A Turning Point: Defining the Future of Midstream and Downstream Activities PEMEX Investor Day New York December 4, 2014 Alejandro Martínez Sibaja Pemex-Gas General Director
Content Strategic Assets Integrating the Value Chain Main Projects Production Objectives Collaboration, Association & Divestitures 1
Downstream Rankings Pemex Downstream is ranked among the largest producers in the world in different areas of the value chain. Pemex is the 9th producer of gasoline Mexico is the 5th largest consumer market for gasoline Pemex is the 15th producer of natural gas Source: Pemex Statistical Yearbook, Forbes and ICIS Top 100 Chemical Companies. 2
Domestic Sales 2006-2013 USD MM Diesel, 6,919 Diesel, 16,558 Natural Gas, 5,896 Gasolines, 17,358 Fuel Oil, 3,390 Gasolines, 31,669 Natural Gas, 5,334 Fuel Oil, 6,107 LPG, 4,131 LPG, 5,622 Others, 696 Petrochemicals, 1,903 Jet Fuel, 1,480 Others, 981 Jet Fuel, 2,773 Petrochemicals, 2,707 3
Downstream Infrastructure Production Capacity Refining Atmospheric distillation capacity 1,690 Mbd Gas Processing Sour Nat Gas 4.5 Bcfd Cryogenic 5.9 Bcfd Condensate Sweetening 144 Mbd Fractioning 568 Mbd Sulfur Recovery 3,256 t/d Petrochemical 13.55 MMt nominal per year Camargo Monterrey Burgos Reynosa Producer Zone Refinery Petrochemical Center Gas Processing Center Sales Point Pipeline Maritime Route Cadereyta Infrastructure Refining 6 Refineries Fleet: 21 tankers Storage of 13.5 MMb of Refined Products 14,176 km of pipelines Gas 70 Plants in 11 Gas Processing Centers 12,678 km of pipelines Petrochemical 8 Petrochemical Plants Salamanca Guadalajara Arenque Poza Rica Tula Madero Cd. México Matapionche Pajaritos Morelos San Martín La Venta Cd. Pemex Cosoleacaque Minatitlán N. Pemex Cangrejera Cactus Salina Cruz 4
Gasoline Balance 2006-2013 900 800 700 600 500 400 300 200 100-798 798 803 800 804 769 787 732 Demand 456 PEMEX Supply 456 451 472 424 400 418 437 308 340 379 405 395 329 358 204 2006 2007 2008 2009 2010 2011 2012 2013 Imports Gasoline market has shown a compound annual growth rate (CAGR) of 2.7% between 2006 and 2013, meanwhile PEMEX s own production has declined 0.6% over the same period. This trend led to an increase in imports (CAGR 8.4%) representing 31% of demand in 2006 and 45% of demand in 2013. 5
Natural Gas Balance PEMEX Gas Market, 2006-2013 MMcfd 6,000 5,000 4,000 Demand PEMEX Supply 3,000 2,000 1,000 Imports 451 386 447 422 536 791 1,089 1,290-2006 2007 2008 2009 2010 2011 2012 2013 Domestic market for natural gas has shown great dynamism in recent years, due to lower prices in the reference market in USA and Canada, and its environmental benefits. The increasing trend in demand coupled with a decrease in domestic supply in recent years has led to a significant increase in import volumes of natural gas. 6
Petrochemical Production 2006-2013 1 Thousands Tons 2 5,241 5,551 1,089 1,085 5,864 1,058 5,614 957 6,155 5,980 1,042 923 5,733 5,414 166 799 2,748 2,607 2,604 2,695 2,831 2,750 2,775 2,473 1,404 1,859 2,202 1,962 2,282 2,306 2,473 2,460 2006 2007 2008 2009 2010 2011 2012 2013 Methane derivatives Ethane derivatives Aromatics and derivatives 1. Main petrochemicals chains 2. Includes petrochemicals produced by Pemex-Petrochemicals, Pemex-Refining, and ethane and sulfur produced by Pemex-Gas and Basic Petrochemicals. January August 2014. 7
Content Strategic Assets Integrating the Value Chain Main Projects Production Objectives Collaboration, Association & Divestitures 8
Integrating the Value Chain The Energy reform implies that all market players may participate in all segments of the value chain. Open and regulated market under the principles of asymmetric regulation and unbundling. Raw Materials Processing Transport 1 Storage Delivery Sales Imports 1. The new law creates the CENAGAS, responsible for the transportation of natural gas (PEMEX will be another participant). 9
