Opening of the Lng Market in Mexico

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OPENING OF THE LNG MARKET IN MEXICO

Miriam GrunsteinAssociate

Thompson & Knight Abogados

Mexico City, [email protected]

Skip Maryan J r.Of Counsel

Thompson & Knight LLPHouston, Texas, United States of America

[email protected]

Eduardo BuendiaDeputy Manager of Financed Investment Projects

Comision Federal de ElectricidadMexico

[email protected]

ABSTRACT

In recent years, Mexico has gone from being an exporter of natural gas to being a netimporter. Part of the reason for this increasing demand for natural gas is its use to

generate electricity. Comisin Federal de Electricidad (CFE), the national electricutility of Mexico, is the first company in Mexico to contract for both indirect and directimport of LNG into Mexico. The LNG will be used both to convert existing power plantsand to fuel new electric generating capacity.

In relation to the Mexican natural gas and electric industries, this paper examineseconomic growth and development of Mexico. Based on such economic growth, the

preparation by CFE of the ten year Program of Investment Works of the Electric Sector(POISE). It also analyzes the place of LNG in the electricity market of Mexico LNG,some contracting issues unique to the Laws of Mexico, as well as it includes a briefdescription of current CFE LNG import Projects (2005-2006) Altamira (Shell), Baja(Sempra), Manzanillo (in process) and others.


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INTRODUCTION

Mexicos energy sector is known to be state controlled and, therefore, it has beenconsistently labeled as closed and non competitive. However, during the past fifteenyears, significant efforts have been made to opening the sector within the limits of the

Mexican Constitutional framework which establishes the exclusivity of the state in themajority of activities of the gas and power industries.

These changes can be explained in the light of an international trend that has notexcluded Mexico from its effects: the formation of a global energy market. For Mexicosenergy policy makers, this has posed a significant challenge as it has to keep a balance

between state control and global integration.

In view of this challenge, CFE has pioneered in taking steps towards opening thenatural gas market in Mexico by way of complementing Petroleos Mexicanos (PEMEX)

supply of domestic and imported natural gas, primarily for Indepent Power Production

projects.

MARKET CONTEXT OF LNG IN MEXICO

For over a decade, it has been recognized by the governments of the United States,Mexico and Canada, as neighboring countries and commercial partners, that greatercooperation among their energy sectors can benefit all three nations. North America isone of the regions with the highest impact in the energy industry in the world, as it

produces nearly a fourth of the energy resources in the globe while consuming nearly athird of the worlds commercial production of energy resources 1.

In this particular scenario, it is uncertain whether the nations of North America will

be able to continue to supply their own natural gas. North American consumptionaccounts for about a quarter of the worlds annual natural gas demand, while about 95

percent of the worlds proven natural gas reserves are outside North America 2.

Recognizing that the consumption needs of North American countries are greater thantheir natural gas production, over the last decade significant costs reductions in theliquefaction, shipping and regasification of natural gas were achieved as a result ofsignificant advances in technological process3. This combination of two significantfactors in addition to the market developments that have resulted from the North

American Free Trade Agreement (NAFTA), now make liquefied natural gas (LNG) aviable supply option for North American Markets 4, Mexico included.

So that LNG can truly become a viable supply option in North America, thedevelopment of receiving capability in Canada and Mexico has become imperative, ashas the expansion of the existing capacity in the United States. Basic infrastructuredevelopments consist of: deep water ports, offloading terminals, LNG storage andregasification facilities, and associated pipelines. In addition, the existing pipeline grid

and natural gas storage capabilities may have to be expanded in order to transport thissupply to market areas. These infrastructure additions are critical in maintaining NorthAmericas ability to access and efficiently trade the necessary amounts of this important

source of energy and deliver it to end users 5.


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Mexicos specific needs of natural gas are reflected in several policy and legalinstruments. On one hand, the Prospective of the Natural Gas Market (2006-2015) (the

Prospective)6, establishes, for the electric sector only, a annual increase rate of 13.1 % forthe 1995-2005 period 7. The Prospective also shows that, during the same period,domestic consumption of natural gas increased by 76.6%. The consumption of natural gas

within Mexico is distributed as follows: 48.1% for the oil and gas industry, 34.2% for theelectric sector; 15.9% for industry; and the rest is divided between the residential,services and transportation sectors 8.

