Mexico Energy - April 2014

I nves tm en t opportunities in th e ne w e ra

Revitalizing Mexico’s Electricity Sector Adjusting the Regulatory Structure

Aura Solar I

Latin America’s Largest Solar Power Plant, a $100 Million Investment

Exclusive

Ángel Larraga Palacios Country Manager Mexico of Gas Natural Fenosa

What Mexico Can Learn from Spain Vol. 1 No. 2 April 2014

Business Opportunities in Mexico’s Energy Sector

1st Mexico Energy and Business Forum Presented by Mexico Energy and Business Magazine Dallas, Texas July 2, 2014

8 am- 2:30 pm InterContinental Dallas (Addison) 15201 Dallas Parkway Dallas, TX, 75001

Find out the latest developments in Mexico’s energy sector and take part in the official launching of Mexico Energy and Business Magazine.

Our panels of US and Mexico experts will provide information on business opportunities, research findings and highlight the major breakthroughs, as well as challenges facing the sector today.

Mexican lawmakers and senators will explain the latest regulatory and legislative laws approved by Mexico’s Congress.

We hope you join us and take part in these unprecedented growing business opportunities in today’s Mexican energy sector.

For more information, please contact: José Escobedo Dallas, (214) 206-4966 ext 227 jescobedo@latinoleaders.com Javier Senderos Mexico City, Sales P&E (52) 559136-5100 jsenderos@petroleoenergia.com

Letter from the Editor

A

As Mexican lawmakers busily draft the secondary laws that will outline how the energy reform approved last year will be implemented, investors from the private sector are already taking strategic decisions that will enable them to take advantage of the new rules of the game.

For our cover story, “Lessons from Spain,” Ángel Larraga Palacios, country manager of Gas Natural Fenosa Mexico, shares his thoughts on how the Mexican natural gas sector can easily learn from the 1998 Hydrocarbons Law approved by the Spanish government that paved the way for an open market. Larraga Palacios maintains an optimistic outlook and is certain that with a combination of strong operators, the separation of activities, the opening of the grids, as well as firm regulators and independent control entities, the expansion of the energy sector of natural gas in Mexico will be unmatched.

The six-month process dubbed as “Round Zero” is a time frame where the Ministry of Energy has the task to determine which oil fields Pemex will keep and which ones will be allocated to private companies. As part of these negotiations in “Round Zero: Tying Up Production,” Pemex’s proposed portfolio of projects secures its oil and gas production levels and maintains 710 fields in production to guarantee the company’s financial sustainability and future investments.

Robust investments are already setting the stage to lure more business into the country. Recently Latin America’s largest solar power plant, the Aura Solar 1 which was inaugurated by Mexican President Enrique Peña Nieto, will not only supply electricity to the city of La Paz, but has also set a precedent in Mexico with a $100 million investment achieved through an innovative financing template.

Even before the secondary laws are approved, the energy sector in Mexico is already preparing for investment opportunities, open market strategies and financial plans that will strengthen the country’s economy.

Mexico Energy and Business Magazine Volume 2 April 2014

Publishers

Managing editor

Reporters

José Manuel Escobedo

Maribel Zavala Rivas, René Arce Lozano

Photography

Eduardo Warnholtz.

Editor in Chief Co-editor

Milton Méndez Maribel Zavala Rivas

Translations:

Art and Design

Administration Treasury Circulation/Distribution

Sales Sales and Public Relations Sales and Advertising

Director Operations Sistems Public Relations Auditions Distribution

Sincerely,

Raúl Ferráez & Jorge Ferráez

Pamela Rogers

Fernando Izquierdo Romero Rodrigo Valderrama Viveros Carlos Cuevas Martínez Luis Enrique González Piceno

Cathy Lopez Claudia Garcia Bejarano Emilia Gaston

Gabriel Torres Origel Javier Senderos Francisco Abad Carlos Pozos

Diego Amauri Plaza Alex Prida Miguel Ángel Muñoz Karen Arriaga Iván Castelán Raúl Hernández

DALLAS

José Manuel Escobedo Reachi Managing Editor jescobedo@latinoleaders.com (214)- 206-4966 ext. 227

