PEMEX Abandons Plan to Fix Flaring Problem

At the end of 2016, PEMEX developed a plan to avoid accumulating fines for the excessive flaring of natural gas. The state-owned company reached an agreement with the regulator, the National Hydrocarbons Commission (CNH), to invest more than US$3 billion to solve the problem. Nevertheless, five years later, PEMEX abandoned the project, and the environmental cost of the Ku-Maloob-Zaap cluster continues to increase.

The breached commitment highlights CNH’s efforts to diminish the NOC’s pollution problems, as the regulator has been closely monitoring the issue. In addition, it underscores how Mexico is moving in the opposite direction, while countries like Colombia, Kazakhstan and Nigeria have reduced flaring by investing in infrastructure and applying sanctions.

The NOC decided to abandon the plan halfway through its completion because the low gas prices made it less attractive to process the resource and political priorities changed to increase oil production instead. The decision was taken despite the environmental question and threats from regulators to fine the company. “Penalty fees are not an adequate incentive for the state-owned company to correct its behavior,” said Rosanety Barrios, a former official of the Ministry of Energy. 

Companies resort to flaring the gas derived from oil production because it is cheaper and more convenient than building the infrastructure to capture and process it, but climate change anxiety has turned flaring into a major cause for concern. 

Mexico is the eighth largest gas burner in the world and is increasingly facing pressure to reduce flaring and methane emissions. 

Although the NOC did not break any law by discarding the commitment, and recent sanctions for flaring were unrelated to it, the project would have been an important milestone for PEMEX to operate in a more environmentally-responsible manner.  

According to the research institute México Evalúa, PEMEX, followed by CFE, was rated as 2022’s global companies most at risk for non-compliance with environmental, social and governance (ESG) benchmarks. ESG ratings provide analytical tools that help the financial sector to make more informed investment decisions and enable a level of transparency highly required in modern-day markets.

PEMEX had a risk rating of 64.1 points in May 2022, which represented a setback since it scored 57.5 points in 2021. Ana Lilia Moreno, Coordinator, the Competition and Regulation Program of México Evalúa, assured that this score puts PEMEX in a less competitive, attractive and reliable position in the eyes of investors and stakeholders. Experts warn that if the NOC does not get up to date regarding ESG issues, it may be pushed out of debt markets, which would be detrimental to the state oil company’s need to refinance debts.