Table1. Domestic Natural Gas Consumption by Sector: 1995-2005

(Millions of Cubic Feet per Day)9

Sector 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 AnnualAverageGrowth

RateTotal 3,335 3,594 3,760 4,060 3,993 4,326 4,358 4,855 5,287 5,722 5,890 5.9

Oil and Gas 1,871 2,053 2,139 2,265 2,072 2,216 2,277 2,289 2,427 2,608 2,833 4.2

Electric 589 596 653 756 821 1,011 1,157 1,506 1,836 2,050 2,014 13.1

Industrial 799 865 886 963 1,023 1,019 838 966 922 957 935 1.6

Residential 57 60 62 56 57 60 64 71 81 86 86 4.2

Services 19 20 20 20 20 20 21 22 19 20 20 0.8

Transportation ----- ----- ------ ----- 0 1 1 2 2 2 2 n.a

Includes the consumption of PEMEX Petroqumica.N.a.: Not aplicableSource: Sener based on information from CFE, CRE, IMP y Pemex.

In light of these conditions, and in order to guarantee natural gas supply whilediversifying supply sources, in 2003, construction contracts and LNG storage service

permits have been awarded to various multinational energy companies for the LNGterminals in Altamira (Tamaulipas), Baja California, Lzaro Crdenas and CoronadoIslands. A more detailed description of the projects is provided below in the section thatrefers to the LNG Regasification Terminals Approved and under Study by the ComisinReguladora de Energa (CRE) in Mexico. For now, let it be noted that the AltamiraTerminal initiated operations in October 25th, 2006 to supply Comisin Federal deElectricidad (CFE), the Mexican state owned Electric Utility Company, with a natural gas

volume of up to 500BCF. This terminal will supply the electric generation facilities in

Tuxpan, Altamira and Tamazunchale. (See figure 2) 10. Also, the startup of operations forthe Baja Terminals is expected to take place during 2007. These events spearhead theopening of an LNG market in Mexico.


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LEGAL AND POLICY OF NATURAL GAS IN MEXICO

Under the Constitution in Mexico, the exploration, production, processing, and first-hand sales of domestic natural gas are activities considered strategic performed solely by

the state-owned company Petrleos Mexicanos (Pemex). However, pursuant to the legalframework in force, which is the outcome of significant legal and regulatory amendmentsthat took place in 1995, the public and private sectors may participate in storage,transmission and pipeline distribution, including import and marketing activities inMexico.

For over a decade, greater participation of the private sector in the development ofinfrastructure has been sought, in areas permitted within the legal framework. Thus, largeregasification facilities projects have emerged in Mexico that seek the diversification ofthe imports to satisfy at competitive prices, the markets demand growth in the short

term11.

Impact of the Sectors Legal Amendments on the Natural Gas Industry

While for nearly half a century, the Mexican oil and gas industry remained cut offfrom private participation, legislative and regulatory amendments, enacted during 1995,opened natural gas transportation, storage, and distribution to private investment, whetherdomestic or foreign, to allow private companies to import and export natural gas.PEMEX, which prior to 1995 controlled all of the country's gas industry, maintainscontrol over the gas upstream sector under this law, with midstream and downstreamsegments now completely open to the private sector, provided the companies are not

involved in more than one function12

. The natural gas industry in Mexico is now one ofthe most open of Mexico's energy subsectors.

Impact o f such Amendments on the Electric Industry. the Comisin Federalde Electricidad (CFE)

The natural gas industry has taken greater steps into become open to the participationof a greater variety of service providers. The diversification of Mexico's electric power

industry has also taken place but on a more limited basis. In fact, no paid service can beprovided to any one other than byCFE. Private investors may now participate in power

generation for CFE, mainly through Independent Power Production, but the transmissionand distribution of electricity is an exclusive activity of the state owned electriccompanies: CFE and Luz y Fuerza del Centro (LFyC). By constitutional mandate, theMexican government has direct, permanent, and nontransferable dominion over theelectricity distribution and transmission to public users 13.