15443 Knoll Trail, Suite 210, 75248 Dallas, TX, USA Tel: (214) 206-4966 Fax: (214) 206-4970 MÉXICO Insurgentes Sur 1898 Siglum 12, Col. Florida. Delegación Álvaro Obregón C.P. 01020, México D.F. Tel. 91365100 NEW YORK 4 Lexington Ave. Suite 1A New York, NY 10010 Tel: 646-641-5068

CIRCULACIÓN CERTIFICADA POR EL INSTITUTO VERIFICADOR DE MEDIOS Registro No. 248/02

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April 2014 Mxe Mexico Energy and Business Magazine

ISSN-1665-8205 Copyright © 2003 - Derechos Reservados All Rights Reserved.

Petróleo & Energía” es ® Marca Registrada Hecho en México - Printed in Mexico

INDex

Lessons from Spain:

Exclusive interview with Ángel Larraga Palacios, country manager of Gas Natural Fenosa México, shares how Mexico can learn from the 1998 Hydrocarbons Law approved by the Spanish government that paved the ground for an open market, where today over a dozen companies supply natural gas.

06 Business Updates 10 Round Zero: Tying Up Production Pemex’s proposed portfolio of projects, as part of the socalled Round Zero, leaves no other choice than to secure oil and gas production levels during this administration.

The goal: maintain oil production between 2.5 and 3.0 million barrels per day (bbl/d), and gas production between 5.7 and 6.2 million cubic feet per day.

18 Revitalizing Mexico’s Electricity Sector:

As Mexico’s electricity industry prepares for open markets, Mexican legislators and business experts agree the regulatory structure must adjust in order to increase the supply of electric energy to meet increasing demand; assure the continuity and quality of the electric energy provided; take advantage of natural resources; and motivate the production, competitiveness, and reduce costs.

24 Latin America Feels Global Shipping

Challenges: Control Risks’ senior maritime security analyst, Tim Hart, looks at how modern piracy has changed in recent years and how, with today’s globalized world, companies—particularly those in the energy sector—should be concerned about the security of sea-lanes.

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April 2014 Mxe Mexico Energy and Business Magazine

30 Latin America’s Largest Solar Power Plant Goes Online in Mexico: The Aura Solar

I photovoltaic power plant, Latin America’s largest solar power plant was recently inaugurated and promises to supply electricity to the city of La Paz.

32 Shining with the Sun’s Rays: The plant (Auro

Solar 1) has also set a precedent in Mexico with a $100 million investment achieved through an innovative financing template, according to bank representatives who made it possible.

Portada

Mxe

Business Updates Yanez was held for questioning in connection with a fraud scandal totaling over $400 million. Yanez presented himself voluntarily for questioning, the attorney general’s office said in a statement. The attorney general had also requested a temporary detention order that would forbid him from travelling.

Mexico’s secondary energy legislation yet to be sent Pemex places two new tanks for fuel distribution Pemex announced in late March that it placed the Kukulcan and Calakmul in operations, two new double-hull tank vessels that will distribute fuel in the Gulf of Mexico and the Pacific. Pemex said that with these two ships and four other vessels put into operation last year, Pemex Refining substantially modernized its maritime fleet.

Ecopetrol seeks to explore in the Gulf of Mexico Colombia’s Ecopetrol reported last month that it presented the highest offers at a recent auction held in the United States, as part of its internationalization strategy to explore 11 offshore blocks for crude oil in the Gulf of Mexico.

Ecopetrol submitted bids for seven blocks in partnership with Murphy Exploration and the remaining four with Venari Offshore, both headquartered in the United States.

Mexican judge orders house arrest for Oceanografia CEO. Amado Yanez, CEO and owner of Oceanografia, was ordered a 40-day house arrest according to Mexican authorities.

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April 2014 Mxe Mexico Energy and Business Magazine

Congress might debate the secondary legislation of Mexico’s energy reform in a series of special sessions beyond April 30, when the current legislative session ends. (Business News Americas).

