Every investment in energy infrastructure must be implemented in the form of a capital project. This is a long-term investment that requires large amounts of resources — financial, labor, materials, technology and more — to build, improve or maintain energy infrastructure assets. Those assets could include offshore platforms, pipelines, refineries, power generation plants, and wind and solar farms.
Each capital project begins with feasibility planning (economic, environmental, social, technical). It then proceeds through the phases of engineering, procurement, construction and startup before the asset is turned over to operations. The main challenge is balancing business drivers, stakeholder needs and timing requirements against the need to be competitive and deliver a successful project across all fronts: safety, cost, schedule, quality, operability and resiliency. It is an enormous and challenging undertaking, even in the best circumstances.
Reality and Success for Capital Projects
Capital projects are prone to not achieving their specific business and project objectives because they are overly complex and involve so many different stakeholders. Energy projects might fail to get approval from the government or the community. Sometimes they fail to get permitted, or they fail to get built on time and on budget.
In Mexico, according to Dr. Abel Hibert, deputy chief of Innovation and Analysis of the Office of the Presidency, there are now 53 energy projects with different challenges that prevent them from moving forward. These represent an investment of around $20 billion U.S., which would generate around 35,157 jobs in the next six years. The stoppages are due to problems with contracts, permits, social conflicts, uncertainty, delayed social impact evaluations by the SENER (Energy Ministry) or delayed indigenous community consultations.
According to the Construction Industry Institute (CII), the vast majority of capital projects — regardless of location — fail to meet their business and project objectives. This is due to many factors both within the project (internal) and around the project (external). The CII’s founding purpose is to conduct research and identify best practices for successful capital projects, as well as define how to prevent project failure. For example, the formal use of CII’s front end planning methodology can reduce project cost and time by up to 25% and 39% respectively. This proven methodology is not known in Mexico. In fact, it’s little known across the industry. That is why CII is generating more awareness about front end planning and its other best practices. We are also introducing this methodology in Mexico as MAP (Metodologia Alternativa de Planeacion) among other planning and engineer-procure-construct (EPC) execution tools.
With current and future needs to expand and improve Mexico’s energy infrastructure, the Mexican energy industry must focus on adopting best practices across the entire supply chain of energy projects. From regulation to community relations and from project development to engineering and construction, a systematic approach will greatly reduce the risk of project failure. Indeed, it could make the difference in achieving a successful outcome.
For more in-depth exploration of issues around investing in Mexico’s energy infrastructure, including capital project planning, check out the recordings from our yearlong webinar series.