The Comision Reguladora de Energia (CRE) (Mexican Energy RegulatoryCommission)

In October 1995, (The Ley de la Comisin Reguladora de Energa), CRE Act,

(LCRE), enabled CRE said agency to regulate the electricity and natural gas industries.Although the LCRE was enacted in 1995, The CRE had been created beforehand, in


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1994, as an advisory agency of the Secretara de Energa (SENER), Ministry of Energy,but limited to the electricity industry. The CRE Act transformed its role to that of a

formal regulatory agency, empowered with technical and operational autonomy.14 TheCRE Act determines that the following activities are subject to regulation:

Supply and sales of electricity to public service customers

Private sector generation, import and export of electricity

Acquisition of electricity for the public service

Transmission services between agencies that provide public service andgeneration, export and import permit holders

Natural gas and LPG first-hand sales

Transmission and storage of non associated natural gas.

Natural gas distribution, and

LPG transportation and distribution through pipelines.15

The CRE is empowered to grant permits for the provision of the transmission,

distribution and storage services as well as to approve their prices and rates of service andtheir general terms of service. The CRE has therefore played a key role in the opening ofthe in the LNG storage and regasification industry in Mexico as all LNG projects must go

through the review and approval of the CRE before the construction and operation ofsuch facilities.

The CRE as Guarantor of a Competitive Energy Industry

The legal mandate of the CRE is to guarantee a competitive and non discriminatorygas and power industry. By law, the ultimate objective of the CRE is to achieve theefficient development of the energy sector for industrial, commercial and residentialusers, by maintaining an equilibrium between the private actors and the state owned gas

and power companies. The following are the basic principles of operation of the CRE, 16which are applicable to all the regulated activities and agents:

Clarity.- The CRE must issue clear and precise rules regarding its regulatory

duties;

Stability.- Regulation must be designed to promote long-term investment in theenergy sector;

Transparency.- Decisions are made by a five-member collegiate body and arepublished in a public record;

Consistency.- In applying the law, the CRE should make no distinction between

public and private operators; all agents are required to comply with regulatoryprovisions, and

Autonomy.- The CRE must operate as an autonomous public agency and mustundertake its regulatory duties with the support of technically qualified staff,

expeditious procedures, modern management systems and an innovative


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organizational culture. As a result, the CRE must respond to the structuraltransformation of the gas and power markets in Mexico.

Context of the Necessity for LNG Imports in Mexico. Electric Power

Generation and the Rising Demand of Natural Gas

For the supply of energy resources, and in a scenario of a significant increase in thedemand of energy resources, one of Mexicos primary strategies for the fulfillment ofsuch demand remains the production of natural gas. However, the development of

domestic energy resources may not be relied on as a sole source, as gas projects may takeseveral years to develop. For this reason, alternative plans have been included in thecountrys short and medium term energy policy instruments. The construction andoperation of LNG regasification terminals have become a central part of the supplyscheme for natural gas in Mexico, particularly for the power generation industry.

The Prospective shows that, for the 2005-2015 period, the domestic demand ofnatural gas will have a moderate increase, if compared to the 1995-2005 period 17.

Notwithstanding this, in Mexico the growth in the demand of natural gas will still besignificant, particularly in the electric sector where a median annual growth rate of 6.7%is expected for the 2005-2015 and 1,837 BCF will be required 18. It is worth noting that,during 2000, CFE had the highest demand for natural gas for power generation, as itrepresented 91% of all gas demand (816 BCF).19

In light of the above, most of Mexicos main policy instruments, namely the NationalEnergy Plan (the Plan) 20 and both the Gas and Electric Sector Prospectives 21, establishthat natural gas will continue as one of the primary fuels for the electric power generation

plans in the coming years.