Alstom and Isolux to convert a power plant from fuel oil to petroleum coke Alstom and Isolux have signed a contract with Mexico’s Federal Electricity Commission (CFE) to convert two 158 MW units at the Altamira thermoelectric power station in Mexico. Alstom’s share in the contract is worth close to €90 million. The units currently running on fuel oil will be converted to petroleum coke units. (Alstom)

Pemex will invest $2,500 million in Los Ramones Pemex announced an investment of more than $2,500 million for the Los Ramones gas-pipeline project – destined to supply natural gas from Tamaulipas to the center of the country.

With this project, a 40 percent increase in fuel transportation capacity across the country is expected. Pemex, through its Twitter account, said the project is the largest gas-pipeline project in Mexico in the last four decades. It is expected to be completed by December 2105. ●

section

Petroleo&Energia Staff

Round Zero: Tying Up Production

Pemex’s proposed portfolio of projects, as part of the so-called Round Zero, leaves no other choice than to secure oil and gas production levels during this administration as the sector transitions toward opening up to the private sector.

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April 2014 Mxe Mexico Energy and Business Magazine

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The goals established in the Program for the Execution of Strategic Pemex Exploration and Production, 2014-2018, are clear: maintain oil production between 2.5 and 3.0 million ith regard to information Pemex barrels per day

provided to the Secretariat of Energy (SENER) for approval, it recognized that to assure that reserves reach the production targets of hydrocarbons put forth in its 2014-2018 Business Plan, Pemex needs to continue developing those fields already in production and sustain explorations in strategic areas where outcomes would be favorable.

Pemex’s Business Plan for 2014-2018 establishes as a strategic production objective: “Increase the production of hydrocarbons.”

The goals established in the Program for the Execution of Strategic Pemex Exploration and Production, 2014-2018, are clear: maintain oil production between 2.5 and 3.0 million barrels per day (bbl/d), maintain gas production between 5.7 and 6.2 million cubic feet per day, and maintain current production costs.

To reach these goals and objectives, according to the list given to SENER, Pemex plans to maintain 710 fields in production to guarantee Pemex’s financial sustainability and to finance future growth by involving strategic partners to contribute to the development of fields considered either complex or needing significant capital investments (for example, deepwater).

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Current Field Production in 2013 or Past Producers In actuality, 430 fields produce (as of March 31, 2014, the oil production platform averages 2,470 million bbl/d) 75.7 percent of the current national production of crude oil and it provides an important source of revenue for both Pemex and the Federal government.

In the case of Ku-Maloob-Zaap (KMZ), the federal government’s objective for Pemex, as a state-owned company during the 2014-2030 period, is to drill and terminate 99 development wells, construct and install 42 ducts and 15 structures in the KMZ to recuperate the volume of oil production of 3,692 million barrels and 1,118,000 million cubic feet of natural gas, and to earn 1,910 million Mexican pesos during the period at today’s rates.

During the 2014-2028 period, Pemex proposes to drill and terminate in the maritime region 111 development wells and build 18 ducts to obtain an accumulated production of 1,490 million barrels of crude petroleum and 997 billion of cubic feet of natural gas.

The remaining 280 fields in development that were not producers in 2013 are part of a defined development plan.

Fields in evaluation or in a planning stage, discovered but not producing in 2013, are being evaluated for their probable production impacts in the medium term.

In the information sent to SENER, Pemex addressed the case of Chicontepec and shale gas, the strategic value of the reserve’s volume, but with the extreme technical difficulties. Only wells that have a substantial degree of development or have service contracts in place will be solicited.

Pemex considers the need to find “active partners in the short term to contribute to an acceleration of the process of innovation needed to increase production, efficiency, and recovery factors.”

Regarding prospective oil and shale gas resources, Pemex argues “Mexico should play a leading role in the global exploration and exploit these types of deposits.”

The exploration and exploitation of deposits of oil and shale gas is the second most important among 7 growing trends that represent close to 57 percent of the supply of oil and gas for 2020, as well as considered top priorities to guarantee the sustainability of the enterprise in the mid- and long-term.

Active production involves the provinces of Sabinas, Burro-Picachos, Burgos, Tampico-Misantla, Veracruz, and Chihuahua, and it is estimated that the prospective resources in the project total approximately 60.2 billion barrels of crude petroleum.

As part of Pemex’s development plan for the 2014-2017 period, the parastatal will drill 166 wells in the zone in search of new deposits.

Chicontepec and Shale Gas, Hot Potatoes?

