Third IEF - IGU Ministerial

Gas Forum Panel Session 2: Enhanced dialogue and

cooperation for strengthened energy security

November 2012

Contents

1. Background

National framework

Infrastructure

Injection points and imports capacity

2. Change of paradigm

LNG 2008 Strategy in Mexico

Natural gas prices

3. New Strategy

Gas pipeline expansion in Mexico

Shale gas around the World

Shale gas production in Mexico

Background: National framework

Upstream Downstream

Storage

Services

Industrial

Residential

Distribution Transport

Sour gas

Sweetening plants

Cryogenic plants

Acid gas

Ethane, Butane

Naphtha

Imports: CFE, PGPB and privates

Dry gas

Natural Gas Industry in Mexico

SNG pipelines (9,753 km)

Private pipelines (1,789 km)

LNG terminals

Compression stations

NACO

EL SAUZ

GLORIA A DIOS

EL SUECO

CHÁVEZ

SANTA CATARINA

VALTIERRILLA

LOS ALGODONES

ROSARITO

LOS RAMONES

ESTACIÓN 19

EL CARACOL

LOS INDIOS

EMILIANO ZAPATA

CÁRDENAS CD. PEMEX*

CEMPOALA

LERDO

CHIMANECA

Background: Infrastructure

Total existing pipelines in 2011 11,542 km

* Sistema Naco-Hermosillo

*

Manzanillo

1

2

3

4 5 6 7 8 9

1. Reynosa – Burgos 2. Arenque 3. Poza Rica 4. Matapionche 5. Coatzacoalcos 6. La Venta 7. Nuevo Pemex 8. Ciudad Pemex 9. Cactus

Total gas processing plants in 2011 9

Altamira

Ensenada

Background: injection points and imports capacity

Source: CRE. June 2012.

Private pipelines Pemex pipelines

TIJUANA MEXICALI

LOS ALGODONES

NOGALES NACO

NACO- AGUA PRIETA AGUA PRIETA

CD. JUÁREZ SAN AGUSTÍN VALDIVIA

CD. ACUÑA PIEDRAS NEGRAS

CD. MIER- MONTERREY

GULF TERRA KINDER MORGAN

TETCO TENNESSEE

RIO BRAVO

Injection point

Acuña, Coahuila

Agua Prieta, Sonora

Altamira, Tamaulipas

Argüelles, Tamaulipas

Cd. Juárez, Chihuahua

Ensenada, Baja California

Gloria a Dios, Chihuahua

Los Algodones, Baja California

Mexicali, Baja California

Monterrey, Nuevo León

Naco, Sonora

Nogales, Sonora

Piedras Negras, Coahuila

Reynosa, Tamaulipas

Río Bravo, Tamaulipas

ENSENADA

Operating

LNG import capacity

MANZANILLO

ALTAMIRA

Change of Paradigm: LNG 2008 strategy in Mexico

LNG projects in 2008

Operating

Projected

In tender

Ensenada

Manzanillo

Topolobampo

Puerto Libertad

Altamira

El Dorado

Salina Cruz

Yucatán

Lázaro Cárdenas

The USA was also contemplating the construction of 42 regasification plants, in order to meet the projected demand.

In 2008 Mexico’s natural gas supply strategy considered several LNG projects

Change of paradigm

Natural gas strategy changed dramatically as a result of the shale gas revolution in the USA.

Shale gas new wells initial production (cubic feet per day)

1,400 1,500 1,530 1,770

2,700

3,700 4,200

2005 2006 2007 2008 2009 2010 2011

Source: Simmons & Company, “Perspectives on the Eagle Ford, November 2011”.

In 2011, shale gas represented 30% of total natural gas production in the USA.

0

10

20

30

40

50

60

70

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

U.S. natural gas production by source (billion cubic feet per day)

Shale gas

Tight gas

Non-associated onshore

Alaska

Associated

Non-associated offshore

Source: U.S. Energy Information Administration, Annual Energy Outlook 2012.

200%

CBM

$3.90/6.30 Southern California

$ 3.69/6.72 Nymex Henry Hub

$4.55 Algonquin

$3.61/6.30 Reynosa

$10.54 UK NBP

$10.31/6.06 Holland TTF

$12.66/6.62 Italy PSV

$10.05/8.00 India

$13.30/8.25 China

$13.15/8.50 Japan

$13.15/7.50 South Korea

$10.35 Germany EGT

2012*/2007**

Change of paradigm: Natural gas prices

Source: Pemex Gas y Petroquímica Básica and the Platts International Gas Report.

A substantial increase in the supply of this fuel in the USA, as well as in its reserves, has radically altered international relative prices, making North America the region with the world's cheapest gas.

* October 31 2012, spot prices (USD/MMBtu) ** September 2007, spot prices (USD/Mmbtu)

New Strategy: Gas pipeline expansion in Mexico

El Castillo (2012)

Golfo (2014)

San Rafael (2014)

A

B

C

Compression stations

Los Ramones (2014) D

15,498 km

Final network

+42%

6,326 MMCFD

10,928 km

2010

+500 MMCFD

+313 km 2011

+2,100 MMCFD

+1,221 km 2017

+1,470 MMCFD

+630 km 2013

+670 MMCFD

+365 km 2014

+1,606 MMCFD

+2,041 km 2016

A

C

B

D

Investment

7,826 MMUSD

New Strategy: Shale gas around the world

Source: “World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States”, Energy Information Agency (EIA) USA. April 2011.

Technically Recoverable Shale Gas Resources

(trillion cubic feet tcf)

China 1,275

USA 862

Argentina 774

Mexico 681

South Africa 485

Australia 396

Canada 388

Algeria 231

Brazil 226

Poland 187

France 180

India 63

UK 20

Mexico has a great potential to exploit shale gas. At the current production rate, shale gas could boost up natural gas reserves up to 60 years.

New Strategy: Shale gas production in Mexico

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2011 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 2026

National production

Net imports

Domestic demand

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2011 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 2026

Million cubic feet daily

National production

Net imports

Domestic demand

The NES scenario has a greater production of natural gas, related to shale gas exploitation, reducing imports. Even when domestic demand raises.

In contrast, in the BAU scenario, exploitation of shale gas is limited, as a result imports will increase in order to supply domestic demand, which is also driven down by a limited offer.

Million cubic feet daily