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Mexico 2013 | ENERGY | VIP INTERVIEW

TBY talks to Alberto de la Fuente, President and Director General of Shell Mexico, on investment plans, new regulations, and the quality of local contractors.

What levels of investment will Shell be maintaining in the market over the coming years to finance its upstream operations?

It really depends on what opportunities arise in the future. Shell has made significant investments in the past. We have a contract with the Federal Electricity Commission (CFE) to supply LNG, and we have made significant investments in that area. The future depends on how the energy sector evolves. The expectation is that an energy reform will take place in the near future and we will be following the debate and outcome of the discussion very closely, with the intention of continuing to expand our operations in Mexico.

The development of Mexico's untapped gas reserves remains the subject of much speculation. What can be done to capitalize on the opportunities that exist?

I think Mexico needs to sit down, take a pause, look at successful examples like Colombia or Brazil, and decide what it wants to adopt from these models to create its own. Then, companies like Shell will be able to make a decision on whether to participate and to what extent. We are very keen on working and cooperating with Mexico just as we have in the past. We run a refinery with Pemex in the US, and our contract with the CFE is also very significant—we would like to continue these relationships. Pemex has done a great job so far, but the challenges moving forward are so big that no company can do it alone. We are hopeful that an energy reform will take place in the near future that will allow Mexico to tap into its hydrocarbon resources.

“We are always looking for new opportunities in Mexico. At the moment, we have a few projects in the pipeline."

What potential exists for Mexico to become a significant regional player?

I think that the potential is huge provided the regulatory framework that will be put in place is competitive against other models around the world. The knock-on effect of capital investment in the energy sector will have an impact on the rest of Mexico's economy and allow it to continue growing at a very accelerated pace. Health, education, and energy are the key sectors of any economy, and in the case of Mexico energy is very important. If it were to be developed more intensively, it would create an impressive virtuous cycle.

What is the company's strategy for adopting new technology, and how are you using technology to minimize your impact on the environment?

Shell's vision is to be the most competitive and innovative company in the world. We probably invest more in R&D than most companies around the world. In 2011 we invested over $1 billion in R&D alone. When it comes to sustainability, Shell does it in different ways through a number of programs. Obviously, one is that we are becoming more of a gas company. Gas is the cleanest fossil fuel, and it produces some 50%-70% fewer CO2 emissions than coal. Shell is also investing in biofuels, and today the company is probably the largest global distributer of biofuels. We also manage important Carbon Capture and Storage (CCS) projects around the world. We have one in Canada, we are proceeding with another one in Norway, and are developing another one with Chevron in Australia through Gorgon. We reduced atmospheric emissions by 3% last year, which basically means the reduced flaring of gas.

In this region, to what extent is there an awareness of the complex relationship between water, energy, and food security?

I think this is an area in which much more needs to be done. We recognize that the link between food, water, and energy is enormous. The view we have is that by 2030, which is not far away from where we are now, the demand in these three areas will increase between 30% and 50%. To produce more food we need more water, and to produce more water and distribute it we need more energy, but we also need water to produce energy or extract oil and gas. The link is very close, and I think our aspiration eventually is to link water and energy. We are launching many global initiatives to try to reduce our water usage and become more efficient. However, in this region it is something that we need to work harder to achieve, and it is at the top of our agenda.

What are your key ongoing projects and what are your development plans?

We are always looking for new opportunities in Mexico. At the moment, we have a few projects in the pipeline. One is called the Mexico Sourcing Office (MSO). Shell has identified four locations in the world where we would like to develop suppliers: Russia, China, India, and Mexico. We are bringing local companies that are established in Mexico up to Shell standards so that they can compete in Shell's international tenders. We are making sure that suppliers buy into Shell's code of conduct and principles, and then we certify them. It is a project that will hopefully not only benefit Shell, but other international oil companies (IOCs) around the world. It will allow them to compete in other international bids as well. We have a team here devoted just to this project and to working with companies in Mexico to make sure they are up to speed. We have a large operation in the US and in Canada, making Mexico very well placed. The labor force is strong and Mexico is very competitive in that regard. Even with the lack of pipeline infrastructure, we are looking on the gas side to see if we can establish or expand the usage of LNG, both in industry and transport. Gas is very competitive price wise. It is more efficient, cleaner, and there is the potential for users to make big savings. It is an area that we are again slowly opening up. I think Shell is probably the first IOC that is tapping into this new business, and it takes a long time and a lot of commitment.

Do you find enough high-quality contractors available in this market?

One of the reasons we decided to work with Mexico was because many firms have been producing for quite some time. They have been providing products to Pemex, meaning they already know what the business is about. It is now about bringing them up to higher standards when it comes to safety and codes of conduct. There are some that need less work and others that need a bit more help, but in general we are quite pleased with what we have found in Mexico. That is why Mexico has been chosen as a potential supplier for the group.

What is your outlook for 2013?

Hopefully, 2013 will be the year when we discuss energy reform. I think it will be a great opportunity for the new government to deliver on its campaign promises and to listen to all the different points of view. I am hopeful that 2013 will be a year when there is a lot of debate on what Mexico wants to do and where it wants to go; hopefully, Shell will be able to contribute to that debate. We will be more than willing to share experiences, participate in those discussions, put proposals forward, and hopefully partner with Pemex and with Mexico in general to bring the country to the next level of development. We have been here for nearly 60 years, and I hope that we will be here for at least another 60. We are always looking into new areas of investment and are very committed to Mexico in the long term, regardless of what happens with the energy reforms in 2013 or in the coming years.

© The Business Year - November 2012