Committee on Gas and Committee on International Relations

Mexico Regulatory Reforms

Tuesday, February 11, 2020 | 2:45 – 3:45 pm

Mexico’s energy sector: a very brief history

1901 - first commercial oil

production

1938 - Oil Nationalization

1979 – Cantarell field starts production

2004 – Peak oil production

2008 – Calderon reform attempt

2013 – Peña Nieto Constitutional

reform

2015-18 – Oil rounds

2018 – AMLO election &

suspension of bidding rounds

2019 – uncertainty & institutional

erosion

Committee on Gas and Committee on International Relations

Mexico Regulatory Reforms

Tuesday, February 11, 2020

CCN-LAW.COM

Mexico’s Natural Gas Policy and Regulatory

Highlights under AMLO Administration

José María Lujambio

Winter Policy Summit 2020

February 11th, 2020. Washington, D.C.

Exploration & Production

• President AMLO leads a nationalist-statist-populist unstable coalition: energy

“sovereignty” focus, seeking to increase domestic production, strengthening

State-owned Pemex (and CFE).

• Suspension of E&P bidding rounds as well as farm-out schemes;

announcement of “new” fields (Quesqui), and some old-fashioned unattractive

service contracts.

• Ambiguous statements about hydraulic fracturing. MORENA initiative to ban it,

although generally, environmental enforcement does not seem to be a

government priority.

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Midstream & Downstream

• Controversy between CFE as shipper and pipeline transportation giants Sempra,

TransCanada, as well as Carso and Fermaca.

• Several months of uncertainty, impacting the whole economy.

• Diplomatic involvement.

• Agreement reached apparently supposes longer contractual terms but smaller rates per year.

• Major projects finalized (Sur de Texas-Tuxpan, Wahalajara system), but no new bids.

to the national grid

• Energy shortages in the Yucatan peninsula.

• Recently announced: Engie’s Mayakan pipeline will be connected

(SISTRANGAS) through a government-sponsored pipeline (Cuxtal I).

• Power generation: fossil fuels over renewable sources (CCGT projects – government

estimates 30 GW in next 30 years).

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What’s next?

• No significant constitutional or legislative changes should be expected.

• National Hydrocarbons Commission (CNH), but particularly Energy Regulatory

Commission (CRE) and environmental agency ASEA will be significantly weaker, with

less relative autonomy.

• CENAGAS as integrated system operator, now as purchaser for regular balancing

purposes. Storage is still a big need but projects slowed down.

• Market will keep growing: huge coverage opportunities, and end users always looking

for better options.

• Eventual domestic price hubs somewhere in the system’s main pipelines.

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CCN-LAW.COM

MANY THANKS

José María Lujambio

jmlujambio@ccn-law.com

Cacheaux, Cavazos & Newton, L.L.P.

Committee on Gas and Committee on International Relations

Mexico Regulatory Reforms

Tuesday, February 11, 2020

The Mexican Natural Gas Balance

February 2020

Mexican balance: declining domestic production

Domestic production is sharply declining. Investments would just curb the plunge without changing the trend.

Dry Gas Production (Mcfd)

913 739 698 627 497 365 316 242 163 101 61

26742757

26622415

1965

16001348

1232

898780 723

0

500

1000

1500

2000

2500

3000

3500

4000

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Processing facilities: 2015-18 annual decline of 1.3 Bcfd

Wellhead production: constant decline (except for Ixachi).

Ixachi: started injecting gas in 2019. Goal 2022: 0.6 Bcfd

From wellhead

From processing facilities

10

SYLLABUS

More than 50% of the Mexican natural gasdemand is met by imports:- Pipeline- US natural gas.- LNG regas facilities

(Manzanillo and Altamira).

Nat Gas Balance: pipeline imports2019: Natural gas imports through 21 cross-border receipt points.SISTRANGAS is supplied through 7 international interconnections (5 direct, 2 indirect).

Cross-border receipt points towards Mexico

0.23

0

0.19

0.28

1.94

0.35

0.07

0 0.5 1 1.5 2

(Rey) TPG

(Rey) TETCO

(Arg) Energy Transfer

(Arg) Kinder Morgan Border

Net Mex

(Mty) KM

(Jua) Gloria a Dios

SISTRANGASCross-border pipelines feedingSISTRANGAS

11

SYLLABUS

-

2,000.0

4,000.0

6,000.0

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Daily exports from US to MexicoMcfd

2019:5.1 BCF per day

8.35

1.351.2

2.6

0

3

6

9

12

15Import capacity Bcfd

Operating Ojinaga - El Encino San Isidro - Samalayuca Sur de Texas - Tuxpan

Expansion of the pipeline network: importcapacity from 8.35 to 13.5 Mcfd

Committee on Gas and Committee on International Relations

Mexico Regulatory Reforms

Tuesday, February 11, 2020