On a regional scale, it is expected that the Northeast of Mexico, in particular the Stateof Tamaulipas, will have the greatest consumption of natural gas. By 2010, at an annual

growth rate of 12.9%., it is expected that this region will consume 1,390 BCF annually,mainly as a result of the participation of IPPs in this region 22. Also by 2010, in theSoutheast of Mexico, where the states of Veracruz and Tabasco take the lead in thedemand for natural gas, it is expected that the consumption will reach 885 BCF in 2010,with an annual increase rate of 23.5%, also a result of a significant increase in the demandfor the public electric service.


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Table 2. Consumption Patterns and Natural Gas Supply 2002-201123

(BCF)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Demand

Electric/Industry* 1468.72 1874.07 1813.9 2019.7 2302.85 2498.21 2576.05 3135 3438.6 3626.59

Pemex/Industry 3289.28 3680.93 4207.1 4520.29 4798.15 5076.79 5181.95 5341 5518.4 5606.41

Total 4758 5555 6021 6540 7101 7575 7938 8476 8957 9233

Supply**

Domestic 3895 3897 4392 4545 4579 4856 4918 4939 5019 5150

Import 863 1658 1629 1995 2522 2719 3020 3537 3938 4083

Total 4758 5555 6021 6540 7101 7575 7938 8476 8957 9233

*Average per year, considering a plant factor and a growth rate of 10.6%** Considering a growth rate of 3.15%, without a multiple services contract.

Sources of Natural Gas Supply in Mexico. PEMEX as Primary Supplier ofImported and Domestic Natural Gas

State ownership of energy assets is an historically significant characteristic ofMexico's economy. The most important national entities in energy are the state-owned oiland gas company, PEMEX, and the national electricity utility, Comisin Federal deElectricidad (CFE). Control over Mexico's huge energy sector is presently concentrated

under the offices of the Ministry of Energy.

24

The Fox Administration issued the 2001-2006 Plan in late 2001 calling for$120 billion US in energy sector investments and a greater role for the private sector.Recommendations of the Plan include reforms in energy regulation to allow privatecompanies to aid Pemex in exploration and production of natural gas. The Planrecognizes the need for substantial investments in energy infrastructure to keep up with

rapid growth in demand: among which, for the purposes of this paper, the $48 billion USfor oil and gas upstream activities, the $34 billion US for the electricity subsector and the$20 billion US for natural gas production are worth noting. Some of the policy goals ofthe recently ended Fox administration, and which are included in the policy plans of the

newly elected President, Felipe Caldern, are aimed at the improvement of thetransparency of regulations for investing in liquefied natural gas (LNG) projects; allowIPPs to sell directly to end-users any power not bought by CFE; and invite hydrocarbonscompanies to bid on dry natural gas development projects25.

Troubles of Pemex in Guaranteeing Long Term Supply o f Natural Gas forthe Electric Public Service

The policy decision to construct and operate LNG storage and regasification facilitiesin Mexico are of a complementary nature and are not intended to substitute the measures

that are required so that PEMEX may still play an important role in supplying natural gasfor Mexico. Among other measures, however, PEMEX must at least: accelerate natural


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gas exploration in the areas with the greatest production potential; to give priority to theproduction of non associated gas reserves; and undertake the production of associated gas

in amounts comparable to those produced in the leading international natural gas markets26.

So that this may occur, and investment of approximately 588 billion pesos isrequired27, out of which 125 billion would be for exploration activities; 39 billion wouldcorrespond to the exploitation of Burgos; 3 billion for the Delta de Grijalva oil field; 43

billion for the Cantarel oil field; and the remaining 378 billion would be invested in nonassociated gas activities. If these investments are not available for domestic production,an expansion in the LNG volumes to be imported in Mexico will have to take place inorder to secure the supply of such hydrocarbon.

It is important to mention that there exist factors that could prevent these investmentsfrom taking place. Among the most relevant factors are, first, the fiscal andenvironmental authorizations from the Mexican authorities so that PEMEX may expand

its natural gas production; also, the legal restrictions that forbid greater privateparticipation in the activities that are exclusive to PEMEX; and last, the natural riskfactors that are involved in natural gas exploration. This latter risk factor is specially

relevant for planning the projected natural gas volumes that will be consumed by theelectric sector. As shown in the figure below, a significant amount of expected productionof natural gas will come from unexplored fields. This means that the growth of the

electric sector will depend, to a greater extent, on the production of non associated gascoming from unexplored or partially explored fields. Also there remains the issue of theadequate development of the necessary technology for the production of such gas.

