The Mexican Energy Reform

Opportunities in the Midstream Sector

January 14, 2015 Bosque de Duraznos 127 4th floor

Bosques de las Lomas 11700

Mexico City

Tel +52 (55) 52458423

www.spectronei.com.mx

Index

1. Context

2. Where do we stand? Natural Gas

Oil Products

3. What was done?

4. Outlook Natural Gas

Oil Products

5. Conclusions

Context

Why was an energy reform needed?

PEMEX´s low operating capacity and lack of technology to conduct

exploration and production of hydrocarbons in non-conventional fields.

The need to increase capacity to refine, transport, store and distribute

hydrocarbons, and improve operational efficiency.

The commitment of the Federal Government to reduce domestic energy

prices and production costs.

Articles 25, 27 and 28 of the Mexican Constitution were amended and

six decrees were issued containing the corresponding secondary

legislation.

Where do We Stand?

Existing Infrastructure

Gas processing complex

Pipeline

Existing Pipeline Infrastructure

Source: PEMEX

Natural Gas

4679 4511 4423 4498 4573 4818

5356

6058

6919 7030 7020 6594 6385 6370 6518

4326 4358 4851

5287 5722 5890

6531 6984 7204 7377

7777 7923

8699

9581 9762

3500

4500

5500

6500

7500

8500

9500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MM

cfp

d

Production, demand and imports of natural gas 2000-2014

Production Consumption Imports

Source: SENER

33%

Source: PEMEX

Refinery

Pipeline

Oil Pipeline

Storage and distribution terminals

Existing Pipelines for Oil Products

Gasoline

601 637

672 719

761 793 793 802 800 804 788 776

445 466 440 442 444 437 455

405 389 416 425 443

200

300

400

500

600

700

800

900

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MM

cfp

d

Production, demand and imports of gasoline 2003-2013

Demand Production

Note: Imports include Methyl tert-butyl ether component

Source: SENER

Imports

43%

What was done?

Energy Reform

Energy Reform

In order to develop the much needed infrastructure, the Energy Reform approved by Congress modified the industrial organization framework of the natural gas and oil product transportation industry.

In the case of natural gas, the industry was opened to the private sector in 1995, but the recent reform clarified different aspects and created new institutions to make sure that open access prevails in the system.

Before the Reform, in the case of oil products, PEMEX maintained the monopoly in pipeline transportation, but allowed the private sector to participate in the transportation by tanker cars.

Natural Gas

The separation between gas transportation and marketing is established.

The Centro Nacional de Gas (CENAGAS) is created as an independent operator of the transportation system.

Open access to the network is provided to anyone.

SENER approves the planning of the transportation system.

New attributions are granted to SENER and CRE. Also, direct participation from the Antitrust Commission (COFECE) is considered.

CENAGAS

Performs the following functions:

Administers the infrastructure and contracts that Pemex transfers.

Makes sure that open access is granted by private and public carriers in daily, mid and long-term operations.

Elaborates a five-year expansion plan of the Natural Gas Transport and Storage Integrated System, identifying strategic projects.

Conducts the tender processes of strategic transport infrastructure projects.

New Model of the Natural Gas Industry

Private

Sector

SPC

SPC

CRE

Private

Sector

Private

Sector

Private

Sector CENAGAS

SPC

Natural Gas

Production Consumption

(Final users)

Economic Regulation

Transportation

Marketing

and imports

Source: SENER, Secondary Laws

New Model of the Oil Product Industry

SPC

SPC

CENAGAS

Private

Sector

Private

Sector

Oil product

Production Consumption

(Final users) Pipeline

Transportation

Marketing

and imports

Source: Secondary Laws

CRE

Economic Regulation

SPC

SPC

Private

Sector

Private

Sector

Gradual Opening of Gasoline and Diesel

2014

Controlled

increase in

prices will reflect market

conditions

2015 2016 2017 2018

Set maximum prices in gasoline and diesel, and

their updating Free Price

Imports done only

by PEMEX Free Imports

Pemex Gas stations

will compete with other brands

Source: SENER

What can we expect?

Outlook

9,834 10,134

10,655 11,003 11,109 11,082

11,411 11,697

12,139 12,460

12,748 13,207

6,785 7,006 7,583

8,443 8,582 8,546 8,589 8,786 8,874 8,899 8,967 9,391

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

MM

cfp

d

Production, demand and imports of natural gas 2015-2026

Demand Production

Natural Gas Outlook

Source: SENER

Imports

29%

31%

Source: SENER

New Pipeline Capacity Required

Imports Point

Exports Point

Imports & Exports Point

Non-associated Gas Deposit

Oil and Associated Gas Deposit

Pemex

Private

Pemex Stations

Private Stations

Future CC plants

Gasoline Outlook

425 443 437 509 517 513 509 521 515 515 549

604 603 651 650 651

788 776 773 781 809 841 880 910 960

1,018 1,080 1,120

1,170 1,215 1,254 1,279

200

400

600

800

1,000

1,200

1,400

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

MM

cfp

d

Production, demand and imports of gasoline 2013-2028

Production Demand Imports

Source: SENER

43%

49%

165.6 MBD

229.1 MBD

295.1 MBD

346.5 MBD

243.4 MBD

TOTAL: 1,279.7 MBD

Expected Gasoline Demand by region in 2030

Source: SENER

Conclusions

The existing infrastructure is inadequate to meet national requirements in terms of transportation and storage of oil products and natural gas.

In the next 15 years, the demand for oil products and natural gas will increase. This situation will aggravate if required investments in these sectors do not take place.

The Energy Reform will broaden investment opportunities to help reduce the current gap in infrastructure and anticipate for future needs.