Integrating the Value Chain: Key Dates There are key dates for some segments of the value chain Processing Raw Materials Transport Storage Delivery Sales Imports Until 2015, import permits only for PEMEX, Productive Companies and its Subsidiaries. From 2016, propane & butane open to imports. From 2017, open market for gasoline and diesel imports. CENAGAS Operation, 2015. PEMEX becomes service user. Propane & butane prices will be determined under market conditions until 2017 or before. Gasoline & diesel prices will be determined under market conditions until 2018. 10
New Downstream Framework PEMEX creates value through the consolidation of the value chain of industrial processing activities in an open and regulated market. This will be achieved through: Production (Supply) Cost efficiency and strategic pricing policies Market (Economic Agents) Commercial (Demand) Infrastructure Prices and Rates Assessment of infrastructure to maximize business value and returns Diversify marketing by geographic area Strategic alliances with private companies in a regulated environment High performance of human resources 11
Regulatory Framework Rigid Flexible Industry Transition Regulatory guidelines: I. Terms for firsthand sales (CRE) II. Retail prices, transit of "regulated" free-market III. Regulated tariffs for transport, storage and distribution (CRE) III. Permits access to industry segments (SENER, CRE) IV. Open access in logistics systems (CRE) V. "Adequate" energy supply (SENER) Market prices Private property, associations, PEMEX Free product access Social projects Road to transition Future TRI 1 New focus: participation in relevant markets (profitable) Regulated Prices State property PEMEX obligated to provide products Product access through PEMEX 1. TRI: Downstream Current Only (PEMEX) Enterprises Multiple Business strategy: leadership in the industry 12
PEMEX as a State Productive Enterprise (SPE) PEMEX State Productive Enterprise aims to maximize economic value and profitability for the Mexican state, by improving its productivity, maximize oil revenues and contribute to national development. Exploration & Extraction SPE Downstream Oil Treatment Refining Gas & Petrochemical Processing Import & Export First-Hand Sales Marketing Sales & Distribution Logistic Cogeneration & Services Ethylene Fertilizers Given market conditions and the need for greater operational flexibility there will be new subsidiaries _1/ companies that will give an array of services, from logistics to the end sale of fertilizers. 1. The fertilizers business line will be under the umbrella of the PEMEX Productive Enterprise; meanwhile the Ethylene Subsidiary will be part of the downstream process,. 13
Value proposal Maximizing sustainable value Value proposal to the market Business Organization A renewal of the Mission and Vision of Downstream Value generation analysis by market segment, identifying "key segments Growth and profit improvement based on target markets A business model for every market Reformulate the overall flow in decision-making Execution and development of new business models Cost structure analysis to identify target markets" and "vulnerabilities Performance indicators to measure segments of participation A new perspective (based on value generation) in: CAPEX Investment Alliances 14
Content Strategic Assets Integrating the Value Chain Main Projects Production Objectives Collaboration, Association & Divestitures 15
