Governments, energy firms, and International Organisations have their eyes on Mexico’s energy sector as President Andrés Manuel Lopez Obrador (AMLO) seeks to nationalise Mexico’s energy sector, once again, largely rejecting the global transition to green. Its dirty fossil fuel operations and questionable safety measures have led several powers to criticise the country’s energy sector and demand better oversight. Mexico’s dirty fossil fuels appear to be getting worse as the rest of the world looks for ways to improve its oil and gas operations. Mexico has been accused of increasing its gas flaring from gas operations in recent years. Under the previous administration, Mexico set a target to end gas flaring by 2030. However, World Bank data suggests that the country’s flaring has increased by 67 percent, from 3.9 billion cubic metres annually in 2018 to record levels of 6.5 billion cubic metres in 2021. The Perdiz/Ixachi oilfield in Veracruz and La Venta in Tabasco account for most of this flaring.
Meanwhile, Mexico’s oil production has been declining as its natural gas imports increase. As AMLO seeks greater energy independence, the potential for a greater surge in gas flaring is worrying. Mark Davis, CEO of the flaring analytics company Capterio, stated that the rise was “due to higher poorer operational performance with much higher ‘flaring intensity’ (flaring per barrel of production)”.
Oil companies typically burn excess gas to flare as it is cheaper than reusing or selling the gas. While carbon capture and storage technology is becoming an increasingly popular way of disposing of this gas, while decarbonising operations, particularly across the U.S., requires significant investment. Following the COP26 climate summit, many countries around the world are now acting to reduce their greenhouse gas emissions, meaning that the pressure is mounting for Mexico to do the same.
In 2020, state-owned oil firm Pemex highlighted inadequate infrastructure as the main obstacle to improving practices. AMLO has been putting pressure on Pemex to increase production levels in recent years to promote greater energy self-sufficiency, leading the company to increase operations in more reliable shallow waters rather than deep-sea projects. But Pemex faces high levels of debt, around $100 billion, and is receiving little public funding, making it difficult to boost output.
While AMLO believes he is “rescuing Pemex and we are rescuing the nation” by halting the privatisation of Mexican oil, highlighting the golden age of energy nationalisation, experts have several concerns around this move in a 21st Century context. At present, Mexico’s energy does not have a clear environmental, social and governance (ESG) strategy, unlike many other oil-rich states. This has led activists from across the country to protest for energy reform in front of the Supreme Court of Justice.
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Last year, ratings agency Sustainalytics gave Pemex a score of 56.7 for ESG, suggesting it presents “severe” risks in this area. It is currently placed at 253 out of 261 countries in the ranking. Experts suggest that Pemex could substantially improve its reputation in the international oil and gas space by introducing better ESG measures. But without an increase in funding or the political will, this is unlikely to happen
Mexico has faced further criticism for its poor performance in renewable energy. Over the last decade, it seemed likely that Mexico would welcome the new era of green energy as it established several solar projects in the north of the country. However, under the AMLO administration, numerous renewable energy developments have been cancelled and funding for oil and gas projects, including a new $9 billion refinery, has risen.
In 2021, the government introduced legislation that required the energy grid to use power provided by state-run facilities, mainly coming from crude oil and coal sources. This has sent many workers back into coal projects that were previously abandoned. AMLO believes that years of privatisation led several foreign companies to exploit Mexico’s resources and take funds out of the country. His push for nationalisation aims to rectify this situation.
But many renewable energy firms and climate activists are staunchly against the return to fossil fuels, highlighting the favourable weather conditions Mexico has, needed to produce green energy and the successful development of several existing renewable projects. In fact, until recently, Mexico was seen as one of the global leaders in the combat of climate change. It adopted climate legislation in 2012 and quickly agreed to the Paris Agreement's aim of lowering emissions.
While Mexico has the natural resources to significantly develop both its fossil fuel and renewable energy industries, the lack of funding and the drive to nationalise has meant that state-owned Pemex has been performing poorly both in terms of output and in its environmental practices. Meanwhile, Mexico appears to be going back on its climate promises by halting green energy projects and reopening the doors to its coal mines.
By Felicity Bradstock for Oilprice.com
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