On the Road to Nowhere? PEMEX and a Just Energy Transition

(For IS, my friend.)

PEMEX is a critical factor to consider in the context of Mexico´s energy security and in its efforts to commit to a just energy transition. When looking at PEMEX´s overall performance, it is notable that, in its current environmental, social and governance scheme, it is neither financially nor operationally able to provide for Mexico´s energy security in sustainable terms.

To support this statement, one may look at PEMEX´s latest quarterly results, during which it faced a net loss of MX$80 billion (US$4.7 billion), as compared to the MX$50 billion net loss during the same quarter of 2022. This means that PEMEX´s status as a state-owned company is not meeting the needs of the Mexican people. On the contrary, it is becoming an increasingly cumbersome social, environmental and financial burden. The Center for Economic and Budget Research (CIEP) reported that each Mexican owes MX$33.4 million as a result of the extremely high indebtment of PEMEX and its elevated labor costs. 

Further, had the Mexican government spent MX$440 trillion in fighting energy poverty, instead of using such public resources for gasoline subsidies, as it did during 2022, manifold souls could have access to cleaner, more reliable and economic energy in their homes. It is perplexing to see the fixation of all of Mexico’s governments with providing “fiscal stimuli” for gasoline when a myriad of women and children die at an early age of obstructive lung diseases caused by the use of firewood for heating and cooking in badly ventilated housing. One wonders what kind of decision-makers it takes to choose subsidies for polluting fuels before preventing the innocent from asphyxiation. This policy is not only contorted, it is plain malicious. Clean, warm and well-lit homes should be the priority of any government, not filling up the tanks of SUVs. 

The aforementioned numbers and state of affairs reflect a poor performance of PEMEX as a guarantor of the public good, which, ironically, justifies its dominant role in Mexico’s oil and gas value chain. In terms of revenues, public finances remain reliant on oil exports, which are impacted by price volatility and foreign exchange. Further, despite the attempts of the current government to guarantee access to cleaner and cheaper fuels, namely the Deer Park purchase and the construction of the Paraíso refinery, gasoline prices have remained higher than in the United States. This is mainly due to Mexico's dependence on fuel imports that entail logistics costs in an inefficient and risk-ridden transport system. It is important, therefore, to think of alternative schemes of mobility, such as electric vehicles, public transport and state-of-the-art urban design. Alleviating PEMEX from the heavy load of importing almost the totality of transport fuels would allow it to direct resources to investments and practices that would support Mexico´s decarbonization goals and to make a material contribution to the reduction of global warming.

In order to facilitate PEMEX´s gradual “conversion” into a sustainable company, committed to the reduction of greenhouse emissions, it is important to glance at global practices that are proving to be effective. In its latest report, The Oil and Gas Industry in Energy Transitions, the International Energy Agency describes the ways by which oil companies can transition into energy companies as a result of greater pressure, not only from the financial markets, but from a wide range of social organizations. In the report, Fatih Birol states that, “No energy company will be unaffected by clean energy transitions.” Despite its efforts to remain isolated from the trends of its international peers, PEMEX must undertake a conversion of its operational and business model by:

• The adoption of cost-effective opportunities to reduce the emissions of associated gas and flaring of CO2. This is the lowest “hanging fruit” for any oil and gas company.
• Another feasible choice is to engage in serious efforts to become efficient by way of the development of cogeneration. 
• The introduction and expansion of renewable energy as a power source of its industrial processes. To this day, photovoltaic and wind facilities account for the largest investments. 
• Several now-called “energy companies” are directing resources toward research and development for the manufacturing of batteries and hydrogen production.
• Importantly, it should be freed from selling subsidized gasoline. It hurts people, the environment, the economy – even PEMEX!

This column should not be construed as a call for the dismantling of PEMEX. On the contrary, it is an urgent cry for decision-makers to steer it in its true direction. PEMEX was created to serve Mexico and Mexicans, and not the other way around. If PEMEX is to be the nation’s energy company, it should be devoted to a just energy transition, where those who need it the most come first, not last.