Considered active, albeit nonconventional because of the technical difficulties of exploitation, Pemex considers it necessary to continue to develop Chicontepec and shale gas and oil.

In Chicontepec, located in the states of Veracruz and Puebla (including 29 fields), the exploitation plan proposes during the 2014-2028 period to drill 15,764 development wells, construct 3,585 ducts, and to 12

April 2014 Mxe Mexico Energy and Business Magazine

build 196 production installations with an investment of 795,646 million Mexican pesos in the next 30 years.

The plan expects to recuperate 1,631 million barrels of crude oil and 3,589 million cubic feet of gas.

It is estimated that exploratory activities will be able to evaluate prospective resources of around 1,618 million barrels of crude petroleum with investments of 26,690 million Mexican pesos in the next five years.

However, in late March the press announced that during a meeting of high-ranking executives from the energy sector, the federal government is considering pulling Pemex out of the exploitation of crude oil and shale gas in Chicontepec, which is not considered viable.

The shale gas and oil industry that was the great discovery of Felipe Calderón’s administration will remain in the hands of small- and medium-sized companies as has been the case in the United States.

According to our sources, authorities consider Chicontepec costing the federal government a great deal without any visible benefits.

In fact, it is considered the “historical error of the Pemex’s Business Plan.”

Meeting attendees also discussed reducing Pemex’s participation in the transboundary reservoirs and retiring the entity from shallow water fields that produce heavy crude.

One can only assume that behind the dictates of the SENER with the technical support of the National Commission of Hydrocarbons (CNH), not all requests on Pemex’s proposed list of projects will be approved. As a consequence, the private sector may enjoy greater business opportunities, especially in areas that are currently in production as well as in zones that are being explored for new deposits. ●

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Lessons from Spain When Spain switched from a national gas pipeline network to an open market, everybody noticed. Ángel Larraga Palacios, country manager of Gas Natural Fenosa México, shares his views on how the 1998 Hydrocarbons Law approved by the Spanish government paved the ground for an open market, where today over a dozen companies supply natural gas. These are lessons Mexico could certainly learn from, especially at a time when the secondary laws are being drafted.

Maribel Zavala Rivas

Eduardo Warnholtz

Opening in Spain: Lessons for Mexico

2. Open access. “One can build a grid, but they are used by

In Mexico the growing expectation that this scene will change is very high, thanks in large part to the opening of the national energy sector, of which natural gas has an opportunity for growth and expansion - albeit in a different way than what happened in Spain 15 years ago.

Larraga remembers that in Spain in 1998, the new Hydrocarbons Law was enacted to open the market in which today 17 corporations participate. However, in Europe this opening occurred 20 years ago.

This opening included a “series of fundamental elements,” according to Larraga, which included:

many. It did not make a lot of economic sense to have just one grid of natural gas citywide, that here [Mexico] we do not have, but we had to have 10-12, 15.

Here in Mexico, I believe it would be a lot easier. Why? In Europe there is no gas, and in Mexico there is. There, the closest natural gas reservoir is in the North Sea or in Russia. Europe has to import it. Here [in Mexico], there is a greater advantage in that we have it; and the other advantage is that the United States is next to us.”

The opening of natural gas in Spain is a model, “because there was only one provider of natural gas and transport, Enagás, similar to what Pemex is here, and now there are 17 enterprises selling it.

“In a balanced economic system, consumers in Spain today can have 17 offers from firms to buy at diverse prices. I am presenting this as a model for natural gas because it has been a grand success.”

1. Separation of legal and accounting activities. Providers were defined that were the purveyors of natural gas: the role of transporters, distributors, and marketers. Also established were the rights, obligations, and responsibilities of each one.

“The distributor cannot be the transporter and marketer at the same time; the separation of activities was basic to introduce competency to several of those who would compete, such as in the commercialization,” recalls the country manager of the Spanish enterprise.

3. Firm Regulators. In Mexico’s case, “the constitutional re-

form states that the National Commission of Hydrocarbons as well as the Energy Regulatory Commission will have broad powers for regulation and control. But there are

also two new figures, from my point of view, very fortunate, that are independent operators from the electric energy system as well as natural gas, that is, the National Center for Electric Energy Control (CENACE) and the National Center for Natural Gas Control (CENAGAS).”

