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Piecing together the puzzle of Mexican Energy Reform: 7 Business Opportunities
David Eaton, VP Sales & Marketing9/12/16
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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
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1910 - United States, Dutch and English investments in the first Mexican oil fields
How did we get here?
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1938 - Mexico nationalizes the oil industry and created Pemex
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Over time, Pemex became inefficient and bloated. Reform was needed.
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2013 - Mexico Energy Reform is passed
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Sweeping reforms were made to the constitution and Mexican Energy reform became a reality
Mexico's President Enrique Pena Nieto
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What does the reform do?
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Breaks Pemex’s integrated monopoly and opens the energy market to private participants
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Pemex trims down and stays in the fight:
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Reduced focus/New contracting authority
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Private investment in mature and new basins
9Source: SENER Plan Quinquenal de Licitaciones para la Exploración y Explotación de Hidrocarburos 2015-2019
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Private sector midstream environment
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New Retail Market
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BrandingJanuary 1, 2016
ImportationApril 1, 2016
Price ControlsJanuary 1, 2018
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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?
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Topography of Mexico
A
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Gaps in the Pipeline Network
Sources: SENER and Pemex 14
SLP
Saltillo
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KCSM Network
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Saltillo
San Luis PotosiKCS Bridges the Gap
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REFINING CAPACITY
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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
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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)
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Refined products
DestinationOrigin
Huehuetoca
SLP
MTY
Houston Area: multiple refineries/origins
POBBy Ship
Rail
Tampico
Veracruz
KCS bridges the gap to reach key markets in central Mexico
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2. Importation of LPGs
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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
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3. Exportation of heavy fuel oil
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Pemex cannot convert heavy fuel oil into pet coke or asphalt
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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
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Suezmax ships in Lazaro Cardenas for HFO
Natural deep water PortMaximum vessel depth16.5 meters (54.13 ft)
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4. Movement of steel pipe for natural gas transmission
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Mexico’s Pipelines are Expected to Grow 89% from 2012-2018
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An estimated 6,267 miles of pipe will be constructed
from 2012-2018
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Los Ramones South pipeline project
• 291 Km pipeline Project (KCS moved +68 Km)
• Pipeline crosses: San Luis Potosí, Guanajuato and Queretaro states
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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
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5. Heavy Mexican crude from mature wells for US refineries
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Ebano basin - Mexican heavy crude for US refineries
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KCSM L Line crosses the field Current production: 15,000 Bbls per day
Potential: 50,000 Bbls per day
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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-112
E-114Méndez 2
E-M
Chijolito Chijol-D17
Ébano 3
E-41
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
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Houston
Tula
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
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7. Importation of frac sand
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Fracking in Northern Mexico – When?
Zapata County, TX
Laredo, TX
Ciudad Miguel Aleman
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Perspective Shale Basins of Eastern Mexico
34Source:www.grieta.org.mx
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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
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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
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Terminals Coming Soon!
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HoustonPt Arthur
Corpus Christi
Monterrey
San Luis Potosi
Queretaro
Lazaro Cardenas
Tampico
Tula
San Jose
Brownsville
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Bronco Terminal – Corpus Christi(Origin, existing, potential unit train)
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• 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
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Greensport Houston Terminal(Origin, existing, unit train)
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Rail Logistics, Warehousing, Transloading, Trucking & Project Management
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Rangeland Terminal – Corpus Christi
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• 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)
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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)
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Bulkmatic in Monterrey - Manifest
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Capacity: 150 cars Storage capacity:
No cover: 182,986 ft2Cover: 21,527 ft2
San Luis Potosi
Monterrey
(Destination, existing, manifest train)
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Capacity: 65 cars
FR Terminales in Monterrey - Manifest
Monterrey
(Destination, existing, manifest train)
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WTC Refined Products Terminal in SLP
Future FLUIDS & CARGO
TERMINAL
Rail to truck transload December 2016
(Destination, near future, unit train)
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Marsori LPG Terminal in SLP
San Luis Potosi
Estimated start date December, 2016
(Destination, near future,unit train)
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Howard Energy Diesel Terminal in San Jose Iturbide
Estimated start date October 2016
San Jose Iturbide
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(Destination, near future, unit train)
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Port of Brownsville - Maverick
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Existing destination for heavy fuel oil and potential origin for refined products
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San Luis Potosi
Queretaro
Destination Queretaro - existing LPG manifest and potential refined products unit train
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Tula - Existing manifest transload for LPGs and refined products
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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
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Bulkmatic Atitalaquia
Atotonilcode Tula
Atitalaquia
Existing unit train terminal for heavy fuel oil Existing LPG transload Potential destination for US light crude
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Tula Heavy Fuel Oil Terminal
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What will Pemex do with its 77 TARs?
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Possible Frac Sand Terminals on the KCSM
KCSM B Line
KCSM F Line
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Where do we go from here?
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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
55
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