© 2013 Platts, McGraw Hill Financial. All rights reserved.

Natural Gas in Mexico: Opportunities for North American partners

Rick Notarianni, Senior Energy Analyst Consulting Services

November 20, 2013

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2

Bentek is bullish on Mexico based on three economic factors:

(1) Electricity generated by North American natural gas beats oil and LNG

(2) The market for LNG is volatile

(3) The US is so oversupplied that the sell-side is desperately searching for a new demand source

US Gas Production to grow 14 Bcf/d by 2018. Total US demand is expected to grow by 10 Bcf/d, pushing the US market to be net oversupplied on an annual basis by 2017.

By 2018, U.S. exports to Mexico forecast at 3.4 Bcf/d with risk of at least 1 Bcf/d of additional growth if Mexican LNG import cargoes are diverted and Mexican production growth remains flat.

Key Takeaways

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$ M

MB

tu

U.S. Dry Natural Gas Production

Dry Gas Production Henry Hub cash

Shale gas technology increases supply and eliminates

volatility as demand cannot match supply growth

4 Source: BENTEK Supply and Demand Report

Growing to 81 Bcf/d by 2018

US Supplies this year grow and should finish year strong

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Bcf

/d

US production and Henry Hub Cash price relationship

US Dry Production CellCast Henry Hub Forward Curve (est.)

Hen

ry Hu

b C

ash P

rice/ MM

Btu

Maintenance completed. Expansion project into New York City comes online. Projected to average above 65 Bcf/d by the end of the year

Onshore & Offshore maintenance

Adding the demand component makes production growth more stark

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US Balance becoming increasingly Longer

LNG Offshore Production Onshore Production US Demand Market Balance6

Declining Canadian imports and decreased storage utilization

U.S Market Continues to Lengthen

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Bcf

/d

U.S. Supply/Demand Balance

Dry Production US Production Forecast

US Demand US Demand Forecast

16%

12%

25%

33%

Source: BENTEK Market Call – Long Term

Mexican Demand Outpacing Production

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Mexico - Dry Gas Production Flat

Up 0.6 Bcf/d 2008 - 2013

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Mexico - Gas Demand

Power Burn Industrial Demand Other Demand

Up 1.6 Bcf/d 2008 - 2013

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Mexico - LNG Imports

Up .145 Bcf/d 2008 - 2013

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Mexico - Gas Imports from U.S.

Up 1 Bcf/d 2008 - 2013

New Demand Projects Double Exports

9

Mexican Power Expansion 2013 – 2025 17,405 MW

2.5 Bcf/d @ 80%; 7.5 heat rate

$10 Billion Pipeline Expansion Program:

• 9 Major Pipeline Groups; • 17 Pipeline Expansions; • 7 Border Crossing Projects; • 4 Bcf/d US Import Capacity Increase $0.00

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$/M

MB

tu E

qu

ival

en

t

HH Brent WTI

$13.00-$15.00 (USD) Spread between HH and WTI/Brent

Texas supply creates need to move supply at a more rapid pace

Freeport

Factors • Declining San Juan Production and

Growing Power Demand Coupled with New Expansion to MX Pull More Supply Into the SW Market.

• TX Production Growth is Supported by Strong Rates of Returns and Associated Gas Volumes. High Btu Plays Support Declines in Lower Btu Plays.

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TX Production Growth

TX Forecast SE Projection Mexico

Supply Growth 6.6 Bcf/d

10

Mexico & Southwest

Southeast

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Eagle Ford to grow to 9 Bcf/d by 2018

Currently near 6 Bcf/d

Eagle Ford: Production to Accelerate

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Major focus on oil and NGLs driving growth in the Eagle Ford

Current Rig Count of 245 Will Grow Eagle Ford to 9 Bcf/d

Around 1.4 Bcf/d of processing came online in the last year, with an additional 1.7 Bcf/d expected in the next year.