Overall, Larraga Palacios maintains an optimistic outlook and is certain about the combination of strong operators, the separation of activities, the opening of the grids, as well as firm regulators and independent control entities, “if these surface now, conveniently in the secondary laws, the expansion of the energy sector of natural gas will be unmatched.”

Mexico City in Need of Natural Gas

“The level of industrial and economic development of states that have already had several years of natural gas is very different than those that do not have natural gas.”

Whenever a country or a city has a natural gas pipeline network, it is noticed. In order to obtain this, a fundamental advancement in industrial capacity, as well as economic strength, must be achieved. And in some parts of Mexico, natural gas has been present for more than 10 years.

“The level of industrial and economic development of states that have already had several years of natural gas is very different than those that do not have natural gas,” says Larraga Palacios.

Petróleo&Energía suggests comparing Nuevo León’s development with that of the Federal District (DF), where most energy activities are developed on the base of fossil fuels, which are very expensive, highly contaminating, and inefficient.

“Nuevo León’s industrial development is largely due to the fact that for many years it has depended on natural gas; we arrived in Mexico 15 years ago, but way before that Monterrey industrialists built a duct to

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connect to the United States and the service.”

“The difference in competitiveness, quality, security, and environmental benefits that industry has in Nuevo León compared to DF where they still consume fossil fuels - this industry cannot compete with one that uses natural gas.”

In Mexico City (DF) there are 32,956 industries and only 0.2 percent of them use natural gas in their processes according to data from the Instituto Nacional de Estadística, Geografía e Informática (INEGI), Mexico’s federal agency that collects census information.

“I always use the same example: any global city that you choose similar to the DF, few are as large, but whichever we choose from Asia, Latin America, North America, or Europe, all of them have four things in common, a grid of water, a telephone system, an electric grid, and a grid of natural gas,” claims Larraga.

“In the DF there is no grid of natural gas, therefore the delay in energy infrastructure in the capital results in higher costs for its residents. Why? Because we have to use fossil fuels, of which, I dare to say, no one uses anymore.”

Larraga perceives another problem that is “moving” around Mexico City. “A distribution system based on pipes utilizing risky methods of transportation that move large quantities of fossil fuels around the city - few cities worldwide depend on this infrastructure.”

Questioning him about what has impeded the migration of an efficient combustible grid, such as natural gas throughout Mexico, Larraga Palacios emphasizes that many people are unfamiliar with the service, “or we are not getting the message out. It is unfortunate to know that we have a good product and a good service – and it is not known or accepted as such.”

Mar keting energético

MANOLO GUTIÉRREZ Proximity Cordinator mgutierrez@lideresmexicanos.com www.ferraezconecta.com

René Arce Lozano* rarce@ksa.mx

Revitalizing Mexico´s Electricity Sector Mexico’s recent energy reform passed by Congress is not only about hydrocarbons but aims to establish a closer relationship between the Federal Electricity Commission (CFE) and the private sector.

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Published December 20, 2013, in the Diario Oficial de la Federación (Official Gazette of the Federation), the reform aims to establish a regulatory system: (1) to organize a national electrical system based on technical and economic principles; (2) to reduce the cost of electricity; (3) to develop sources of electricity that are reliable, clean, and competitive; (4) and to provide access to a much improved market for electric energy.

Today the CFE controls the generation, transmission, distribution, and commercialization of electricity in Mexico.

Activities related to the generation, exportation, and importations of electricity as well as transmission services contracted with the CFE are regulated by the Energy Regulatory Commission (CRE).

Several years ago, the 1992 reform of the Electricity for Public Service Law made possible the participation of the private sector in the construction, operation, 20

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and ownership of electric plant generation. The reform approved, but placed certain restrictions over, self-sufficiency, co-generation, independent production, and small production.

These changes permitted the use of CFE’s transmission grid to import electricity destined exclusively to meet demand and to export electricity from co-generation, independent producers, and small producers.

Limited Legal Framework The 1992 reforms established a legal framework that actually made possible private participation in the electric sector. However, that structure presents certain limitations that for practical purposes impede activities in the sector today.