Project Development Strengthening Executive Business Process Elaborate the Business Plan focused on economic value creation Align projects to the strategy Promote coordinated execution of projects Business Process Management Optimized Business Portfolio Business portfolio focuses on substantive areas of high profitability, attending relevant industry markets Projects Development Project Development Institutional System which: Uses international best practices Promotes effectiveness in capital management Supports efficient assignment of investment resources PEMEX will participate only where it generates value 16
Downstream Business Portfolio: Main Challenges Refining Challenges Increase operational efficiency Infrastructure for better fuels Main Projects Investments in supply infrastructure (Project Gulf-Center), Refineries reconfiguring, Clean fuels projects Gas Processing Expand gas pipeline network Capture trading opportunities Finish Los Ramones project Transoceanic Corridor Project for propane, gas and refined products Petrochemicals Integrate value chains: ethane, methane and aromatics Fertilizers strategy, Ethylene oxide and monoethylene glycol projects Modernization of Aromatics Train Cogeneration Take advantage of PEMEX s power cogeneration potential Cogeneration projects 17
Refining Transport & Storage Gulf-Center System [XX] (XX) The required infrastructure for this system will be implemented through two projects: Import Project Gulf-center by PMI (paid via a built-in contract molecule to import a minimum volume of 125 Mbd). Projects Tula-Salamanca, debottlenecking and storage in Bajío Terminals. Aguascalientes Guadalajara New pipeline Debottlenecking Import project Gulf-Center Capacity in Mbd Capacity in Mb Morelia San Luis Potosí Querétaro Irapuato Salamanca Tula Región Centro [167] 18 [100] 16 (295) Cuernavaca (195) 24 10 [35] 1. Estimated diameters. New pipeline project under analysis. 2. MT: Maritime Terminal 3. CAB: Pump & Storage Station 4. TAR: Storage and Distribution Terminal Tuxpan [280] CAB (1,500) Arco Norte 14 [80] Apizaco (175) Tuxpan- Arco Norte Arco Norte Tula Arco Norte Región Centro Arco Norte - Apizaco Región Centro Cuernavaca MT (2) Tuxpan CAB (3) Arco Norte Tula TAR (4) Apizaco TAR Región Centro TAR Cuernavaca Project Gulf Center (1) 24, 250 Mbd, 235 km 18, 150 Mbd, 87 km 16, 100 Mbd, 89 km 14, 80 Mbd, 64 km 10, 32 Mbd, 78 km 250 Mb, 3 days 1,500 Mb, 6 days 450 Mb, 3 days 175 Mb 295 Mb 195 Mb Pipeline Pipeline Pipeline Pipeline Pipeline Pier, tanks, land CAB, land Tanks, land Storage Terminal, land Storage Terminal Storage Terminal, land 18
Revamping Pemex Refineries Salamanca Objectives: Investment in high conversion plants to increase profitability by producing higher value distillates products. Increase process capacity to receive more heavy oil volumes (i.e Maya Crude). Strategic reduction of residual fuel oil to balance the market. Tula Salina Cruz Operations of Tula and Salamanca projects will start in 2018, and Salina Cruz in 2020. 19
Refining: Clean Fuels Projects To address changes in specifications for distillate fuels Ultra Low Sulfur (ULS) in accordance with the needs of the Mexican market, a set of projects is developed for the six refineries at the National Refining System, considering the following plants and investment: Gasoline (8 new plants), this projects are ongoing and will be completed by 2015. Diesel (5 new plants, 17 revamps) to be completed by 2018. Salamanca Refinery Cadereyta Refinery (2015) Madero Refinery Gasoline Diesel Gasoline Diesel Gasoline Diesel New plant. Postreat.Gnas. catalytic 1 New HDS 1 diesel 3 Revamps HDS DI New plant. Postreat. Gnas. catalytic 1 New HDS diesel 3 Revamps HDS DI 2 New plants. Postreat. Gnas. catalytic 2 New HDS diesel 1 Revamp HDS DI Tula Refinery Salina Cruz Refinery Minatitlán Refinery Gasoline Diesel Gasoline Diesel Gasoline Diesel New plant. Postreat. Gnas. catalytic 5 Revamps HDS DI 2 New plants. Postreat. Gnas. catalytic 4 Revamps HDS DI New plant. Postreat. Gnas. catalytic 1 New HDS 1 Revamp HDS DI 1. HDS: hydro-desulphurization Process Plant 20
