The product that has resulted from our research in Madrid is a great one, especially considering that we hardly had prior experience in the domain. It has been available for a couple of months now, unfortunately we have not yet managed to set-up a pipeline stream of contracts for it. There has been a certain demand in the market for large scale FSRU and LNG terminals, but the market for small and mid-size versions of these solutions is still shaping. A lot of people are showing enthusiasm but still not dedicating the resources to them. I am confident that we will soon turn the couple of contracts we have into a larger stream.
What do you think is holding up the purchasing decisions for small scale FSRUs?
I think there can be different answers to that question depending on the client, the site we are looking at a solution for, and the region it is situated in. One of the bottlenecks is the fact that diesel-based solutions remain the benchmark for some countries. In some cases, we find a lack of regulation. In others, gas remains extremely cheap. And very often, people don’t want to risk a lump of money on a new product.
Hopefully, our expertise in high value complex projects will enable us to become the first company in charge of implementing FSRUs on a wide scale across the world. SENER is actively pushing so we can see the streamline of contracts as early as next year. We will be expecting South East Asian countries as well as African and Latin American ones to make the first moves. These are the places where our solutions are most likely to fit the needs of the market.
What are your flagship projects at the moment?
The EDF-Total-Fluxys funded LNG terminal in Dunkirk was completed last year. Recently, our oil-related activities have been mostly focused on Spain, Mexico and Argentina. Unfortunately the sector in these economies has had a rather low profile of activity these recent years. Nonetheless we have kept going at it and are currently pushing for two large projects in Mexico. SENER is also involved in a gas project in Oman for PDO (Petrol Development Oman), and I consider the Bolivian virtual pipeline to be one of our flagship projects, taking this experience to FSRU based virtual pipeline. In fact, this project, as an alternative to a costly physical pipeline, could be a very in-demand solution in the future.
Despite challenges relating to its landscape, Bolivia sees itself as the next hub of energy for the region. How does your project fit into this?
The Bolivian government wants to take advantage of its natural resources and locational advantages to become a net energy exporter in the region. Moreover, this fits the pursuit of greener practices in the energy domain. By providing LNG to remote areas, we close the gap between oil and unavailable renewables. The government wishes to enable greater energy access for its population before considering exporting the energy. Therefore, the virtual pipeline solution we have set up seems to fit the first part of the government plan. Eventually, SENER will provide solutions so that the resources dedicated by the government can be used to export LNG to neighbouring countries such as Argentina, Brazil and Peru. 27 satellite regasification stations installed in different parts of the country, far from the liquefaction facilities, are supplemented by a fleet of over 30 trucks transporting the LNG through Bolivia. As a result, more people have access to this source of energy and the government avoids the costly construction of a pipeline running through the Bolivian mountains.
Which challenges are they facing?
The project was inaugurated by President Morales of Bolivia last year. The business environment is less comfortable than what we had expected. Indeed, Bolivia is a country where the collaboration of contractors, vendors and suppliers is of the foremost importance and we have been facing issues accessing subcontractors and using the infrastructure. If successful, however, the project will have a beneficial impact on Bolivian society as a whole. On our side, we have learned a lot and will be in a position to leverage on this experience for our next virtual pipeline project. In other words, I would say the Bolivian project can be considered as a pilot project before completely rolling out our capacities. Indeed, I believe it is likely that SENER will be confronted with similar situations in other countries as we develop FSRU solutions in Africa, South East Asia and other Latin American countries.
Your first international operations started in Latin America in 2001. Can you tell us about your internationalization strategy?
The management, under no constraint, decided to start internationalising its activities. More specifically this decision was not motivated by the Spanish crisis, which I think, at the time, was impossible to foresee. However, SENER’s management was in a position to determine Spanish growth would come to a dead end given the mature profile of the country and its infrastructure.
Indeed, we were already involved in many of the port projects including the Bilbao Petronor refinery owned by REPSOL, the Bahia Bizkaia Gas LNG terminal, some combined cycles and thermosolar plants. Instead, SENER had the opportunity to follow existing Spanish clients abroad. As a matter of fact, SENER entered Argentina in 2001 as REPSOL invested in YPF (an Argentinian Oil company). At the time, our operations were mostly devoted to the oil and gas business for REPSOL. Little by little our oil and gas investments decreased as the economy slowed down, but I am confident that the sector will rise in the coming years.
In 2004, we established a direct presence in Mexico and I was appointed country manager. This presence was materialized through the acquisition of a company two years afterwards. Many companies chose a joint venture to enter the Mexican market; we went a step further by acquiring this local player. Since then, Mexico has become our largest office in the world and our biggest engineering action centre. As the Spanish market entered a crisis, we established a presence in Poland, and UAE. Poland now has incredible capacity for aerospace. In 2007, we established operations in China, South Korea and Japan mainly for marine activities. These investments in Asia were followed by one India in 2010.
We now consider Mexico, Morocco and South Africa as domestic markets. For example, Morocco is home to our largest thermo-solar plant in the world, NOORo III. We have engaged in similar actions in South Africa in the plants of Bokpoort, Kathu and Ilanga 1. Additionally, these two countries are home to more traditional oil and gas activities.
You have mentioned your sizeable footprint in oil and gas in Mexico. Who are you main clients over there? How is the country’s situation evolving?
The government, PEMEX, and CFE (Mexican Federal Commission for Electricity) have traditionally been our clients. We have also witnessed massive change in the country. Indeed, the government has passed new energy regulations that have contributed to liberalizing the market, arising new important private players.
Our edge in the country is our understanding of the necessity to combine with private companies from the region to win tenders. It is also interesting to see that these companies have been shifting their portfolio focus in the recent years. Total is now investing in solar energy, BP in biofuels, Statoil has chosen to focus on wind. Our asset here resides in diversified capabilities that fit their needs. It is of paramount importance that our portfolio continues to adapt to fit the needs of our clients. In this sense, SENER can consider itself an engineering and technology outfit as opposed to an engineering and construction firm.
Where do you envisage the main competition coming from?
For several years now, many of our Spanish competitors have been shaken by the construction sector’s turmoil. But we are different that these companies. We usually compete in higher value complex solutions. The South Korean companies have been a threat for a long time but they have recently failed to capitalize on their international expansion. For some reason, this backfired on their businesses. I would say, nowadays, our main competition comes from the Chinese. SENER is addressing this challenge by competing by technology rather than over price. In fact, I think it would be next to impossible for a Spanish company to compete only on price with the Chinese as labour regulations and costs are too different. Regardless of what the US news indicates, all we have to do is surf the ‘green wave’ by investing in building the capabilities that our clients are looking for.
“Of course, the world will continue to live off petrochemicals for a while, but I see renewable energies as complementary to this.”
Of course, the world will continue to live off petrochemicals for a while, but I see renewable energies as complementary to this. Our offering in the wind sector is aligned with the needs of the market and we lead the solar industry with project NOORo. Energy storage remains an interesting challenge and our thermo solar plant might be a part of the solution to this.
What should our readers know about Spain?
Spain should be very proud of what it has accomplished these last five years. It has managed to build state of the art engineering capabilities, and the Spanish prototype of civil engineering, LNG infrastructure, wind, photovoltaic and thermo solar plants can be replicated in many countries. Additionally, I see Spanish players as perfectly capable of facing the challenges of internationalization and the aggressive strategies of certain foreign construction companies.