For example, independent producers are not allowed to market or commercialize energy directly; whoever develops the project, that is, designs, finances, builds, and

operates the power plant, turns over the electricity generated exclusively to the CFE through long-term agreements or for export. Through a bidding process the CFE guarantees the price and the market to the developers of the project.

In the case of self-sufficiency and co-generation, the electricity can only be used for the firm’s own uses; at the same time, the selling of excess capacity can only be done with the CFE at a price fixed by the CRE. Overall, the present system’s limitations disallow that such benefits be distributed in a way that would benefit all producers; also, limited flexibility in the regulatory system deters potential investors to participate in generation activities.

Other reasons to adjust the regulatory structure are (1) the need to increase the supply of electric energy to meet increasing demand; (2) assure the continuity and quality of the electric energy provided; (3) take advantage of natural resources; and (4) motivate the production, competitiveness, and reduce costs.

With the recent constitutional reforms on energy, Congress has established the foundation for pending legislation of a flexible regulatory system that will generate more investment in the electric sector.

The plan is to open up the market to promote the generation of renewable energy, lower costs, correct the limitations of the current model, and produce greater capacity for the national transmission grid - that is, without the federal government losing the exclusivity of energy transmission and distribution as a public service.

The federal government will maintain control over the National Electric System (SEN), counting on the necessary powers to regulate the expansion and distribution of the transmission grid, and reiterate federal ownership of the central transmission grid and distribution of the CFE (that will change from being a decentralized agency to a federally owned entity) as well as the transmission and distribution services.

Private sector participation will have the right to generate and market electricity subject to corresponding regulations. Also foreseen is the inclusion of services contracted by the pri22

April 2014 Mxe Mexico Energy and Business Magazine

vate sector to maintain, operate, and amplify the transmission capacity of the CFE’s grids.

The secondary laws will establish special obligations in areas such as competition, clean energy, and the public sector. By developing a more competitive, efficient, and productive sector, helping the environment, and balancing social interests, a solid and robust legal framework will provide certain judicial assurances for investors interested in participating.

To accomplish this, SEN’s foreseen operational regulations will provide guarantees for access and use without discrimination of the transmission grid, as well as transparent shipping tariffs established on a basis of economic efficiency to ease demand and reduce costs.

At the moment of writing this article, the energy reform’s secondary laws to determine the legal framework of private sector participation in approved activities have not been published.

As soon as clear and precise rules for investment and private participation are established, the substitution of fossil fuels for clean energy and natural gas will accelerate, producing important savings that will result in lower tariffs and a sustainable future for our country.

We hope that the opening of activities in the generation and marketing of electric energy to the private sector will ultimately benefit the consumer with a market of greater supply, a modern grid with expanded capacity, sustainability, and more access to green energy.

*Partner in the Kuri Breña, Sánchez Ugarte and Aznar firm; has offices in Mexico City and Monterrey. Arce Lozano is a specialist in sub-sovereign financing and project financing in general, including energy products.

The only key that opens business opportunities in the energy and petroleum sector in Mexico and the United States Watch the video

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www.potentiaclub.com

Tim Hart Control Risks

Latin America feels global shipping challenges

Control Risks’ Senior Maritime Security Analyst, Tim Hart, looks at how modern piracy has changed in recent years and how, with today’s globalised world, companies— particularly those in the energy sector—should be concerned about the security of sea-lanes.

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P

iracy has existed off Somalia for decades however it has only been six years since it first grabbed international attention. One of the incidents which raised the profile was the 2008 hijacking of the Saudi Arabian super-tanker Sirius Star, on route from the Persian Gulf to the United States. As the first super-tanker hijacked, it caused a brief rise in the oil price as Somali criminals took control of a ship holding over a quarter of Saudi Arabia’s daily output destined for the United States. Here, where international shipping was involved, a localized security problem had an international impact.

Over the next three years, the scale of the problem grew: vessels were held for longer, ransoms increased and the groups themselves began moving further into the Indian Ocean – a global maritime crossroads. The impact of a hijack could be devastating for the crews and companies involved. Crew members were held onboard their ships for months, sometimes years, in appalling conditions while

The wider impact of major incidents on shipping is the cost of delays and disruption as well as outright destruction. The financial implications of a hold in cargo operations, whether it is due to port strikes, natural disasters, piracy, terrorism or conflict, can cost hundreds of millions of dollars a day.

