Energy Infrastructure in Mexico Gas and Power Generation November 2012 Lic. Carlos Ruiz Sacristán
Content Regulatory Framework for Gas and Power Generation Our Company participation in Mexico energy sector Investment Opportunities Energy Reforms Final Remarks 2
Regulatory Framework
Hydrocarbons legal and regulatory framework Current legislation allows private participation in the downstream segment of the industry, while the upstream and midstream continues to be under exclusive direct control of the state. In 1995, legal reforms allowed private participation in gas transportation, storage and distribution as well as marketing, imports and exports. Upstream: Exploration and Production Midstream: Gas Processing Downstream: PEMEX PEMEX Transport Storage Distribution Imports Exports Marketing Reserved to state Open to private participation Sempra participation 4
Electricity legal and regulatory framework In 1992, legal reforms allowed private participation in power generation The Mexican State has exclusive control of electric transmission and distribution Generation Transmission Distribution CFE CFE CFE Cogeneration IPPs Imports Exports Self supply Small-scale Reserved to state Open to private participation Sempra participation 5
Regulatory environment Sempra Energy Mexico s assets are subject to the jurisdiction of a wide variety of federal, state, and municipal authorities and regulations: Federal Energy Regulatory Commission (CRE) Ministry of Environment (SEMARNAT) Federal Competition Commission (COFECO) Ministry of Communications and Transportation (SCT) National Water Commission (CNA) Ministry of Labor (STPS) State and Municipal Land use authorities and regulations Civil protection authorities and regulations Construction authorities and regulations 6
Energy regulatory commission (CRE) Electricity Issue private sector generation permits for the activities allowed under PSEEL (Independent power production (IPP), self-supply, cogeneration, small-scale production; export and import) Review and approve the criteria for setting fees related to public electricity service Participate in setting tariffs for wholesale and final sale of electricity Verify that CFE and LFC purchase electricity at the lowest cost and also offer optimum stability, quality, and safety of electric service Approve the methodologies for the purchase of electricity used in public service and electricity transmission, transformation and delivery services Natural gas Establishes First Hands Sales (FHS) the regulation only pertains to the sale of gas from PGPB to third-parties within Mexico Evaluation and award of transportation, storage and distribution permits Non-discriminatory open access and unbundling of services Establishes natural gas and LPG prices and rates Rate regulation: incentive based, 5 year reviews and yearly adjustments CRE undertakes a strict supervision of permit and regulatory compliance: Technical, accounting and financial reports are submitted to CRE on regular basis Independent experts perform visits and issue reports for CRE on technical compliance CRE personnel perform site inspections to confirm full regulatory compliance Economic standards are set through Directives Technical standards set through Official Norms (NOMs) 7
Our company in the energy sector in Mexico
Sempra Energy Sempra Energy was created in June 1998 through the merger of Pacific Enterprises and Enova The Sempra Energy companies develop energy infrastructure, operate utilities, and provide related products and services to more than 31 million consumers worldwide Ranked #266 on the 2012 list of Fortune 500 companies Market Cap (1) ($ millions) $16,940 Assets (2) ($ in millions) $34,045 Revenues (3) ($ in millions) $10,036 Number of Employees (3) 17,500 Dividend Yield (1) 3.5% Number of Utility Customers (3) 8.9 million SDG&E 1.5 million SoCal Gas 5.8 million International 1.6 million 1) Equity values as of July 25, 2012 2) Per 1 st quarter 2012 10Q filing 3) Per 2011 10K filing 9
Sempra Mexico Sempra Energy was one of the first private companies to enter into the energy infrastructure business in Mexico in the late 90s as a result of the changes in energy regulation in 1995 During the last 15 years Sempra has significantly increased its presence in the Mexican energy sector through green-field development, organic growth and acquisitions Currently we have invested approximately US$2.4 billion and have more than 400 employees across Mexico Proven track record in successful development and execution of large energy infrastructure projects Sempra s footprint in Mexico ranges across several business segments making it the only energy company active throughout the whole value chain: LNG Import Terminal Natural Gas Pipelines LPG Pipelines & Storage Natural Gas Distribution Power Generation 10
Market participation Sempra Mexico holds the leading private participant positions with pipelines & storage and LNG assets Natural Gas Pipelines (MMCFD) (a)(b) Transcanada 15% Fermaca 7% Pemex 38% Elecnor 2% Other 3% GDF Suez 3% Sempra 29% Kinder Morgan 3% Natural Gas Distribution (# of customers) LNG Terminals (MMCF) D KMS (Mitsui, Samsung, Kogamex) 25% Altamira (Vopak, Enagas) 25% Private Power Plants (MW) Energia Costa Azul (Sempra) 50% Sempra 4% Other 16% Sempra 5% Mitsubishi 12% AES 4% Mitsui 4% Other 1% Iberdrola 34% GDF Suez 22% Gas Natural Fenosa 58% Intergen 13% Gas Natural Fenosa 27% (a) Includes proportional share from JV interests (b) Includes the four bids recently awarded by CFE (Sempra Mexico won two) Sources: Prospectiva de Gas Natural 2010-2025, Comision Reguladora de Energia, Comision Federal de Electricidad and Prospectiva del Sector Electrico 2010-2025 11
Sempra Mexico Assets LNG: Regasification terminal in Ensenada, Baja California; two storage tanks of 320 Mmcfd capacity and 1.0 Bcfd of sendout capacity Pipelines (3) : Four natural gas pipeline systems with a total of ~450 km; six natural gas compression stations; one LPG pipeline of ~100 km; one LPG storage facility in construction Distribution (utility): Three local natural gas distribution networks (Chihuahua, Mexicali, La Laguna); ~90,000 customers Generation: Combined cycle plant at Mexicali, Baja California, 625 MW capacity; and 156 MW wind project currently in development (1) Reflects 100% of project; Sempra s net ownership expected to be 50% (2) In development (3) Includes 50% of the assets at Pemex JV 12
New CFE natural gas pipelines Northwest Mexico CFE recently issued bids for four new natural gas pipeline projects in Northwest Mexico for a total of ~ 2,000 km CFE s objective is to supply existing and new power plants Sonora and Sinaloa coast with efficient natural gas CFE contracts are for 25-years, fixed dollar denominated tariffs, take-or-pay capacity Winners are fully responsible for project development, rights of way, permits, engineering, construction and operations Sempra won 2 bids in October and will start operations between 2014 and 2016. Estimated total investment ~$1 billion 13
Investment Opportunities
Investment opportunities Mexico urgently needs to develop natural gas infrastructure in order to provide access to competitive gas supplies The Ministry of Energy has estimated that Mexico requires more than US$10.4 billion in natural gas transportation and distribution infrastructure by 2020 In addition, Mexico lacks underground storage which is essential for an efficient gas supply system; required investment in underground storage is estimated to be US$500 million CFE intends to add 16,300 MW of power generation by 2020. At least 70% of the new plants will be gas fired. The next administration intends to expand private participation in the energy sector. 15
Energy Reforms The next administration has clearly stated its intention to open new areas of the energy industry to private participation. Initial opportunities will probably be in the midstream and downstream infrastructure segments, particularly in petroleum products storage, pipeline transportation and distribution activities which are non-core for Pemex Pemex s storage, pipeline transportation and distribution infrastructure requires improvement and expansion. Additional opportunities may arise if private investment is allowed in electric transmission and distribution. Increased private participation in natural gas, petroleum products and electric infrastructure will necessarily bring additional opportunities in natural gas and electricity marketing. 16
Final Remarks and Q&A