El Paso South Mainline Capacity Will Supply Mexico Demand

12

Cornudas capacity: 2.3 Bcf/d

1.5 Bcf/d or 68% of capacity consumed by Mexico

2.2 Bcf/d of export capacity

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MM

cf/d

Southwest Exports continue to grow, but waiting for infrastructure in Mexico

Monument 90, PEMEX - Douglas, AZ Aqua Prieta Pipeline - Douglas, AZ Mexicana de Cobra - Douglas, AZ

Pemex off Willcox Lateral - Douglas, AZ Samalayuca Pipeline - Clint, TX Tarahumara Interconnect Norte Crossing

New Demand Projects Double Exports

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Project Name Capacity City StateIn-Service

Date

El Paso Willcox Lateral 2013 Expansion 185 Douglas Arizona 4/1/2013

El Paso Norte Crossing* 366 Clint Texas 8/1/2013

El Paso Samalayuca Lateral* 237 Clint Texas 8/1/2013

Kinder Morgan Mier Monterrey Expansion 275 Salineno Texas 4/1/2014

TETCO South Texas Expansion 300 Reynosa Texas 6/1/2014

El Paso Sierrita Pipeline** 812 Sasbe Arizona 10/1/2014

Net Midstream/PEMEX -- Agua Dulce - Frontera 2,100 Reynosa Texas 11/1/2014

Total Export Capacity Additions 4,275

Total U.S. Export Capacity with Expansions 9,648

* Samalayuca and Norte Crossing exports are limited to a total of 545 MMcf/d by current Samalayuca

lateral capacity. **Sierrita is expected to have an initial capacity of 0.2 Bcf/d, expanding to 0.8 Bcf/d by

2016. Samalayuca presidential permit for exports is 545

Mexican Border Crossing Expansions

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Bcf

/d

Mexican Exports to Average 3.4 Bcf/d by 2018

Texas to Mexico Southwest to Mexico Texas Forecast Southwest Forecast

Gracias

Rick Notarianni

Senior Analyst-Consulting Services

rnotarianni@bentekenergy.com

BENTEK is an energy market analytics company, focused on the natural gas, NGL and oil markets. DISCLAIMER. THIS REPORT IS FURNISHED ON AN “AS IS”BASIS. BENTEK DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BENTEK MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BENTEK MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE. RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BENTEK BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

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Years

Barnett Fayetteville Haynesville Marcellus Eagle Ford

Haynesville (‘07)

Marcellus (‘09)

Fayetteville (‘05)

Barnett (‘02)

Shale Gas Development Rates Are Increasing

Eagle Ford (‘10)

Source: Bentek

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IRR

$2 $3 $4 $5

Diverse Resource Base Maintains Pressure on Gas Prices

Most Plays Win Even at $4.00 Gas Prices

Note: Oil $80 NGL 30% of Crude

Support U.S. Production in Weak Price Environment Higher Pricing Drives Dry Gas Growth

Lower Gas Price Sensitivity High Gas Price Sensitivity

LNG Terminal Altamira

• Regasification Capacity: 3.8 mtpa (0.51 Bcf/d)

• Storage capacity: 300,000 m3 (6.2 Bcf)

• Existing contracts with Total and Shell are expected to be at HH discount

• Altamira terminal is contracted to supply Mexico’s federal power authority (CFE) with up to 183.5 Bcf per year under a 15 year contract which started in 2006

• Imports to Altamira terminal are primarily slated to support industrial activities in the north-east part of the country

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/d

Altamira LNG Imports

Qatar Nigeria Peru Yemen Trinidad and Tobago Qatargas Contract

LNG Terminal Manzanillo

• Regasification Capacity: 3.8 mtpa (0.51 Bcf/d) • Storage capacity: 300,000 m3 (6.2 Bcf) • Owners: Japan's Mitsui (37.5%), South Korea's Kogas (25%) and Samsung (37.5%) • Existing contract for delivering cargoes from Repsol’s Peru LNG for 0.66 mtpa (80 MMcf/d)

through 2015 when volumes will increase to 3.7 mtpa (500 MMcf/d) until 2027. Priced at ~90% Henry Hub

• Mexican buyers CFE and PEMEX opened buy tenders for as many as 31 cargoes combined to be delivered to Mexico's Manzanillo through December2014

• CFE has awarded 19 cargoes to Trafigura, 8 cargoes to BP and two cargoes from RWE • Trade sources report cargoes were awarded to Trafigura at around a $1.50/MMBtu premium

to the JKM • CFE owns all the import capacity at the terminal • About 60% of the volumes will go to Pemex for delivery to its industrial customers • CFE will use the other 40% for its power plants

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Manzanillo LNG Imports

Peru Trinidad and Tobago Nigeria Spain Repsol Contract

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Bcf

/d

U.S. Imports Increase 3.8 Bcf/d by 2023

Production LNG Imports Imports from U.S. Total Demand

Lack of production growth and LNG

requires additional supply sources to

High Export Case: All LNG Cargoes Diverted; Mexican Production Flat