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those involved demanded a crippling ransom. It is no surprise that a number of shipping companies went out of business following a Somali pirate hijack. But by mid-2011, the shipping sector had learned how to mitigate the threat using onboard protective measures while international naval forces had disrupted most of the groups leaving the coast. By mid-2013, there had been 12 months without a commercial vessel being hijacked. But while there has been success at sea, there is still some way to go onshore in Somalia, where the problem originates.

What do African pirates have to do with Latin American energy firms? More than you might think. Although 90% of global trade is carried by sea, that statistic doesn’t do justice to the reliance that globalisation and international commerce has placed on international shipping. The accessibility of containerised cargo, the rise of “justin-time” supply chains, the diverse sourcing of natural resources and exotic foods means that today’s consumers are, not just used to, but dependent upon the uninterrupted flow of international shipping.

This is especially true for energy supply chains, as evidenced by the volatility of oil prices based on the slightest disturbance.

The wider impact of major incidents on shipping is the cost of delays and disruption as well as outright destruction. The financial implications of a hold in cargo operations, whether it is due to port strikes, natural disasters, piracy, terrorism or conflict, can cost

hundreds of millions of dollars a day. So when put into perspective, international shipping is vulnerable to a much more diverse range of maritime threats and issues.

Loading and unloading cargo at ports is where local or national problems can cause major delays. This can be best shown by the effect of protests, whether industrial strikes or national unrest. Dock worker strikes have stricken ports in Chile, Colombia and Brazil in recent months. But far-off protests can have an indirect effect—the Arab Spring protests delayed shipments as port workers and customs officials became unavailable.

Terrorism can also have an effect. Maritime terrorism is often associated with a small group of “spectacular” attacks – suicide boat attacks such as that on the USS Cole in 2000 or the oil tanker Limburg in 2002 – however 2013 saw several smaller-scale attacks on maritime assets involving terminals, ports and ships themselves in Egypt, Iraq and Yemen.

Of these, the rocket-propelled-grenade attack on the container vessel COSCO Asia while transiting through the Suez Canal received the most attention despite causing no injuries and relatively little damage to the ship itself.

Here, it was the mere suggestion of a security 28

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risk affecting one of the most important “chokepoints” that raised concerns about trade links.

The alternative route, around the Cape of Good Hope, could add up to ten days to a journey from the Middle East or Asia towards to Latin America, even before considering the additional fuel costs.

Concern over the Suez Canal is understandable, it is after all one of a number of strategic “chokepoints” through which shipping is concentrated. It is vulnerable not only to criminal and terrorist threats, but also political posturing. Testing the vulnerability of chokepoints is not taken lightly, as repeated threats by the Iranians to block the Strait of Hormuz in recent years has led to a rise in naval warships operating in the Persian Gulf. The impact of the Iranian military blocking the Strait, even temporarily, would seal the Persian Gulf, preventing exports from Qatar, Bahrain, Iraq, Kuwait and the majority of exports from Saudi Arabia and the United Arab Emirates.

Crucially this impact is felt just as much onshore as offshore as companies can receive major deliveries late and see their own operations delayed as a result of factors outside of their control.

In December 2004, Sony faced such delays during the European launch of the Playstation 2 console. After an oil tanker accidently ran aground in the Suez Canal ahead of the container vessel carrying a major shipment, the company faced a two week delay and a shortage of units in Europe as Christmas approached. The company had to resort to chartering costly Russian cargo planes to try and avoid losing the festive competition with Microsoft and Nintendo.

The delays in the Suez Canal, although caused by a mechanical fault rather than a deliberate attack, had a significant impact to a company which relied on its maritime supply chain.

So what we can see is that security of shipping lanes involves a lot more than simply counter-piracy. Internal unrest, political tensions and terrorism can all threaten the passage of shipping which can have a knock-on effect on companies with a global supply chain. ●

Medio Oficial:

EFE

Latin America’s Largest Solar Power

Plant Goes Online in Mexico

Latin America’s largest solar power plant, a facility with 39 MW of generating capacity, has gone online in the northwestern Mexican state of Baja California Sur.