Natural Gas: Integrated Supply Strategy Gas Supply Strategy Actions Short-term: Increasing imports of liquefied natural gas (LNG) (carried out during 2013 and 2014). Long-term: Increase investments in gas production. Expand gas transportation infrastructure. Explore and evaluate the potential of shale gas reserves. Expand the production of hydrocarbons in the country through the Energy Reform. 21
View of Natural Gas Transportation Infrastructure Projects, 2028 5 1 2 PEMEX Gas pipelines Private pipelines Pipeline projects Import capacity increase Liquid natural gas terminal 1 2 C 3 7 4 2 6 11 10 i 8 9 iii ii 1 Pipelines 1. Nvo. Pemex - Cd.Pemex (Mayakán) 2. Los Ramones phase I 3. Los Ramones phase II (North & South) 4. Agua Dulce - Frontera 5. Tucson - Sásabe 6. Los Ramones - Cempoala 7. Colombia - Escobedo 8. Matapionche - Medellín 9. Jáltipan - Salina Cruz Private: 10. Morelos 11. Tamazunchale - El Sauz 12. Norte - Noroeste Storage and liquefaction i. Natural gas storage (Altamira) ii. Underground storage (Shalapa, Ver.) iii. Liquefaction plant (Salina Cruz) 22
Los Ramones Phase I & II: Success Case Project Los Ramones phase I PEMEX Gas signed a long term transport service contract with the company Gasoductos del Noreste. The construction of a 115 km pipeline was sped up, from the US border to Los Ramones, NL. Operations start: December, 2014. Maximum transportation capacity: 2,100 MMcfd Project Los Ramones phase II 738 km pipeline goes, from Los Ramones, NL. to the central west region of the country. Operations start: December 2015 Additional maximum transport capacity: 1,430 MMcfd Scheme Los Ramones I is being constructed by Gasoductos del Noreste, in strategic alliance with Pemex-Gas. Los Ramones II is developed by Tag Pipelines, a company owned by Mex Gas Supply and Mex Gas Enterprise, two Pemex Gas affiliates. Los Ramones pipeline will be supplied of natural gas by a new pipeline from Agua Dulce, Texas to the Mexican Border; it is constructed in a strategic alliance with NET Midstream. The advantages of the Tag Pipelines Subsidiary: More flexibility and agility to analyze and develop infrastructure projects. Time and cost reduction in project execution. Ability to venture with third parties for project development and ownership in an efficient manner. 23
Trading Opportunities: PEMEX as a key player in the Pacific market (Transoceanic Corridor Project) Pemex has identified the opportunity to move product from the US Gulf Coast to the Pacific markets Mexico has a privileged geographical position to move hydrocarbons from the Gulf Coast to the Pacific, through the Tehuantepec Isthmus. PEMEX has operating infrastructure in both coasts which are 186 miles apart. Expanding current existing infrastructure would allow PEMEX to move product from the USGC to the Pacific reducing shipping costs and time (compared to Panama Canal) and optimizing vessel s fleet routes. The products to move to the Pacific are natural gas, crude oil, propane, naphtha, diesel and gasoline. 24
Petrochemicals: Fertilizer Market Strategy Energy Reform requires PEMEX to supply fertilizers to the domestic industry and distributors of ammonia, with longterm contracts and fixed prices. Ammonia production for PEMEX is of utter importance to ensure the supply of raw materials with which the fertilizers are made. Currently, there are plants located at Cosoleacaque, Veracruz, and in Camargo, Chihuahua. A new enterprise will integrate the production chain from ammonia to the end sale of fertilizers. The additional investment is focused on: three networks; four products; and new development center. 25