In figure 1, shown below, the national gas balance is represented where productionsources are shown as the top and consumption sources appear as the bottom bars. Then, atthe horizontal axis of the graph, two bars appear: consumption is the first bar and supplyis the second. The vertical axis of the graph are natural gas quantities in BCFs.


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Figure 1. National Natural Gas Balance 2002-2011

Production Base Scenario

CFE as LNG Market Maker

LNG imports are, at this point, primarily related to the needs of the public electric

service. For this same reason, LNG is being brought into Mexico specifically to fulfillthis objective which is exclusive to CFE. CFEs decision to import LNG was made

pursuant to article 4 of the Public Electric Service Act, Ley del Servicio Pblico de laEnerga Elctrica, (LSPEE) whose section III confers it with powers to plan the nationalelectric system 28.Therefore, in accordance with said provision, CFE has power to make

the necessary decisions concerning the number and type of power generation plants andthe fuels that said plants need to fulfill the needs of the public electric service.

On the other hand, it is worth noting that the national energy policy in force today,which encompasses the activities and decisions of both CFE and PEMEX, featuresamongst its policy decisions, the diversification of sources of natural gas supply. For thisreason, one of the goals of the Mexican energy plans in force is to create sources ofnatural gas that will be complementary to PEMEXs sources in order to lessen the

pressure on it as sole first-hand seller of natural gas. Reducing the demand pressure onPEMEX may have a significant social impact by reducing public financing on natural gas

projects, which in turn may result in relocating such financial resources toother sociallyrelevant projects. The participation of private investment in the construction andoperation of LNG terminals and the supply of LNG for CFE, the IPPs and other potential

consumers will play an important role in maintaining the maintenance of themacroeconomic stability achieved during the last decade in Mexico.

Pemex Imports Exports

4,758 5,555

6,0216,540

7,1017,575

7,938

8,4768,957

9,233

Oil IndustrialResidential

Electric Other

873317

305411583

740229

37331122

0

2,000

4,000

6,000

8,000

10,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


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CFEs Ten Year Program of Investment Works of the Electric Sector(POISE)

CFE, through its Financed Investment Direction, has tendered and contracted with theprivate sector various projects of IPPs and Financed Public Work (FPW), in compliance

with CFEs Electric Sector Works and Investments Program (POISE). Private financinghas been found to be an efficient solution to meet Mexicos electric power needs, presentand future.

The maps enclosed below show the location of the different projects that have beenbid since 1998 and those that are yet to be tendered under the financed investmentscheme. These projects have been divided into:

Combined cycle and infrastructure (gas lines and coal terminals)

Hydro power plants and geothermal power plants.

The POISE was designed in order to cover generation and transmission for a period often (10) years.Before the POISE, there was no long term planning for the development of

pipelines, as there was enough capacity to provide for the natural gas required for thepower generation plants of CFE. However, in the course of over a decade, thedevelopment of combined cycle power generation plants caused an overload in thenatural gas national pipeline system of PEMEX. Therefore, in 1999, the Mayakan

pipeline system, the first and largest privately owned pipeline venture in Mexico was

inaugurated to serve the power generation terminals in the Yucatan peninsula. InNovember of 2004, Iberdrola Energa was awarded the open access pipeline permit tosupply the Tamazunchale power generation plant. This pipeline will be extended to reach

the Palmillas in Mexicos central region.

In the Pacific region, CFE has initiated the bid procedure for the storage andregasification terminal in Manzanillo, Colima. The construction and operation of theManzanillo terminal brings with it the construction and operation of a natural gas pipelinesystem t which will run from Manzanillo to Guadalajara. For the LNG import project inTopolobampo, which is currently under analysis. the POISE also foresees theconstruction of additional pipelines so that natural gas can be transmitted to NorthernMexico, in particular to the states of Chihuahua and Durango, to satisfy the electricitydemand in the la Laguna zone in Durango. For this region, it has been determined that themost efficient choice would be to transport gas to generate between 2,000 and 2,500 MW

in that particular zone.


