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Report: Mexico’s state oil company sliding on environmental standards

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Mexico’s state-owned oil company is sliding in two key environmental indicators, according to a report by Natural Gas Intelligence (NGI).

Petróleos Mexicanos (Pemex) has been increasing the rate at which it burns off excess methane — known as natural gas flaring — and amping up production of high-sulfur fuel oil (HSFO), a heavily-polluting energy source, according to the report.

The report comes ahead of the July 1 one-year anniversary of the United States-Mexico-Canada Agreement (USMCA), the trilateral deal that augmented environmental provisions compared to the 1994-2020 North American Free Trade Agreement (NAFTA).

Pemex’s increased flaring and fuel oil production seem to be a feature rather than a bug of President Andrés Manuel López Obrador’s energy policy, which has been severely criticized by proponents of clean energy.

Pemex, a primary provider of fuel oil to state-owned national power company, Comisión Federal de Electricidad (CFE), increased its fuel oil production by almost 28 percent between May 2019 and May 2020, according to the NGI report.

López Obrador has pushed CFE toward fuel oil and diesel, and away from its previous policy of transitioning to less-polluting energy sources like natural gas.

And López Obrador has been a staunch defender of CFE head Manuel Bartlett, a close ally who was linked to the 1985 torture and murder of DEA Agent Enrique “Kiki” Camarena in a report by newsmagazine Proceso.

Earlier this month, Bartlett denied that report, echoing López Obrador’s claims that the Camarena accusations are a distraction meant to derail the government’s energy policy.

That energy policy is partly anchored in strengthening CFE, through reforms that nixed benefits granted to private clean energy providers in previous administrations.

López Obrador has also pushed to maintain Pemex’s oil extraction levels, which remained essentially flat from 2019 to 2020 despite the increase in flaring.

According to the World Bank’s Global Gas Flaring Tracker, Pemex is increasing its reliance on flaring, a technique that substantially increases greenhouse gas emissions.

Pemex burned off 50 percent more natural gas in the first quarter of 2021 than it did in the same period last year.

On a yearly basis, flaring in 2020 was up 28.8 percent from 2019, despite oil production remaining at the same level, according to the NGI report.

Flaring is a common practice in some sectors of oil extraction, used when the cost of capturing extra methane extracted from oil wells is higher than its value on the energy market.

According to a 2020 report from Texas A&M, flaring contributes around one percent of all man-made carbon dioxide emissions globally, and in some areas where flaring is common, the practice can produce more than 10 times the nitrogen oxides of local cars.

Pemex’s reliance on fuel oil and flaring could also hurt the value of its debt, which is publicly traded in the United States, as investors weigh environmental, social and governance (ESG) risk in their portfolios.

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