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Aligning Midstream and Downstream Activities to Take Advantage of the Energy Reform
PEMEX Investor Day London – October 6, 2015
ALEJANDRO MARTÍNEZ SIBAJA
Director General, Pemex Industrial Transformation
Content
Market Context
Downstream Strategy
Business Opportunities
1
Gasolines 23,137
Diesel 10,833
LPG 4,964
Natural gas 3,491
Petrochemicals 1,760
Kerosene 1,812
Fuel oil 1,507
Asphalts, 519
Others, 614
1. Values for 2015 are annualized.
2015 USD 48,637
million1
Market Description
2
• 49 Billion dollar market in 2015, world 3rd LPG , 6th gasoline, and 12th NG largest consumer markets
• Deficit in high value O&G products, net imports: gasoline (48%), diesel and jet fuel (29%), LPG (35%), NG (27%) and petrochemicals (>50%)
• Expected growth in O&G products demand of about 3% per year for the next 5 years
• Strategically located in the North America Region, large northern border with the USA and a 200 km isthmus in the south that may capture the
high price differential between the Pacific and the Atlantic oceans
• Pemex has a competitive advantage in Production & Logistics through its existing infrastructure
Cadereyta
Monterrey
Madero
Tula
Pajaritos Morelos
Minatitlán
Cactus
Salina Cruz
Cd. Pemex
Salamanca
Guadalajara
Cd. México
Camargo
Reynosa
Poza Rica
Cangrejera
Cosoleacaque N. Pemex
San Martín La Venta
Matapionche
Arenque
Burgos
Refinery
Petrochemical Center
Pipeline
Sales Point
Gas Processing Center
Producer Zone
Maritime Route
3
• Asset manager
• Mandatory supply
• Volumetric approach
• Prices set by Government
• Public debt
• Automatic license to operate
• Rigid regulatory framework
From State-owned
Monopoly…
…to a Productive State-
owned Company
• Business management
• Economic supply with obligations
• Company value maximizing
• Market prices
• Company funding
• Performance-based operating
license
• Improved and clear regulatory
framework
A cultural change is necessary to move from an oil monopoly to a productive company
.
Efficiency
Industry Transition
• 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
• From 2018, any company
can process crude oil
• From 2016 any brand
on gas stations may
be commercialized
• 2017 or before
Propane & butane
prices will be
determined under
market conditions
• 2018 Gasoline &
diesel prices will be
determined under
market conditions
Transport
Processing
Delivery Sales
Imports
Storage Raw
Materials
• 2015
CENAGAS
started
operations
• PEMEX
becomes
service user
There are key dates for some segments of the value chain
4
Upstream
Downstream
Logistics
From 2017 transport pipelines and storage will have
“open access”
Impact of the Energy Reform on the Supply Chain
Pemex Downstream
Infrastructure 6
Refineries
9
Gas Processing
Centers
2
Petrochemicals
Centers
Op
era
tin
g m
od
el
Pro
jec
t m
an
ag
em
en
t
Input
• Non associated gas
• Associated gas
• Condensates
• Crude oil
• Natural gas
• Natural gasolines
• Benzene
• Naphtas
• Sweetening
• Cryogenics
• Fractionating
• Distillation
• Hydrodesulfurization
• Reforming
Processing
Gas
P
etr
oc
hem
icals
R
efi
nin
g
Products
• Aromatic
fractionation
• Reforming
• Synthesis / reaction
• Reforming
• Coking
• Natural gas
• LPG
• Natural gasolines
• Sulphur
• Ethane
• Styrene
• Xylenes
• Benzene
• Toluene
• HAO
• Methanol
• Petrochemicals
• Gasoline
• Turbosine
• Diesel
• Fuel oil
• Lubricants
• Asphalts
• Coke
• Sulphur
• Propylene
5
Our clients
Residential
Industrial
Power
Transportation
Market Context
Downstream Strategy
Business Opportunities
6
Content
7
Guarantee competitiveness of
local supply:
• Cost reduction
• Efficiency
• Safety & Reliability
Customer/market driven organization
(Pull strategy)
Overall Strategy: Maximize Economic Value
Increase competitiveness of
local and foreign supply:
• De-bottlenecking
• Focus on the core business
• Logistics efficiency
Short term Mid term
Expand local supply:
• Capacity expansions on
existing and new assets
Long term
• Understand market needs and expectations
• Establish target markets
• Develop marketing and association strategies to maintain market share
• Cultural change and HR development
• Define efficient supply strategies
Current market conditions are forcing PEMEX into finding new approaches to deploy its strategy…
Strategy Execution and Business Opportunities
8
• Mexico’s Energy Reform opens new and attractive business opportunities for all players
• Current market conditions are limiting Pemex to capture resources
• To deploy its strategy and maximize value creation under the new environment, Pemex
will use the following schemes:
a.Capture the most profitable opportunities through associations with third parties
b.Improve liquidity through asset divesting (monetization)
c.Tolling services for non-critical operations
Content
Market Context
Downstream Strategy
Business Opportunities
