Strategic Vision and Planning: keys to energy security

Originally published in Global Energy Mexico, January 2019

Every new year brings expectations, especially if the country has a new government on command. This year 2019 is the beginning of a new sexennial, with a different taste, because it brings a proposal for change, – a transformation – and it looks as a radical change. The energy sector is impatient to know what will be the vision of the new government for the country. During the electoral process the flag used for the candidate that is the president today, was a change in the approach of the reform implemented for the previous government. So everyone is expecting to know what will be the new vision for the energy sector. We hope that such a plan contains the main issues that strengthen the country’s energy security.

Understanding this issue of energy security is important, because the country does not have to be necessarily self-sufficient in everything; and certainly the country needs a menu of options that allow it to have the response capability in critical moments. The demographic dimensions and territorial extension of Mexico are impressive, therefore the importance of having a comprehensive vision of energy priorities and sources of supply are key to maintain an adequate supply margin.

Strategic planning in the field of energy is a “must”. To have these responsibilities centralized is critical. If we do not have this, there will always be bumps or reactive rudders that will impact users in general, suppliers and above all, it generates over-costs that are not justified. Dr. Ariel De Geuss, the father of planning by scenarios, used by the Shell Oil Company and professor emeritus of MIT, used to say that “building scenarios is predicting the future” because every action necessary to achieve the goals and objectives of the system is systematically reflected in each scenario build with different premises.

This issue is relevant to the situation that has generated the shortage of gasoline; a fact that occurs for the first time in Mexico in its long energetic trajectory. Separating human emotions and political interests that seek any failure of the government or its institutions to criticize, without a doubt, could have been avoided. We have nothing to object about the government’s intention to eliminate fuel theft – a fact that has been installed for a long time as a practice – but the implementation of an alternative supply plan could have been planned before ignite any operational action by Pemex. Probably they had a plan, but without considering scenarios, and having solutions for each one of them. Scenarios foresee options and propose solutions for each one. Normally for a particular situation you may pick at least three scenarios: a positive or optimistic approach, a negative or pessimistic approach, and the most likely case.

Once the action is taken only the reaction remains, and always the reaction means improvisation, and certainly over costs: unless a scenario analysis has been done, and thus a program of subsequent actions are built, attending to the demands of different users. In this case of gasolines robbery’s, there are several customers related to the process affected, such as Pemex as a supplier company, gas stations, and the final customer, that is, the general public. This is what we have seen in the last week, an escalation of fuel shortages, because the roots of the problem were not considered in its different dimensions.

These situations affect, damage the image of responsible institutions and obviously government. It does not matter that people seek to understand and justify the shortage; the reality is that the normal development of the collective daily life has been  is being affected, and that also has economic impacts for private companies, merchants, students, housewives, in short, society in general.

The government’s challenges in the energy issue are fundamental for the progress of the country’s economy. The vision of strengthening Pemex as the national productive enterprise and endowing it with the resources to achieve its goals in terms of production and refining, is a purpose that, in general, Mexicans approve. How to do it should respond to a strategy based mainly on the prospective resources it has to discover and incorporate new reserves and the development of existing reserves in the case of Exploration and Production; also to efficiently increase the capacity of oil processing in the national refining system. No doubt that is a proper moment to run a planning to foresee Pemex objectives under different scenarios with different premises.

Pemex must prioritize the exploration of lower risk, placing its effort in known areas, not frontier areas. Parker Dickey, Exxon’s former Exploration Director in the 1970s,  and Geology Professor at the University of Tulsa Petroleum and Geoscience Schools, used to say that “the easiest oil to discover is located in already know areas,” meaning to say that that the technologies already in place, allow to expedite the discover of new oil located in known areas.

The fresh oil coming from new discoveries  strengthens Pemex, because once the production formations have been discovered, the reservoirs dimensioned, and the wells drilled, the cost of producing each barrel decreases. A recent example is represented by the discovery of the Ixachi Field, which allowed the incorporation of more than 450 million barrels of reserves, being one of the most important discoveries of the industry in recent years and which may have production costs below US $ 15 barrel, which represents an extraordinary opportunity for Pemex and the country.

In the same order of ideas, the Ministry of Energy and the National Hydrocarbons Commission, must demand those companies that have exploration plans, begin with its implementation as soon as possible, and those that have already drilled exploratory wells, continue with the certification of reserves. These companies need the support of Pemex, to accelerate the transport and collection of the oil produced, and operational coordination must be established that is responsible for this interaction with those companies that require using their facilities.

To do this, the service´s fees to be applied in each case must be defined. To allow the private companies working in those areas of shallow waters or land to access Pemex E&P facilities, is an opportunity to have important additional incomes for the national oil company. Likewise, it is necessary to define the applicable schemes to buy crude from these companies, and then incorporate them into the Pemex system, or simply charge them the respective fee for their transportation and storage to the delivery terminal.

Pemex needs to understand these new realities of its operating environment in order to efficiently manage these opportunities. The national oil company has today a group of companies interested in using its facilities. Partners from – farm outs – and companies that grab state contracts from the different rounds of the reform, will require support to operate efficiently using its facilities.  Adapt the organization to maximize these benefits is key, train people to give the best service too.

There is a lot of work to be done, it is time for change, time for achievements, time to review what has been done up to now with different criteria. With the right decisions everyone wins, but the most important thing is to detonate the necessary actions to revitalize the activity of the sector at the level of communities in regions such as Veracruz, Tabasco and Campeche, to ignite a new stage to change the trend of the sector.