Mexico's Pemex Had a Plan To Fix Its Flaring Problem but Abandoned It
The broken commitment highlights the struggles of Mexico's oil regulator to rein in Pemex. It also shows how, while countries like Colombia, Kazakhstan, and Nigeria have cut flaring by investing in infrastructure and strictly enforcing penalties, Mexico is heading in the opposite direction.
In late 2016, to avoid racking up fines for burning too much natural gas, Mexico's state oil company Pemex struck a deal with the regulator to invest more than $3 billion to fix its flaring problem at its most productive set of oil fields.
But 5 years on, the little-publicized project has been abandoned, according to three sources with direct knowledge of the matter, and the environmental toll at the Ku-Maloob-Zaap offshore fields in the Gulf of Mexico continues to rise.
The broken commitment, which has not previously been reported, highlights the struggles of Mexico's oil regulator to rein in Pemex, a powerful state monopoly that is always closely connected to the government.
It also shows how, while countries like Colombia, Kazakhstan and Nigeria have cut flaring by investing in infrastructure and strictly enforcing penalties, Mexico is heading in the opposite direction.
Pemex opted to drop the plan half way through completion, the three sources said, as low gas prices made it less economically attractive and political priorities shifted to raising oil output.
The decision was made despite the environmental cost and threat of regulator fines.
"The fines are not an adequate incentive for a state company to change its way of doing things," said Rosanety Barrios, a former energy ministry official who designed and coordinated policies for the creation of gas and oil products markets.
For decades, companies routinely burnt off gas—whose main component is methane—that came to the surface as a byproduct of oil production and exploration. It was cheaper than investing in infrastructure to capture and process it.
But growing fears about climate change have made that unpalatable.
Mexico—the world's eighth biggest flarer—is under increasing pressure, including from the United States, to cut gas flaring and methane emissions, which are set to worsen as fields age further.
Pemex development plans and legal records, as well as previously unreported internal assessments made by the regulator, and confidential data, show the enormous waste of resources following Pemex's decision to not complete the works on Ku-Maloob-Zaap—which produces nearly 40% of national oil output.
Pemex, the energy ministry, and the regulator did not respond to requests for comment. The oil company has in recent quarterly reports stressed it was making efforts to clean up its operations and bring down flaring and other waste.
Pemex broke no laws by not following through with the investment pledge, and there were no penalties foreseen under the terms of the deal. But the plan would have been an important step toward operating in a more environmentally responsible manner.