9
New Business - Downstream • Expansion projects, with the highest value and capital requirements will be accomplished through associations
• Logistic projects will be executed through third parties and existing asset monetization
• Non-critical operations will be divested (monetization), expanded and operated through contract/tolling services
Value Chain Processing Sales Logistics Utilities
New
Opportunities
Raw material
conditioning:
• Oil topping
• Partnership with
suppliers, logistics &
retailers
Other systems under
study:
• Tula – Salamanca
• Salamanca-Manzanillo
• Altamira-SLP
• Rosarito-Mexicali
• La Paz
• Other 6 projects
• Water treatment
• Hydrogen supply
• Nitrogen removal
• Dehydration and
desalting of crude oil
Ongoing Projects • Refineries’ upgrading
projects
• Ethylene oxide
derivatives
Procurement of transport
and storage services:
• Northern
• Peninsular
• Gulf-Center
• Transoceanic corridor
• Electricity
cogeneration
projects
10
Refineries’ Upgrading Projects
11
Specific Projects Tula, Salamanca and Salina Cruz Refineries
Objective
1. Capture coking margins (>6 USD/bbl)
2. Increase distillate production (>20%)
3. Keep/increase market share
4. Value creation (NPV ~ 4 US billion dollars)
CAPEX ~ 12.3 US billion dollars (Tula 4.8, Salamanca 3.4, SC 4.1)
Association
Goals
• Assimilation of managerial and operating best practices
• HR development
• Reduce CAPEX requirements
• Risk sharing
• Improve project execution (time & cost)
Ethylene Oxide (ETO) Derivatives
12
Morelos Cangrejera
• Pemex is the only producer of ethylene oxide in Mexico, a raw material for specialty petrochemicals (Ethoxylates)
• Domestic demand exceeds production of ethoxylates
• Business opportunities to increase production of ETO and MEG in the Southeastern Region. Estimate CAPEX of USD 200
million
• JV with a major player in the market where Pemex retains proportional share to its current assets/business
• Creation of an ETO corridor around the Morelos and Cangrejera petrochemical complexes
Investor PEMEX
Joint Venture Mechanism
JV
Capitalization
JV ETO/MEG
Hydrogen Supply and Nitrogen Removal
13
Specific Projects H2 supply for Tula, Salamanca, Madero,
Minatitlan and Salina Cruz
Objective
To develop a contract for H2 supply for the
clean fuels and refineries’ upgrading projects (>
280 MMSCF)
CAPEX > USD 400 million
Association
Goals
• Asset monetization
• Focus on core operations
• Reduce CAPEX requirements
N2 removal from natural gas
To meet natural gas specs
USD 200 million
• Asset monetization
• Focus on core operations
Water Treatment & Oil Treating and Conditioning
14
• Requirements for efficiency and quality improvements
• Divest existing assets to JV’s with specialized third parties and Pemex minor participation with the 30%
monetization of the current Pemex assets for this new JV
• Competitive cost through regional service contracts to meet quality and efficiency standards, operational
improvements & new investments
• Capture business opportunities for refining of available competitive light crudes
Investor PEMEX
Joint Venture Mechanism
JV
Capitalization
JV Water Treatment / Oil T&C
Subsidiary
Logistics Infrastructure
15
• Crucial services to be competitive in the most profitable/objective markets
• Huge opportunity to obtain financial resources through S&LB or MLP schemes, 14,172 km of existing pipelines and 10,000 mb
of storage capacity
• Opportunities to build new infrastructure to competitively supply profitable markets and capture arbitrages and business
opportunities
• Competitiveness through service contracts with specialized third parties
1. Transoceanic Corridor: USD 1,700 million, 594 km of pipelines,
500 mb storage capacity, port expansion, to take advantage of
Tehuantepec Isthmus for crude, gas and liquid fuels.
2. Golf-Center System: USD 770 million, 318 km of pipelines, 1,045
mb of storage capacity, port expansion, to supply the biggest
demand markets (Mexico City, Guadalajara and Bajio).
3. North System: USD 300 million, 80 km of pipelines, 105 mb of
storage capacity, to efficiently supply third biggest market and
northern region
4. Peninsular System: USD 350 million, 329 km of pipelines, 350 mb
of storage capacity, port expansion, to efficiently supply Yucatan
Peninsula and Cancun Area (2nd busiest airport in Mexico).
1
4
3
2
Final Statement
• The Energy Reform is a reality and offers great business opportunities
• Pemex is a reliable and attractive partner to do business in Mexico
• We are looking for third parties to carry out all activities that are not our core
business
• Transport and storage projects in Mexico are Pemex’s most important goal under the
actual capacity and storage constraints
• We are developing new collaboration schemes for different type of players
• We are aiming to develop win-win, long term relationships with our partners
16