Petrochemicals: Second Stage of the Ethylene Oxide Plant Scope Construction and startup of two new watercooled reactors at the Morelos complex which will replace the four existing oil-cooled reactors to increase the plant capacity from 280 Mt/y to 360 Mt/y of ethylene oxide equivalent. Operations start in 2018 Morelos Source: Pemex Business Plan 2015-2019 26
Petrochemicals: Modernization and Expansion of Aromatics Train at Cangrejera P.C. Scope Modernization of the aromatics chain Technology upgrade Broad operational flexibility Lower energy consumption and overall cost of production Minimum feedstock consumption Minimal environmental impact Increase the offer of Para-xylene in the domestic market. Increase the capacity of Para-xylene production to 448 Kt/a Reduce imports Take advantage of the available benzene. Start of operations in 2020. Cangrejera Source: Pemex Business Plan 2015-2019 27
PEMEX s Power Cogeneration Potential Project E.E. Generation (MW) Cactus 560 Salina Cruz 690 Tula 640 Minatitlán 690 Cadereyta 390 Cadereyta Total 2,970 PEMEX s productive processes consume large amount of energy. Strategy for taking advantage of cogeneration potential (PEMEX s Business Plan). On April 2013 the CPG Nuevo PEMEX cogeneration project (300 MW and 550 t/h steam) began operations. Five projects which represent 2,970 MW of energy generation. Tula Minatitlán Cactus PEMEX Sites Refinery Salina Cruz Gas Processing Plant 28
Content Strategic Assets Integrating the Value Chain Main Projects Production Objectives Collaboration, Association & Divestitures 29
Refining: Transition to Cleaner Fuels 9% 8% 21% 44% 40% 38% 33% 8% 58% 57% 15% 61% 17% 16% 19% 11% 5% 7% 9% 59% 29% 20% 20% 18% 21% 32% 31% 2% 7% 15% 17% 16% 20% 4% 11% 2006 2008 2010 2012 2013 2014 2016 2018 Premium Magna Diesel Premium ULS Magna ULS Diesel ULS Decline in demand for fuel oil mainly due to environmental restrictions and competition with natural gas. Introduction of Premium Ultra Low Sulphur (ULS) from October 2006 and all the demand since 2007. Magna ULS since October 2008 in metropolitan areas. Total demand in 2015. Diesel ULS from January 2007 in northern border and metropolitan areas. Total demand in 2017. 30
Natural Gas Domestic Balance 2015-2018 MMcfd 3,639 4,429 4,996 5,829 4,417 4,267 4,195 4,103 2015 2016 2017 2018 National Supply Net Imports Net Exports Demand Expected demand will need transportation infrastructure to handle natural gas imports The domestic supply considering PEP Round Zero granted by SENER. 31
Petrochemicals Production 2015-2018 1 Thousand Tons per year 6,286 941 2,256 7,408 7,553 7,748 947 944 944 2,424 2,321 2,486 3,090 4,037 4,288 4,318 2015 2016 2017 2018 Methane derivatives Derived Ethane Aromatics and Derivatives Ethane derivatives Take advantage of growing demand for ethane and ammonia. 1. Main petrochemicals chains 32
Content Strategic Assets Integrating the Value Chain Main Projects Production Objectives Collaboration, Association & Divestitures 33
New Business Models - Downstream PEMEX is seeking to create value through successful business schemes for new projects. The business schemes PEMEX is looking for are: Alliances with partners that have capital and operational excellence. Strategic suppliers of materials. Joint Ventures (transportation, cogeneration, etc.) 34
New Business Models - Downstream PEMEX has developed successful strategic alliances in our downstream activities Project Deer Park Gas Pipelines PEMEX Mexichem Partner PEMEX s Participation 1. Joint Venture 2. Oil supply 1. Joint Venture 1. Joint Venture 2. Fixed assets 3. Supply of raw materials Objective Refine Mexican heavy crude oil and increase gasoline supply to Mexico Natural Gas and LPG transportation to power plants in the northern region of Mexico Increase production of vinyl chloride Operations Startup 1993 1997 2012 35
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