Mexico Gas and Power Reform Review: From … IHSMexicoFeb09.pdfMexico Gas and Power Reform Review: From concept to reality Ed Kelly, Managing Director, +1 832 209 4524, [email protected]

© 2016 IHS

ihs.com

IHS ENERGY

Mexico Gas and Power Reform Review: From

concept to reality

Ed Kelly, Managing Director, +1 832 209 4524, [email protected]

Lisa Pearl, Senior Director, + 1 617 866 5383, [email protected]

David Crisostomo, Associate Director, +52 55 3067 6442, [email protected]

February, 2017

, LATIN AMERICAN GAS AND POWER

For Gas/Electric Partnership 2017: Opportunities in Infrastructure

mailto:[email protected]



© 2016 IHS

Copyright notice and disclaimer

© 2017 IHS. All rights reserved.

No portion of this presentation may be reproduced, reused, or otherwise

distributed in any form without prior written consent of IHS.

This presentation is not to be construed as legal or financial advice, use

of or reliance on any content is entirely at your own risk, and to the extent

permitted by law, IHS shall not be liable for any errors or omissions or

any loss, damage, or expense incurred by you or your organization.

2

Mexico Gas and Power Reform Review: From concept to reality

© 2016 IHS

Mexico’s new gas and power sectors: Still under

construction

3


Constitutional

reformAdministrative

regulations

Transference of

resources from CFE

to CENACE

Secondary

legislation

Operating entities

CENAGAS and

CENACE

Transference of

resources from

PEMEX to CENAGAS

Wholesale power

market

Plan for the

implementation of

the gas market

Indicative power

sector plan

(PRODESEN)

Five-year pipeline

development plan

Gas price

liberalization

Financial

transmission rights

Power capacity

marketSistrangas open

season

CFE separation

terms

Power tariff

regulationsClean energy

certificates market

Effective open

access to gas

pipelines

Contract release

program from

PEMEX

First and second

power auctions

© 2016 IHS 4

Mexico’s gas and power market fundamentals


© 2016 IHS

Pipeline imports have outpaced the share of domestic

production

5


© 2016 IHS.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Jan-1

1

Ma

r-1

1

Ma

y-1

1

Jul-1

1

Sep-1

1

No

v-1

1

Jan-1

2

Ma

r-1

2

Ma

y-1

2

Jul-1

2

Sep-1

2

No

v-1

2

Jan-1

3

Ma

r-1

3

Ma

y-1

3

Jul-1

3

Sep-1

3

No

v-1

3

Jan-1

4

Ma

r-1

4

Ma

y-1

4

Jul-1

4

Sep-1

4

No

v-1

4

Jan-1

5

Ma

r-1

5

Ma

y-1

5

Jul-1

5

Sep-1

5

No

v-1

5

Jan-1

6

Ma

r-1

6

Ma

y-1

6

Jul-1

6

Pipeline imports LNG imports Domestic production

Historical monthly gas supply in Mexico by source

Source: IHS Energy, EIA, Ministry of Energy (SENER)

Bcf/

d

Domestic production

has declined 30%

since January 2011

Incremental spot

LNG purchases

LR I/Net Mexico

pipelines online

Pipeline imports surpass

domestic production;

peak 4.2 Bcfd Aug

© 2016 IHS

© 2016 IHS

Increasing gas demand from power sector and uncertain recovery

of domestic production pave the way for additional pipeline imports

from the United States

6


© 2016 IHS.

0

2,000

4,000

6,000

8,000

10,000

12,000

2015 2017 2019 2021 2023 2025 2027 2029

Domestic production Pipeline imports LNG

Natural gas supply outlook

Source: IHS Energy © 2016 IHS

MM

cf/

d

0

2,000

4,000

6,000

8,000

10,000

12,000

2015 2017 2019 2021 2023 2025 2027 2029

Industry Power Oil Residential Transport

Natural gas demand outlook


MM

cf/

d

© 2016 IHS

Natural gas market outlook : Infrastructure

7

Mexico’s Gas Market Fundamentals Report / September 2016

Mexico’s natural gas pipeline expansion plan

The majority of new pipeline capacity has been driven by CFE. Over the past few years, it has

awarded 16 projects with total investment of nearly $10 billion.*

* See annex for additional details on pipelines.

© 2016 IHS. All rights reserved. Provided “as is”, without any warranty. Maps in this document are not to be

reproduced or disseminated and are not to be used nor cited as evidence in connection with any territorial

claim. IHS is impartial and not an authority on international boundaries which might be subject to unresolved

claims by multiple jurisdictions.