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Figure 2. Map of Mexico

In all of Mexico, the POISE includes the construction of approximately 16 generationplants. An estimated investment of a four billion US dollars has been made to constructand operate the following power generation plants: in Baja California; Naco-Nogales, inSonora; Campeche, in Campeche; Chihuaua III, Tuxpan I, III, y IV, in Veracruz; LosAzufres II, in Michoacn; El Sauz, in Quertaro; Altamira III y IV in Tamaulipas; andSan Lorenzo, in Puebla.

The POISE includes the creation of 61 more power generation projects by 2011,which will amount to a total of 30,000 megawats and will require an investement of 52,98

billion US dollars.29


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Figure 3. Mexicos Gas Natural Supply Strategy

LNG Regasif ication Terminals Approved and Under Review by CRE inMexico

In order to increase the supply of natural gas in Mexico, the National Energy Plan2000-200630 programmed the construction of a number of storage and re-gasification

LNG terminals in the Gulf of Mexico and the Pacific Coast as a complementary measureto the national production of natural gas and to diversify supply sources at competitive

prices.

In both the Gulf of Mexico and in the Pacific, a number of international energycompanies have been awarded permits and contracts to build, own and operate

regasification terminals in Mexico. The following is a list of the approved and projectedLNG terminals, with information on their development status 31:

Samalayuca

El encino

Torreon

Durango

Rosarito

Ehrenber

Topolobampo

Ensenada

Puerto Libertad

Dagge

Rockies Cheyene

San Juan

PermianKeystone

PermianWaha

WILCO

Houston

BobWest

SOUTH

Reynosa

Naranjos

Altamira

Los Ramones

Ciudad

Palmillas Tamazunchale

Cempoala

Chinameca

Salamanca

Guadalajara

Gas Lankahuasa Well

X

Manzanillo

Salamanca

Lazaro Cardenas

Mazatlan


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Altamira, Tamaulipas:Capacity: 0.50 Bcf/d. Project sponsor: Terminal de GNL de Altamira, S. de R.L. de C.V.(Shell). Inauguration of such terminal took place on October 25, 2006.

Ensenada, Baja California:Capacity: 1.0 Bcf/d. Project sponsor:Energa Costa Azul, S. de R.L. de C.V. (Sempra-Shell). The project is scheduled to begin operation in 2008 and envisages residentialsectors, as well as exports to Arizona. The gas will come from Indonesia and, possibly,Russia. Currently, the facility is under construction.

Coronado Islands:Capacity: 0.70 Bcf/d. Project sponsor: Chevron Texaco de Mxico, S.A. de C.V. TheComisin Reguladora de Energa (CRE)awarded a permit for the construction of the firstMexican offshore terminal. Chevron Texaco estimates the facility will start operationsaround 2008; however, its construction has not started yet.

Manzanillo:Capacity: 1.0 Bcf/d. CFE sponsors the project and its main purpose is to meet the demand

for future power generation within the region. It is estimated that it will begin to operatein 2010-2011.

Lzaro Crdenas:Capacity: 0.50 Bcf/d. Project sponsor: Repsol YPF. The sponsor has won the right toconstruct an LNG terminal at Lzaro Cardenas, but the CRE has not yet awarded a

permit.

Topolobampo:Capacity: 0.50 Bcf/d. The project is under early stages of evaluation. Local and portauthorities are promoting a bid for the right to establish an LNG terminal on portgrounds.

Offshore Gulf of Mexico:

Capacity: 1.0 Bcf/d. Project sponsor: Dorado-Tidelands. (Terranova Energa). Thesponsor has been awarded a Open Access natural gas transmission permit. The naturalgas storage permit has not yet been awarded by CRE. It is expected that this transportsystem will be interconnected to the future Gulf of Mexicos offshore LNG terminal.

