Understanding the impact of Mexico's energy reform

illuminating the markets

Market Reporting

Consulting

Events

Understanding the impact of

Mexico’s energy reformImplementation, benefits and unintended consequences


Mexican energy reform will transform

the energy landscape in Mexico

Copyright © 2014 Argus Media Ltd. All rights reserved.


New types of contracts will allow foreign investments and will

hopefully incentivize participation by private companies


Services Profit

sharingProduction

sharingLicense

Net income

Income tax

Costs

Royalties

Total Income

Contracts and

reserves

ownershipNation Nation • Nation

• Additional

participant

Additional

participant (IOC,

NOC)

Fiscal Regime

% by bid

Local content


Round 0

Upstream: what we know today


Source: SENER, Mexico

Assets available

Round 1

VolumeAssets

•68% of 1P

reserves

•49% of 2P

•Equivalent to

71% of crude

production

and 73% of gas

production

• A total of 169

blocks

◦ 109 exploration

◦ 60 production

• 14.6 billion bpce

(exploration)

• 3.7 billion bpce (production)


Hydrocarbon assets: bird’s eye view




Key milestones


All regulation

must be ready

2015 2016 2017 2018

First round

awarded

Investments and development

Farmouts with

Pemex

Retail is open

Products imports open

Upstream

Refined products


Potential investment wavesTrigger: US and Canadian competitive advantage. Most immediate

business opportunities are related to logistics integration

◦ Logistics

connecting US-

Canadian

commodities to

Mexican consumers

◦ Pipelines

◦ Ports

◦ Storage facilities

1st wave 2nd wave 3rd wave

◦ All E&P – crude

related activities

Drilling, wells,

shipping

◦ Retail,

petchems,

solar,

biofuels

◦ All the rest

◦ Mexico vs. Panama Canal


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Companies will be able to import refined

products starting January 2018 using open

international pricing


Competition on refined products trading


Trigger: companies will be able to import refined products starting

January 2018. Open international pricing

◦ Companies in Mexico have the

option of importing from USGC

refiners rather than from

Pemex’s refineries

◦ If no restriction is applied,

Mexican refineries might lose

significant market share

• Scenario: international trade competes heavily with

Pemex Refinación


New Detroit south of the border?


‘Mexitroit’


Trigger: significant government incentives for car automakers

underpin petrochemical investments and trade

◦ Too many new manufacturing

plants already under way

◦ Additional gas and power

investment will increase

competitiveness

◦ Petchem market soars

Mexitroit


Additional economic growth might

spawn substitution waves…


Fuel substitution is likely


Leña= wood

LPG Wood

Natural Gas LPG

Power, heavy distillate

LPG



Conclusions


• Mexican energy reform will transform the energy

landscape in Mexico

• Investment in logistics (crude, refined products, natural

gas) has the potential to be significantly high

◦ Crude imports from the US, Canada and other countries are a

matter of time..

• Natural gas, LPG and power sectors will have significant

investment opportunities

• All of the above will change trading and commercial

relations in the region


To hear more on the implementation,

benefits and unintended consequences

of Mexican energy reform, please join

us at Argus Americas Crude Summit

Argus Media

[email protected]

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Understanding the impact of Mexico's energy reform

Presentations & Public Speaking

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