A Turning Point: Defining the Future of Midstream and Downstream Activities PEMEX Investor Day London - October 29, 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 Source: Pemex Statistical Yearbook, Forbes and ICIS Top 100 Chemical Companies. Pemex is the 15th producer of natural gas 2 Domestic Sales 2006 - 2013 USD MM Diesel, 6,919 Diesel, 16,558 Natural Gas, 5,896 Gasolines, 31,669 Gasolines, 17,358 Natural Gas, 5,334 Fuel Oil, 3,390 Fuel Oil, 6,107 LPG, 4,131 LPG, 5,622 Others, 696 Petrochemicals, 1,903 Jet Fuel, 1,480 Others, 981 Petrochemicals, 2,707 Jet Fuel, 2,773 3 Downstream Infrastructure Production Capacity • • • Refining • Atmospheric distillation capacity 1,690 Mbd Gas Processing • Sour Nat Gas 4.5 Bcf • Cryogenic 5.9 Bcf • Condensate Sweetening 144 Mbd • Fractioning 568 Mbd • Sulfur Recovery 3,256 t/d Petrochemical • 13.55 MMt nominal per year Producer Zone Refinery Petrochemical Center Gas Processing Center Sales Point Camargo Pipeline Maritime Route Reynosa Monterrey Burgos Cadereyta Infrastructure Madero • • • 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 Arenque Poza Rica Salamanca Guadalajara Tula Cd. México Matapionche Pajaritos Morelos La Venta San Martín Cd. Pemex Cosoleacaque Minatitlán N. Pemex Cangrejera Cactus Salina Cruz 4 Gasoline Balance 2006-2013 900 800 732 769 798 798 803 800 804 787 Demand 700 600 500 456 456 451 472 308 340 329 2007 2008 2009 PEMEX Supply 437 424 400 379 405 395 358 2010 2011 2012 2013 400 418 300 200 100 Imports 204 2006 • 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 Demand 5,000 PEMEX Supply 4,000 3,000 2,000 1,000 Imports 451 386 447 422 536 2006 2007 2008 2009 2010 791 1,089 1,290 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 Thousands Tons* 5,241 1,089 5,551 1,085 5,864 1,058 6,155 5,614 5,980 5,733 1,042 923 5,414 166 2,831 2,750 2,775 2,473 957 799 2,604 2,695 1,859 2,202 1,962 2,282 2,306 2,473 2,460 2007 2008 2009 2010 2011 2012 2013 2,607 2,748 1,404 2006 Methane derivatives Ethane derivatives Aromatics and derivatives *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 Transport1 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 • CENAGAS • • for PEMEX, Productive Companies and its Subsidiaries only From 2016, propane & butane open to imports From 2017, open market for gasoline and diesel imports • 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 Infrastructure • Diversify marketing by geographic area Market (Economic Agents) Prices and Rates Commercial (Demand) • Assessment of infrastructure to maximize business value and returns • Strategic alliances with private companies in a regulated environment • High performance of human resources 11 Industry Transition Regulatory guidelines: I. II. III. Terms for firsthand sales (CRE) Retail prices, transit of "regulated" free-market Regulated tariffs for transport, storage and distribution (CRE) III. IV. V. Permits access to industry segments (SENER, CRE) Open access in logistics systems (CRE) "Adequate" energy supply (SENER) Flexible Rigid Regulatory Framework Road to transition • Market prices • Private property, associations, PEMEX • Free product access • Social projects • Regulated Prices • State property • PEMEX obligated to provide products • Product access through PEMEX Future TRI1 • New focus: participation in relevant markets (profitable) • Business strategy: leadership in the industry Current Only (PEMEX) Multiple Enterprises 1. TRI: Downstream 12 PEMEX as a State Productive Enterprise (SPE) 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. PEMEX SPE Exploration & Extraction Downstream Subsidiaries and Third Parties        Oil Treatment Refining Gas & Petrochemical Processing Import & Export First-Hand Sales Marketing Sales & Distribution  Contracting Services • Drilling • Cogeneration • Transportation & Logistics 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 Main Projects Challenges • • Increase operational efficiency Infrastructure for better fuels • • Expand gas pipeline network Capture trading opportunities • Integrate value chains: ethane, methane and aromatics • Take advantage of PEMEX’s power cogeneration potential Refining Gas Processing Petrochemicals Cogeneration • Investments in supply infrastructure (Project Gulf-Center), Refineries reconfiguring, Clean fuels projects • • • • Finish Los Ramones project Transoceanic Corridor Project for propane, gas and refined products • • Fertilizers strategy, Ethylene oxide and monoethylene glycol projects • Cogeneration projects 17 Refining Transport & Storage Gulf-Center System 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. Tuxpan San Luis Potosí Aguascalientes Salamanca 24” [167] Tula [XX] New pipeline Debottlenecking Import project Gulf-Center Capacity in Mbd (XX) Capacity in Mb Región Centro 16” 14” [80] (295) 10” [35] Cuernavaca (195) 1. 