Franco Colloridi, Director Mesoamerica, Siemens Mexico
“The transfer of technology and know-how is critical to developing the Mexican energy market and raising it to the standard of the rest of North America, and this is where multinationals can really add value whilst at the same time realising high returns.” Franco Colloridi, Director Mesoamerica, Siemens Mexico.
Siemens has enjoyed a presence in Mexico since 1894 and today is the company’s regional HQ for Central America. What are the company’s current objectives?
Siemens has played a huge part in the infrastructure that Pemex established throughout the country. Despite our activities with Pemex having been limited by the past market environment, we still possess an installed base of close to 400 turbines. We have been highly involved in the infrastructure and distribution network, refineries and petrochemical complexes. The area in which we have not yet penetrated that deeply is Exploration and Production (E&P), but this is an aspect that we are actively trying to change. It actually falls under my responsibility to open this market and deepen our E&P participation.
Our aspiration is to get much closer to the wellheads. Initially, our involvement was limited to mid and downstream industrial activities dealing with compressors and generators. Siemens’ fledgling Oil & Gas Division since 2008 aim is to also increase Siemens’ upstream activities and this is a strategy that we continue to forge ahead with today. We have a suite of products and services that will enable us to achieve this goal.
We continue to base our strength on the sheer quality of our products and the very high technical knowledge of our specialties. In these aspects, I am confident to say that we lead the pack. At the beginning of 2000 we had to slightly reconfigure our strategy on our approach to Pemex. Nevertheless our commitment to Mexico remains unchanged. Having been around in Mexico for over 120 years you could even say that we are more Mexican than some! What’s more, our products are very well regarded here. Today we possess a workforce of over 7,000 people and more than ten production facilities across the country in cities as diverse as Guadalajara, Querétaro and Monterrey.
What is the strategic importance of Mexico to Siemen’s global performance?
Brazil was the country of the future for many years. Now we see a change in opinion due to the Mexican government’s energy reforms and the eyes of the whole world are turning here. For what it brings to Mexico, the PRI’s ability to forge agreement on the energy bill represents a massive achievement with far-reaching repercussions. The BRICs will, of course, continue to grow, but their path is pretty much fixed. The same can be said for the secondary wave of emerging countries such as South Africa, Nigeria, Indonesia and Turkey. The Mexican market, in contrast, epitomizes new opportunities and possibilities.
Our analysis within Siemens today is that a product placed on the US market is cheaper coming from Mexico than China. In the past, Mexico’s attractiveness in terms of cost was somewhat offset by risks such as the unstable security situation and the unwieldy regulatory structures. The liberalization and opening-up brought about by the reforms reduce or remove most of these risks. The security situation is still very much alive and this remains a problem, but we do believe in the present administration’s efforts at containment.
There are a number of variables that now make Mexico a very attractive proposition for international companies. Firstly, Mexico has a very strong internal market that enabled the country to weather the 2008 financial crisis very well. Secondly, its integration with the North American market through NAFTA renders it an ideal platform for penetrating the region as a whole. Mexico is today the third biggest commercial partner with the US after Canada and China. Thirdly the huge hydrocarbon potential means there is a vast array of opportunities ranging from development of oil and shale to introduction of new technologies, and as a result of the reforms, international entities can now move in and exploit these opportunities.
There is a real demand to develop the Mexican energy sector and Pemex has been struggling to meet this need. The country, in effect, lost a million barrels a day since 2004 and it was only the fact that the price of oil rose from forty or fifty dollars a barrel to one hundred dollars that meant this didn’t adversely impact the Mexico’s fiscal wellbeing. The ageing Cantarell Field made life easy for Pemex and allowed the company to maintain production above the 2.5 million mark without having to invest in the sorts of technological upgrades that we would normally expect. Pemex’s struggle to increase production is the challenge that private sector companies are now ready and able to take up.
What does this mean for Siemens and its strategic positioning within the market?