8

The Northwest, West, and Central regions will become the fastest

growing consumers of gas

Compound annual growth rate by region

Baja California Northwest North Northeast East and

Peninsular

Central West

2015–20 3.3% 18.6% 4.8% 1.1% 1.1% 4.5% 5.5%

2020–30 4.4% 2.1% 2.1% 2.2% 2.1% 2.3% 3.1%

Source: IHS © 2016 IHS


© 2016 IHS.

0

2,000

4,000

6,000

8,000

10,000

12,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

East & Peninsular Northeast Central West Northwest North BC

Regional demand outlook


MM

cf/

d

© 2016 IHS

Natural gas pipeline flow directions 2020

Natural gas pipeline flow directions in 2020

88

9

9

Natural gas flows (MMcf/d)

Interregional flows

LNG imports

Domestic gas-to-market





claims by multiple jurisdictions.Source: IHS

26

1(2

62*)

40

5(3

40*)

19

72

(355*)

29

59

(1928*)

* Values for 2015.

© 2016 IHS 10

Natural gas pipeline flow directions in 2026

21

3

56

4

23

42

38

16

89

8Natural gas flows (MMcf/d)

Interregional flows

LNG imports

Domestic gas-to-market

Natural gas pipeline flow directions 2026





claims by multiple jurisdictions.Source: IHS

© 2016 IHS

Gas fired units dominate future power generation despite clean

energy targets: 2018—25%, 2021—30%, 2024—35%

11


© 2016 IHS.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

50

100

150

200

250

300

350

400

450

500

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Nuclear Hydro Geothermal Coal Natural gasOil Wind Solar Biomass and waste Demand growth

Electricity generation by fuel type


TW

h

Annual mix 2015 2030

Nuclear 4% 2%

Hydro 10% 10%

Geothermal 2% 2%

Coal 11% 6%

Natural gas 55% 65%

Renewables 3% 16%

© 2016 IHS

Most of Mexico’s new gas-fired power plants should come online in

the northern states and central-west


12

Regional new gas fired capacity outlook (2016–30)

BCS

2.1 GW

5.6 GW

0.7 GW

2.2 GW

4.2 GW

5.1 GW

4.6 GW

0.5 GW

7.3 GW

© 2016 IHS 13

From concept to reality (?)


© 2016 IHS

Gas and power sector reforms leading the change in the

energy industry

14


© 2016 IHS.

2016 2017 2018

Gas price

liberalization

Financial

transmission rights

Power capacity

market

Sistrangas open

season

Power tariff

regulations

Clean energy

certificates market

Effective open

access to pipelines

Contract release

program from

PEMEX


© 2016 IHS

CFE’s separation is key to enable private participation

15


© 2016 IHS.

Generation Distribution

Basic consumer

group

Transmission

Qualified

consumer group

Fuel trading

Separation: CFE has created the following number of subsidiaries, affiliates, or entities

Final consumer supply

These activities will be performed on an independent and strict legal separation basis.

One subsidiary

CFE Basic supply

One subsidiary

CFE Distribution

One subsidiary

CFE Transmission

Six

subsidiaries

Gen. I–VI

One business

unit

CFE Nuclear

CFE

Affiliate

CFE Qualified

supply

Affiliate

CFE Energia

CFE

International

One affiliate

CFE Legacy interconnection contracts

CFE’s restructuring as mandated by SENER


© 2016 IHS

Further split of CFE generation is expected to reduce

market power

16


© 2016 IHS.

CFE’s installed capacity accounts for 80% while its generation share is nearly 85% on Mexico’s total

Note: LIE = Power Industry Law; Legacy permits include self-supply, cogeneration, small power producers; CFE Nuclear has 1.5 GW and has a 4% generation share.

Source: IHS

Gen I Gen II Gen III

Gen IV Gen V Gen VI

11.3

1.4

0.3

54.8

CFE LIE permit

Export Legacy permits

Mexico’s total installed

capacity in 2015

(GW)

Total capacity: 7.1 GW

Generation share: 9%











© 2016 IHS

© 2016 IHS

The first open season should be a first indication of the

new market configuration

17


© 2016 IHS.

