Piecing together the puzzle of Mexican Energy Reform · Outside Storage - 130 acres Track Capacity...

Piecing together the puzzle of Mexican Energy Reform: 7 Business Opportunities

David Eaton, VP Sales & Marketing9/12/16

How did we get here?– Over time, Pemex became inefficient and bloated – reform

was needed What does the reform do?

– Breaks Pemex's integrated monopoly and opens the energy market to private participants

What’s in it for me?– Seven rail, port and transload business opportunities

Where do we go from here?– Logistics infrastructure for the midstream sector must

develop

Key Messages

1910 - United States, Dutch and English investments in the first Mexican oil fields

How did we get here?

1938 - Mexico nationalizes the oil industry and created Pemex

Over time, Pemex became inefficient and bloated. Reform was needed.

2013 - Mexico Energy Reform is passed

Sweeping reforms were made to the constitution and Mexican Energy reform became a reality

Mexico's President Enrique Pena Nieto

What does the reform do?

Breaks Pemex’s integrated monopoly and opens the energy market to private participants

Pemex trims down and stays in the fight:

Reduced focus/New contracting authority

Private investment in mature and new basins

9Source: SENER Plan Quinquenal de Licitaciones para la Exploración y Explotación de Hidrocarburos 2015-2019

Private sector midstream environment

New Retail Market

BrandingJanuary 1, 2016

ImportationApril 1, 2016

Price ControlsJanuary 1, 2018

7 Business Opportunities1. Importation of refined products (gasoline, diesel & biofuels)2. Importation of LPG’s3. Exportation of heavy fuel oil 4. Movement of steel pipe for natural gas transmission 5. Heavy Mexican crude from mature wells for US refineries6. US crude exports for Mexican refineries7. Importation of frac sand

What’s in it for me?

Topography of Mexico

Gaps in the Pipeline Network

Sources: SENER and Pemex 14

Saltillo

KCSM Network

Saltillo

San Luis PotosiKCS Bridges the Gap

REFINING CAPACITY

MINATITLANRefining Capacity: 246,000 bpd% Capacity Utilization: 71.95%

Serving Carrier: FSRR

Sources: Reuters1, Reuters2, Bloomberg, T21

SALINA CRUZRefining Capacity: 330,000 bpd% Capacity Utilization: 89.58%

Serving Carrier: FIT

CADEREYTARefining Capacity: 275,000 bpd% Capacity Utilization: 64.85%

Serving Carrier: KCSM

MADERORefining Capacity: 190,000 bpd% Capacity Utilization: 84.99%

Serving Carrier: KCSM

SALAMANCARefining Capacity: 245,000 bpd% Capacity Utilization: 61.70%

Serving Carrier: KCSM through FXE haulage

TULARefining Capacity: 315,000 bpd% Capacity Utilization: 88.09%

Serving Carrier: FXE

1.27 Mbbl/day

Demand in Mexico is increasing

Mexican production is dropping

Exports from the United States will grow

Theft is a concern KCS bridges the gap in the

pipline networkResult…

Product shortages in emerging

population centers

1. Importation of refined products (gasoline, diesel & biofuels)

Refined products

DestinationOrigin

Huehuetoca

Houston Area: multiple refineries/origins

POBBy Ship

Tampico

Veracruz

KCS bridges the gap to reach key markets in central Mexico

2. Importation of LPGs

Demand exceeds supply in Central Mexico Mexico - Highest per-capita

residential/commercial consumer of LPG in the world

8 out of 10 homes uses LPG

30% of demand is imported –growing

KCS rail bridges the gap in the current distribution system

3. Exportation of heavy fuel oil

Pemex cannot convert heavy fuel oil into pet coke or asphalt

Pemex refineries are old and generate a lot of heavy fuel oil

Uses:– Power generation– Bunker fuel

CFE has converted to natural gas - fuel oil inventories build

Heavy fuel oil out / natural gas in = inventories build

No capability to convert heavy fuel oil to asphalt or pet coke

High volume of fuel oil must be exported out Lazaro Cardenas and Brownsville

3. Exportation of heavy fuel oil

Suezmax ships in Lazaro Cardenas for HFO

Natural deep water PortMaximum vessel depth16.5 meters (54.13 ft)

4. Movement of steel pipe for natural gas transmission

Mexico’s Pipelines are Expected to Grow 89% from 2012-2018

An estimated 6,267 miles of pipe will be constructed

from 2012-2018

Los Ramones South pipeline project

• 291 Km pipeline Project (KCS moved +68 Km)

• Pipeline crosses: San Luis Potosí, Guanajuato and Queretaro states

Light crude from the US for Pemex refineries - increase production of refined products and less heavy fuel oil

Heavy Mexican crude from mature wells for US Gulf refineries

Crude Swaps – Business Opportunities #5 & #6

5. Heavy Mexican crude from mature wells for US refineries

Ebano basin - Mexican heavy crude for US refineries

KCSM L Line crosses the field Current production: 15,000 Bbls per day

Potential: 50,000 Bbls per day

Ebano Rail Project Delivery Options oil by rail from Ebony S.L.P. Contract Areas (Altamira Area)