Capacity: 1.3 Bcf/d. Project sponsor: Sonora Pacific LNG. This project has not yet beenawarded a permit, but the sponsor originally scheduled its beginning of operations around2009.

LNG IN MEXICO. TOWARDS A TRUE OPENING OF A MARKET

Although LNG is expected to play an important role in the North American energypicture, significant investment is needed to promote its development. Numerous concernsregarding the importation insertion of LNG and other pipeline facilities require specialattention in order to realize the projected sources of natural gas for North America, suchas:

Price

Availability and Security of Supply

Transportation

Safety Protection of the Environment


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In support of LNG, as with other energy resources, the Mexican Federal government,together with CFE, has striven to achieve transparency of laws and regulation concerning

environmental and safety concerns 32.

Notwithstanding the valuable efforts of the Mexican government, much is yet to be

done to reform the total legal framework of the Mexican energy sector towards a morecompetitive and efficient model. This lag in the Mexican legal framework is partially dueto political fragmentation that Mexico has gone through during the past years. Anindustry that is undergoing rapid technological change, and global integration, needs asits legal basis a set of laws and regulations that will provide clarity and certaintyregarding the role of the players in the Mexican energy industry and the powers andlimitations that the Mexican state is vested with for its regulation.

At this point in the history of the Mexican energy industry, there are enough signalsthat show that the path Mexico must follow is that of competition and market integration.If this path is to be taken, it should be in the benefit of providing a wider and more

competitively priced array of energy products and services for residential, commercialand industrial users.

REFERENCES CITED

1 North America. The Energy Picture II. Prepared by the North America Working EnergyGroup. Security and prosperity partnership. Energy Picture Expert Group. January 2006.

2 See. www.pi.energy./pdf/ library/NorthAmericaEnergyPictureII.pdf.

3Ibid.p. 39

4Ibid.

5 p. 37

6 In Spanish, Prospectiva del Mercado de Gas Natural. Translation is ours.

7 Prospectiva p. 58.

8Ibid.

9 Source: Instituto de Investigaciones Elctricas. (Institute for Electric Research)

10 Tuxpan V, Altamira V and the Tamazunchale generation facilities will be supplied bythe Altamira LNG terminal. The electric power generation facilities Tuxpan I and IIcould also be supplied if necessary.

11 Source: CFE.

12 North America. The Energy Picture II p.62-69

13Ibid.


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14 See www.cre.gob.mx

15 LCRE, article 2.

16

www.cre.gob.mx

17 Among the factors that have contributed to reduce the prospective demand, as opposedto other scenarios, are: a smaller growth rate; higher natural gas prices; a betterunderstanding of the relationship between economic growth and electricity demand; areduction in the patterns of overestimated natural gas requirements; the closing of some

private projects which consumed natural gas, particularly in the transportation sector.Prospective p. 112

18Ibid.

19Ibid.

20 The National Energy Plan is the energy sectors main policy instrument and is issued inthe beginning of each presidential administration. Here we refer to the National EnergyPlan 2000-2006 of the Vicente Fox administration. The National Energy Plan of recentlyelected president, Felipe Caldern, is yet to be issued.

21 The gas prospective and., on the other hand, the electric sector prospective, are separateeconomic analysis instruments issued on a yearly basis by the Secretara de Energa(SENER)

22 Source: CFE.

23 Source: Instituto de Investigaciones Elctricas (Institute for Electric Research). Note:Figures correspond to 2005-2006 studies and may have changed since then.

24 An energy overview of Mexico. Department of Energy. United States of America.http://www.geni.org/globalenergy/library/national_energy_grid/mexico/LatinAmericanPowerGuide.shtml

25 North America. The Energy Picture II.

26 Source: CFE.

27 Source: CFE.

28 LSPEE. Article 4.

29 http://www.cfe.gob.mx/es/NegociosConCFE/inversionistas/

30 Federal Governments Energy Sector Program 2000-2006.


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31 There exists no official endorsement from the federal government for the potential

projects listed here. This listing is based on public information available to the EnergySecretariat through the potential sponsors, media and local authorities.

32

North America. The Energy Picture.

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Opening of the Lng Market in Mexico

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