Corruption Continues To Plague Mexico’s State-Owned Oil Company

• Mexico's national oil regulator recently dropped at least three fines against Pemex for drilling without proper permits and excessive flaring of natural gas.
• López Obrador's ambitious production goals for Pemex have allegedly resulted in reduced regulatory oversight, with fines for violations being shelved.
• Mexico's focus on oil production and disregard for environmental conservation under López Obrador's administration have seen a sharp decline in clean energy spending, affecting trade relations with the United States and Canada.

Pemex’s long legacy of corruption continues. Mexico’s beleaguered state-run oil company has been a hotbed of bribery and weak regulation for decades. Despite the fact that Mexico’s current president Andrés Manuel López Obrador, ran on a vehemently anti-corruption platform, his determination to make Pemex great again has led to a problematically lenient stance toward the oil company’s ongoing transgressions. 

Just this month, Mexico’s national oil regulator dropped its plans to impose at least three fines (that we know of) against Pemex. The fines were in response to violations at some of the country’s most promising new oil fields. These violations included drilling wells without acquiring the proper permits to do so as well as excessive flaring of natural gas at the Ixachi and Quesqui fields. 

Burning off excess hydrocarbons has been a years-long issue in Mexico’s newest oil field, where resources are being deliberately destroyed due to a lack of proper infrastructure to process hydrocarbons. “Mexican state oil company Pemex illegally burnt off hydrocarbon resources worth more than $342 million in the three years up to August 2022 at two of its most important new fields,” Reuters reported earlier this year. In a picture added as evidence for the recently dropped Ixachi fine, a huge column of black smoke was shown rising from an open-pit flare where gas and other hydrocarbon products were being deliberately burned away. 

In fact, these oil fields have been fined repeatedly by Mexico’s oil regulator for violating their own development pledges. However, intense pressure to meet ambitious production goals set by President López Obrador has resulted in many cut corners and infractions. But now, it appears that the pressure has extended to the regulatory body, resulting in the shelving of such fines. 

Pemex leadership has also been turned over to allow the company to operate with fewer restrictions and more lenient oversight. Reporting has revealed that officials within Mexico’s oil regulatory body were pressured into resigning after rejecting plans for new oil fields that were not logistically or financially viable. Less than five months after plans for López Obrador’s flagship Quesqui field in his home state of Tabasco was unanimously rejected, the very same unsound plans were approved by the regulator’s new leadership.

The relaxation of oversight is of particular concern for environmental well-being as well as public health. Pemex has been plagued with industrial accidents, including explosions and fires, in recent years, with two deaths reported already this month. What’s more, Mexico’s complete disregard for environmental conservation and emissions reduction poses a threat to the nation’s own air quality as well as the viability of global decarbonization goals. “We ignored the sirens’ song, the voices that predicted, in good faith, perhaps, the end of the oil age and the massive arrival of electric cars and renewable energies,” López Obrador told a roaring crowd in Tabasco at the opening of a new oil refinery last year.

Since López Obrador has taken office, clean energy spending in Mexico has taken a nosedive. Figures from Bloomberg BNEF reporting show that Mexico’s share of Latin American clean energy investment plummeted from 35% in 2017 to 7% in the first half of 2022. This is likely a major economic and political misstep for a number of reasons. As global geopolitics shift toward “friend-shoring” and “near-shoring” in an attempt to end global reliance on China for green energy supply chains, Mexico is in a great position to capitalize on new and increasing demand for more localized clean energy manufacturing. “Yet, Mexico is at risk of missing this unique opportunity, as the López Obrador Administration has thus far failed to understand the primacy of climate objectives of its North American partners and of the firms interested in setting their operations in Mexico—and the role clean energies play in this equation,” the Brookings Institute recently reported. 

Indeed, trade relations with the United States and Canada have suffered gravely due to López Obrador’s nationalist and fossil-fuel focused energy policy. In fact, the United States and Canada have threatened to litigate against Mexico, on the grounds that its new energy law is in violation of the USMCA, the 2018 revamp of the North American Free Trade Agreement (NAFTA), as well as the belief that Mexico’s new nationalist and protectionist approach to energy is undermining North America’s competitiveness.

By Haley Zaremba For Oilprice.com  

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