Raya 5

Ébano 4

Escudo Nacional

Las Flores

E-114Méndez 2

Chijolito Chijol-D17

Ébano 3

K PacienciaP

G-Méndez

Corc. 5 Águila

Corc. 2 Águila

1 Sábalo

6 Internacional

A-21Oficinas Ébano

Proposed Stations

Actual pumping

G-Méndez

Gross: 6,500 blsWater: 8-12%°API: 10-12

Pipeline

Railroad

Refinería Madero

Crude storagespecification

Crude analysis to be dehydrated

Houston

6. Importation of US crude for Mexican refineries

Pemex's older refineries would benefit from lighter sweet crude from the US: KCS bridges the gap

7. Importation of frac sand

Fracking in Northern Mexico – When?

Zapata County, TX

Laredo, TX

Ciudad Miguel Aleman

Perspective Shale Basins of Eastern Mexico

34Source:www.grieta.org.mx

Low oil prices Efficiency of the US basins Existing infrastructure on the US side of the

border Lack of infrastructure on the Mexican side of

the border such as roads, terminals and water

When fracking begins in Northern Mexico, terminals will be needed

Fracking in Northern Mexico is a few years off

Reform is a reality The energy sector will open Pemex crude and refining production

continues to drop Social discontent with product shortages is

growing Product must be imported KCS bridges the gap Terminals are needed

Market Scenario

Terminals Coming Soon!

HoustonPt Arthur

Corpus Christi

Monterrey

San Luis Potosi

Queretaro

Lazaro Cardenas

Tampico

San Jose

Brownsville

Bronco Terminal – Corpus Christi(Origin, existing, potential unit train)

• Outside Storage - 130 acres Track Capacity - 300+ cars• Over four miles of track on 120 acres and a maximum capacity of 325 railcars• Commodities: Aggregates, catalyst, ethanol, frac sand, grain, petroleum coke, pipe, tubing

KCS lane

Greensport Houston Terminal(Origin, existing, unit train)

Rail Logistics, Warehousing, Transloading, Trucking & Project Management

Rangeland Terminal – Corpus Christi

• Will receive and store refined products and LPG to be shipped to Mexico• Located on KCS’ mainline.• Subsequent phases are expected to include a marine-based facility as well as additional

capacity to handle other commodities• Rangeland Energy said it expects the terminal to be in service by Q1 of 2017

(Origin, future, unit train)

T & R Terminals – Corpus Christi area

• 222 acres on the Laredo Subdivision in Realitos, TX for a multi-modal transload facility

• Services are liquid bulk transload and storage, dry bulk transload, railcar storage

• Origin terminal for liquid transload with gas pipeline that currently runs though the property

(Origin, future, unit train)

Bulkmatic in Monterrey - Manifest

Capacity: 150 cars Storage capacity:

No cover: 182,986 ft2Cover: 21,527 ft2

San Luis Potosi

Monterrey

(Destination, existing, manifest train)

Capacity: 65 cars

FR Terminales in Monterrey - Manifest

Monterrey

(Destination, existing, manifest train)

WTC Refined Products Terminal in SLP

Future FLUIDS & CARGO

TERMINAL

Rail to truck transload December 2016

(Destination, near future, unit train)

Marsori LPG Terminal in SLP

San Luis Potosi

Estimated start date December, 2016

(Destination, near future,unit train)

Howard Energy Diesel Terminal in San Jose Iturbide

Estimated start date October 2016

San Jose Iturbide

(Destination, near future, unit train)

Port of Brownsville - Maverick

Existing destination for heavy fuel oil and potential origin for refined products

San Luis Potosi

Queretaro

Destination Queretaro - existing LPG manifest and potential refined products unit train

Tula - Existing manifest transload for LPGs and refined products

AhorcadoTula

Potential unit train terminal for refined products

KCSM North Connection

KCSM Rail Line

FERROSUR Rail Line

Over pass Bridge

Intermodal Yard TILH Phase 1

Custom Area

FERROSUR South Connection

Bulkmatic Atitalaquia

Atotonilcode Tula

Atitalaquia

Existing unit train terminal for heavy fuel oil Existing LPG transload Potential destination for US light crude

Tula Heavy Fuel Oil Terminal

What will Pemex do with its 77 TARs?

Possible Frac Sand Terminals on the KCSM

KCSM B Line

KCSM F Line

Where do we go from here?

How did we get here?– Over time, Pemex became inefficient and bloated – reform

was needed What does the reform do?

– Breaks Pemex's integrated monopoly and opens the energy market to private participants

What’s in it for me?– Seven rail, port and transload business opportunities

Where do we go from here?– Logistics infrastructure for the midstream sector must

develop

Key Messages

Piecing together the puzzle of Mexican Energy Reform · Outside Storage - 130 acres Track Capacity...

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