We will focus without any hesitation on power generation and oil and gas. Power generation is driven by GDP growth, so if growth rises by five percent, then you will need a corresponding five percent more kilowatts to meet the new level of consumption. In the past, the performance results of the Comisión Federal de Electricidad (CFE), the state owned electricity utility, was one of the disincentives to investment because if your company was subject to CFE’s market then it made it impossible for your company to be efficient and competitive. With the opening up of the power generation sector there are suddenly new possibilities and the way the energy bill has been designed will surely help to stimulate extra GDP growth.
In the oil and gas sector, with the entrance of new players and the general adjustment of Oil & Gas industry contractual and regulatory conditions, there will also be unprecedented opportunities. Pemex will be challenged to become much more efficient as an entity because it will be competing against new entrants that achieve the same results much more effectively.
My prediction is that local Mexican firms will try and grab as much of the energy market as possible and then there will be a second wave of investment as Russian, Chinese, Indian, Latin American, etc., companies start to ramp up their investment in the market. The big oil and gas majors will probably sit out the first cycle so as to assess the application of the secondary laws and the results of the first legal exposures. Once there is certainty that the conditions are right, they will then enter the market in a big way probably also by joining some of the most influential and successful players already in country. That is the sort of sequence of events that we might be expecting.
For Siemens, it will be great to have more than one client in the market. What’s more, there is going to be an intense need for developing new infrastructure such as roads, railways and airports and Siemens is very strong in this dimension. Distribution of electricity will become a major growth spot and we will be highly involved. There will be much to do: for example many cities in Mexico still depend on trucks and boat to deliver its oil. Within Siemens, the Mexican portfolio has assumed high priority for our top management as testament to the strategic importance of Mexico to Siemens’ worldwide operations.
As one of the few companies to supply solutions to all areas of the oil and gas industry, Siemens is also dedicated to innovation and R&D with a view of enabling technologies. What is the role of technology in overcoming Mexico’s challenges?
Underdeveloped technology and obsolete infrastructure is one of the issues at the root of Mexico’s production problems. We can really help Mexico develop its energy sector because this provision of enabling technologies is an area in which we excel. For example, as companies get into tapping heavier oil in more difficult reservoirs, they are increasingly more reliant on large-size, high-horsepower ESPs, and Siemens takes care of the control of the electricity. Most of these pumps have an average working life of 1.5 years after which they have to be lifted out and repaired. This entails eight to fifteen days downtime and the high cost of bringing in and operating a work-over rig and lost production during this time. Pemex has therefore been requesting pumps that have an average work life of two years. Our contribution has been to deploy variable frequency drives (VFDs) that extend the life of the new pumps to be installed. Our strength is specifically the technological advantage accrued in our VFDs that help extending the life of the down-hole pumps.
As well as director of oil and gas markets you are also the key account manager for Pemex. How do you expect the way you do business with them will change as they transform themselves from a state monopoly to a productive enterprise?
The reformed oil & gas industry conditions should become much more commercially acceptable. When faced with competitors that are offering their suppliers with a better deal, Pemex will have to adjust to the market conditions and norms, or risk losing out. Siemens thus expects to obtain better conditions with regard to the risks and challenges outlined in the contracts. Pemex will also have to be much more aggressive and flexible in their technological requirements without undermining industry standards. New and more efficient technologies will thus be more accessible. We always considered this to be a limitation because many technologies applied in Mexico were already outdated.
What is your planned growth initiative for Mexico?
We believe that as a direct result of the reforms, expenditure on the Mexican oil & gas industry will double from the current 30 billion dollars that Pemex is spending, and that the private sector will shoulder most of this burden as some of the more difficult sites are developed to the extent that they become profitable. The Chicontepec field, for example is a huge logistical and technical challenge with heavy oil and tight formations that will require innovations and infrastructural inputs to tap the huge reserves. Siemens will be well aligned to assist with these processes.
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