2. 3. [280] CAB (1,500) Arco Norte 18” [100] Morelia Tuxpan- Arco Norte Arco Norte – Tula Arco Norte – Región Centro Arco Norte - Apizaco Querétaro Irapuato Guadalajara Project Gulf - Center MT: Maritime Terminal CAB: Pump & Storage Station TAR: Storage and Distribution Terminal Región Centro – Cuernavaca MT(1) Tuxpan CAB(2) Arco Norte Tula Apizaco (175) 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 TAR(3) Apizaco 175 Mb TAR Región Centro 295 Mb TAR Cuernavaca 195 Mb Pipeline Pipeline Pipeline Pipeline Pipeline Pier, tanks, land CAB, land Tanks, land Storage Terminal, land Storage Terminal Storage Terminal, land 18 Revamping Our Refineries Objectives: • Increase profitability by producing higher value distillates products. • Increase process capacity to receive more volume of heavy oil (Maya). • Eliminates fuel oil production and its problematic management. Salamanca 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) to be completed by 2015; • Diesel (5 new plants, 17 revamps) to be completed by 2018. Cadereyta Refinery (2015) Salamanca Refinery Gasoline New plant. Postreat.Gnas. catalytic Diesel • 1 New HDS1 diesel • 3 Revamps HDS DI Gasoline New plant. Postreat. Gnas. catalytic Tula Refinery • 1 New HDS diesel • 3 Revamps HDS DI Gasoline 2 New plants. Postreat. Gnas. catalytic Salina Cruz Refinery Gasoline New plant. Postreat. Gnas. catalytic Diesel Madero Refinery Diesel 5 Revamps HDS DI Gasoline 2 New plants. Postreat. Gnas. catalytic Diesel 4 Revamps HDS DI Diesel • 2 New HDS diesel • 1 Revamp HDS DI Minatitlán Refinery Gasoline New plant. Postreat. Gnas. catalytic Diesel • 1 New HDS • 1 Revamp HDS DI • Projects for gasoline are ongoing and will be completed by 2015 • Diesel projects will be completed by 2018 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 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 1 2 4 7 2 3 C PEMEX Gas pipelines Private pipelines Pipeline projects Import capacity increase Liquid natural gas terminal i 6 Private: 10. Morelos 11. Tamazunchale-El Sauz 12. Norte-Noroeste 11 10 ii 8 9 1 Storage and liquefaction i. Natural gas storage (Altamira) ii. Underground storage (Shalapa, Ver.) iii. Liquefaction plant (Salina Cruz) iii 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 • 300 km (about 186 miles) between both coasts and PEMEX already has operating infrastructure both coasts • Expanding current existing infrastructure would allow PEMEX to move product from the USGC to the Pacific reducing shipping cost 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. Actually, there are plants located at Cosoleacaque, Veracruz, and in Camargo, Chihuahua. The strategy to produce petrochemicals and count on 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 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 27 PEMEX’s Power Cogeneration Potential • PEMEX’s productive processes consume large amount of energy. Cadereyta Project • Strategy for taking advantage of cogeneration potential (PEMEX’s Business Plan). E.E. Generation (MW) Cactus 560 Salina Cruz 690 Tula 640 Minatitlán 690 Cadereyta 390 Total 2,970 • 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 8% 9% 21% 44% 40% 38% 33% 8% 58% 57% 61% 15% 17% 5% 29% 20% 16% Magna 19% Diesel 11% 7% 20% Premium ULS 59% 9% Premium Magna ULS 21% Diesel ULS 18% 32% 31% 2% 2006 7% 4% 2008 • • • • 15% 17% 16% 20% 2010 2012 2013 2014 11% 2016 2018 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 Thousand Tons per year 6,286 941 7,408 7,553 947 944 7,748 944 2,424 2,321 2,486 4,037 4,288 4,318 2016 2017 2018 2,256 3,090 2015 Methane derivatives Derived Ethane Aromatics and Derivatives Take advantage of growing demand for ethane and ammonia 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 Gas Pipelines PEMEX – Mexichem 1. Joint Venture 2. Oil supply 1. Joint Venture 1. Joint Venture 2. Fixed assets 3. Supply of raw materials 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 1993 1997 2012 Deer Park Partner PEMEX’s Participation Objective Operations Startup 35 (?gsstor Relations ri@ 5) 1944-97 WWpemex.com 00 w.r .pemex.com