CFE and PEMEX capacity booking

Acquired rights for existing shippers

Capacity available for new shippers

■ Pemex and CFE will reserve

the capacity required for

operational needs

■ CRE has established the

maximum amount of capacity

that CENAGAS may allocate

in this round as follows:

- PEMEX = 1,392 MMcf/d

- CFE = 1,121 MMcf/d

■ Group 1—First priority group

■ Gas consumers whose

capacity rights will be based

on the 2010 and 2011 data

collection by Pemex.

■ Consumer will have the right

to bid capacity by injection

point

■ Total capacity will be the

residual of Round 1

■ Group 2—Last priority

group

■ Existing shippers needing

additional capacity and new

shippers

■ Shippers will bid for

trajectory (injection and

extractions points)

■ Capacity will be residual of

previous rounds

Round 1 Round 2

■ Firm reserved capacity will have a contract length of one year—March 2017 to February 2018

■ Contracts might be renewed for up to three years more only of the capacity effectively used

■ Capacity allocation will be based on the unit cost bid by the

shippers

© 2016 IHS

Despite the operation challenges, CENAGAS is expected to

start operating under the capacity reserve regime shortly

18


© 2016 IHS.

Source: IHS Energy

2016 2017

Day 1

27 Oct 28 Nov 26 Dec 2 Jan 25 Jan 30 Jan 1 Mar 15 Mar

Day 99

CENAGAS to

publish available

capacity

Open

season

results

Period to

solve any

difficulties

Potential shippers can

submit requests for

service

Evaluation of

requests

Sign of natural gas

transportation agreements

SISTRANGAS will start

operating under the capacity

reserve regime

CRE will present a

progress report

Main processes and milestones of the SISTRANGAS open season

CFE and PEMEX capacity booking

Acquired rights for existing shippers

Capacity available for new shippers

© 2016 IHS

© 2016 IHS

The new regulatory framework is moving rapidly to the

“details” phase, but uncertainties remain

19


© 2016 IHS.

Indicators of progress toward an open/competitive system

• Clear goals and the willingness to learn from international experienceRegulatory persistence

• Aggressive, defined markers and a track record of meeting themRapid timeliness

• Consumers, marketers, and producers are taking steps to operate effectively in the new environment; not generally obstructing this process

Industry adaptiveness

• A key enabler, providing for a likely much more rapid transition than in the United States and EuropeTechnological advances

• Especially import capability, allows system flexibility (linepackstorage), enables market growthExcess pipeline capacity


© 2016 IHS 20


© 2016 IHS.

• Roles of CFE and Pemex—Potentially dominant organizations in many parts of Mexico,

despite capacity release

• Operational details and unintended consequences—Imbalance management, gas

allocation, lack of storage

• Market acceptance of firm transport capacity charges and rate uncertainty—While

much of Mexico is and will be “overpiped” for some time

• Marketer interest longer term—Very high for now, but…?

• Potentially attractive margins in a developing marketplace

• New and growing customer base

• Sophisticated, concentrated customer base and excess pipes may quickly erode margins?

• The greater the success in this opening, the quicker the margin erosion

• Who will underwrite future pipeline capacity?—Uncertain in a flush market with

competitive power system

• The real size of the pie—Longer-term demand growth with renewables penetration,

economic uncertainty, potential political change

• Mexico will remain a demand-pull market for a long time—Producers will not be able to

“push” supply into Mexico. Discoverable, tradeable basis and market liquidity will take time

to develop – if all goes “right.”

Remaining questions: Signposts to watch

© 2016 IHS 21

Thank You

If you have questions about today’s presentation,

please contact us!


E-mail

[email protected]

Phone

Americas: 844-301-7334

EMEA: +44 (0) 13 44 32 81 55

APAC: +60 (0)4291 3763

IHSTM Energy

COPYRIGHT NOTICE AND DISCLAIMER © 2016 IHS. For internal use of IHS clients only.

No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS. Content

reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable, but its accuracy and completeness are not warranted, nor are the

opinions and analyses that are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage, or expense incurred by reliance on information or any statement contained herein. In particular,

please note that no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, forecasts, estimates, or assumptions, and, due to various risks and uncertainties, actual events

and results may differ materially from forecasts and statements of belief noted herein. This report is not to be construed as legal or financial advice, and use of or reliance on any information in this publication is entirely at client’s own risk. IHS and the

IHS logo are trademarks of IHS.

IHS Customer Care:

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

22


Documents

Mexico Gas and Power Reform Review: From … IHSMexicoFeb09.pdfMexico Gas and Power Reform Review: From concept to reality Ed Kelly, Managing Director, +1 832 209 4524, [email protected]