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he Aura Solar I photovoltaic power plant was inaugurated by Mexican President Enrique Peña Nieto and will supply electricity to the city of La Paz. The energy industry reforms implemented last December will help lead to “more energy generation, cleaner energy and, above all, cheaper energy to help make Mexico a more competitive country,” Peña Nieto said.

The goal is to turn Mexico into “a country that attracts greater investment for the development and creation of jobs,” the president said.

Some 25 percent of Mexico’s electricity is currently generated using clean energy sources, Peña Nieto said during the ceremony in the Las Olas Altas section of La Paz. The Climate Change Law requires that this number go up to 35 percent by 2024, the president said, adding that he was confident that the goal would be met.

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The Aura Solar I power plant, which is owned by Corporación Aura Solar and quadrupled Mexico’s installed photovoltaic capacity, will be “a model of success that will be duplicated in other parts of the country,” Peña Nieto said.

“This photovoltaic power plant is not just the first large-scale one of its type in Mexico, but also the biggest in all of Latin America,” Corporación Aura Solar chairman Daniel Servitje Montull said.

The $100 million energy project was developed on a 100-hectare (247-acre) site in La Paz by Mexico’s Gauss Energia and Martifer Solar, an international engineering company that has experience in building solar power facilities.

Aura Solar I, which has an estimated operational life of 30 years, has about 132,000 solar panels and is expected to prevent the emission of 60,000 tons of greenhouse gases annually.

The emission of greenhouse gases is believed to contribute to global warming.

The Aura Solar I power plant will supply electricity to about 164,000 people, or about 64 percent of La Paz’s residents. EFE

Maribel Zavala Rivas

Provided by Corporación Aura Solar

Shining with the Sun´s Rays Baja California Sur’s Aura Solar I Photovoltaic Plant, in addition to being the largest solar park in Latin America, has also set a precedent in Mexico with a $100 million investment achieved through an innovative financing template, according to bank representatives who made it possible.

Marking Time The Aura Solar I Photovoltaic Plant covers 100 hectares (247.11 acres) and is the first solar business that incorporates market risk, subject to market volatility as is the case in electricity markets.

The $100 million investment, 75 percent provided

by Mexico’s development bank, Nacional Financiera (NAFINSA), and the World Bank’s International Finance Corporation (IFC), is in the form of debt financing.

Enrique Nieto Ituarte, director of Sustainable Projects at NAFINSA, explained that “any project always has an expected return on investment, after taking into consideration costs and interest rates, 32

April 2014 Mxe Mexico Energy and Business Magazine

but also the selling price on the market - in this case, energy.”

“The price of energy fluctuates every 5 minutes, either high or low. There is a great risk because there have to be sufficient resources in the first place to pay the debt contracted by the project and secondly, sustain capital performance.

“Together with the IFC, a strategy was designed that would allow us to extend the risk past the loan’s original due date in a way that if energy prices dropped, the extended period was sufficient to pay the debt. Just like the banks are interested in,” Nieto Ituarte explained during the press conference at the plant’s inauguration.

For her part, Cheryl Edleson, the IFC’s chief investment officer, emphasized that the plant is the first solar project the bank financed in Mexico. Previously the IFC had participated in other clean energy projects, but in Chile. Daniel Servitje, chairman of Corporación Aura Solar and Héctor Olea, chief executive officer of Gauss Energy, also underscored that another advantage of the photovoltaic plant was that it had been established without the use of subsidies.

Olea noted that photovoltaic cells have been around for 30 or 40 years, but recently their efficiency has improved by 25 percent or more with approximately 132,000 polycrystalline modules mounted on single-axis trackers.

At the same time, there have been major cost reductions as well as greater technological competitiveness.

Energy produced by the plant is reserved exclusively for the Federal Electricity Commission (CFE), under contract to buy energy for the next 20 years, which is extendable to 30. Energy is received through a high-voltage transmission line at the Olas Atlas Substation.

Since the plant’s launch last September, Mexico is now among 20 countries with a greater solar capacity installed on a worldwide scale, and second in Latin America, according to the industry publication, Renew Economy.

Petroleo&Energia’s Maribel Zavala attended the inauguration in late March.

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