CNH Fines PEMEX for Gas Flaring at Ixachi

CNH has imposed a heavy fine on PEMEX for excessive gas flaring at the NOC’s Ixachi priority field.  The fine, issued in recent weeks, is understood to be more than MX$40 million (US$1.98 million). While the Mexican hydrocarbons law sets a limit for fines of this nature, this latest figure is believed to be the biggest ever handed out. Lawyers representing PEMEX have already announced they will challenge the fine, a process that will now go before a judge as the first stage in what could prove to be a drawn-out legal process. 

Just last week, MBN reported that PEMEX was setting aside US$2 billion to address the issues and improve infrastructure at Ixachi. It appears, however, that this investment came too late with the regulatory body describing what it saw as “development violations” that led to excessive natural gas flaring at Ixachi. It appears PEMEX failed to abide by its own development plans for the natural gas field in Veracruz. 

CNH first announced in May 2022 that it was investigating PEMEX for excessive flaring at the Ixachi field, however, no exact figures regarding a fine of PEMEX’s appeal had been disclosed previously. NASA satellite images sourced by Reuters indicated that PEMEX flared 24.9Bcf of gas in the area throughout 2021, making Ixachi now the 10th-largest flaring site in the world. This time last year, Ixachi was not even in the Top 1,000 of worst offenders. Despite being a major contributor to greenhouse gas emissions, flaring, a process by which gas is drawn to the surface and wasted as a byproduct, is not technically illegal in Mexico in situations when gas is encountered next to oil deposits. However, energy companies must abide by strict limits set by CNH. The sources that leaked the news spoke on condition of anonymity due to the sensitivity of the matter. CNH declined to comment, while PEMEX and the energy ministry did not respond to a request for comment from several publications. 

More worrying for PEMEX is the insider speculation that CNH is preparing similar action for another priority field. Reuters revealed in June that experts made a surprise visit to the Quesqui field in neighboring Tabasco, which Mexico hailed as one of Mexico’s most important discoveries in the three decades. An unnamed source at the Ministry of Energy said the ministry had reviewed video footage taken during the visit and that officials were "surprised" by the amount of gas being flared. As of yet, there is no word on the prospect of a second fine. 

Ixachi and Quesqui are high-pressure, high-temperature fields, factors that experts say make exploration and production particularly challenging. For both fields, PEMEX had committed to capture, process and transport the vast gas resources, as well as the higher-value condensate. 

Moreover, cash-strapped PEMEX is under huge pressure to meet ambitious 2024 production targets, all with deteriorating infrastructure, budget cuts and little help from private investment partners that face increasing restrictions under the current government. Experts, however, have warned that continued malpractice will make it even more difficult for the world’s most indebted oil company to attract investment.

The push for PEMEX to operate more cleanly has been increasingly apparent in recent years, but these significant failures at two of the NOC’s designated “priority fields” have led to vast amounts of natural gas being wasted despite the global push to reduce emissions. President López Obrador met with US Climate Envoy John Kerry to discuss the high and rising levels of gas flaring in and vowed to curb the practice in June 2022. 

Rosanety Barrios, a former regulator and independent analyst, noted that "PEMEX's reputation and credibility are at stake,” and if flaring issues are not immediately addressed at some of the NOC’s most strategic fields, ultimately "Mexicans will pay the price" considering the impact on resources, public finances, the environment and public health.