Mexico’s new president must reform national oil company Pemex
Closing Implementation Gaps: Recommendations for Pemex to Meet its Emission Reduction Goals
Key messages
- The sustainability plan from Mexico’s national oil company, Pemex, lays out how the company hopes to bring down emissions of methane and other greenhouse gases (GHGs) associated with the production of oil and gas. While this is an important step forward, there are good reasons for skepticism over whether the company will meet these goals.
- Pemex has made multiple past commitments to bring down its emissions, and these have been backed by requirements in the Mexican legal framework, yet data show that the company has been failing to manage its GHGs.
- Runaway GHG emissions are more likely than ever to have consequences for Pemex. Changing capital market preferences, increased scrutiny in consumer markets, and the continued rise of carbon pricing mean that excessive emissions will generate financial costs for the company.
- Meanwhile, a revolution in the quantity and quality of third-party data on GHGs means that investors, customers, regulators and accountability actors are able to monitor company activities more closely than ever before.
- The entry into office of the newly elected government in October 2024 presents an opportunity for Pemex to seriously address GHG emissions.
In March 2024, the Mexican national oil company Pemex published a new sustainability plan laying out how it hopes to bring down emissions of methane and other greenhouse gases (GHGs) associated with the production of oil and gas.
While this is an important step forward, there are good reasons to be skeptical over whether the company will meet these goals. Pemex has made similar plans in the past, which have not been implemented. In this brief, we explore Pemex’s recent emissions history and reflect on why the costs of not following through on these latest commitments may be higher than ever before for the company and the citizens of Mexico. As a new administration comes to power in October 2024, we suggest five actions that Pemex and the government can take to ensure that the company meets its latest goals to reduce emissions of methane and other GHGs.
Swelling pressure to reduce methane
Pemex’s sustainability plan comes as a combination of market forces and global climate commitments linked to the energy transition are forcing oil and gas producers to tackle their GHGs. Producers cannot escape the fact that the use of oil and gas as fuels creates around 30 percent of total GHGs generated every year. For the industry as a whole, this means that there is no way to address the problem of GHGs without simply producing less. In this context, companies that want to survive will need to diversify away from fossil fuels, or position themselves with sufficiently low-cost assets to remain as one of the few competitive “last men standing”. However, as we explore in a sister brief, this latter option would be difficult for Pemex, given its high costs, declining reserves and high debt.
On the path to right-sizing, oil and gas companies also face pressure to address the operational emissions that stem from their production and distribution activities. Also known as scope 1 and scope 2 emissions (see box 1), these make up a further 10 percent of total global GHGs. At this scale, their magnitude alone is enough to put them in the spotlight. But operational GHGs in oil and gas are drawing special scrutiny thanks to growing consensus among climate experts that addressing them is one of the most straightforward and cost-effective options the world has to reduce global GHGs by 2030. Oil and gas operational GHGs largely stem from venting and improper flaring of excess or unwanted gas, and so-called “fugitive” emissions released from infrastructure leaks in pipelines, refineries and other downstream facilities.
About half of these GHGs are methane, which is the main component of gas.1 This represents a significant wasted economic opportunity for Pemex and the Mexican people, given its potential for sale or use as an energy source. But it also brings grave climate impacts. Methane is a particularly potent GHG, with a warming potential up to 80 times higher than carbon dioxide over a 20-year period. There is therefore broad consensus among governments, international institutions and investors that rapid and sustained reductions in methane emissions are key to limiting global warming in the short term. This is particularly true for the upstream oil and gas sector, which is responsible for around 25 percent of all man-made methane.
Summary of recommendations
We make five recommendations that the company and the new administration can implement to help Pemex stick to its plans:
- Targets. Pemex should establish short-term targets to track and demonstrate progress towards its medium- and long-term goals.
- Transparency. Pemex should publish transparent monitoring data to show progress towards short-, medium- and long-term targets. This data should be sufficiently granular to be used by local stakeholders, including civil society, communities and government.
- Engagement. Pemex should nurture a critical mass of informed stakeholders that can build momentum and maintain pressure on the company and the Mexican government to stick to their goals.
- International initiatives. Pemex should seek support and promote public accountability through membership of key international initiatives on methane and other GHGs.
- Enforcement. The Government of Mexico should empower enforcement authorities to stand up to Pemex. The regulators, currently Comision Nacional de Hidrocarburos, and the environmental regulator, Agencia de Seguridad, Energía y Ambiente, should have sufficient autonomy, capacity and budget to do so. They should be able to levy fines that are large enough to serve as a deterrent.
Financing and Regulating NOC Just Transitions Away from Oil and Gas
New York City, U.S.
At COP28, Parties committed to an equitable transition away from fossil fuels. Given that national oil companies (NOCs) produce roughly half of global oil and gas output, manage 40 percent of investments in the sector and two thirds of the planet’s hydrocarbon reserves, they have a critical role to play.
This event examined the levers that financial actors and regulators have available to enhance the credibility of NOC transition plans, and showcased research from Carbon Tracker, CCSI, IISD and WBA.
Featuring NRGI's
Patrick Heller
Chief Program Officer
El gran negocio de prestar a Pemex, bomba de tiempo
As Mexico Votes, State Oil Company Pemex Needs a New Direction
In less than two weeks Mexicans will vote for their next president. The outgoing leader, Andrés Manuel López Obrador, has made energy sovereignty and self-sufficiency one of the sustained themes of his presidency. AMLO, as he is universally known, has focused his energy aspirations on Pemex, the world’s most indebted national oil company. What Mexico’s next president does with Pemex will determine the country’s energy and fiscal future amid a rapidly changing outlook for fossil fuels.
Pemex faces unprecedented risk brought about by the quickening global energy transition away from hydrocarbons. At NRGI, we have described that risk in a new Spanish-language report, and summarize it below. We also offer some recommendations for the victor in June’s elections and the Pemex executives, including its director, whom the new president will appoint.
A risky business
National oil companies (NOCs) account for 55 percent of the world's oil production and yet they are moving more slowly than their private sector counterparts in terms of decarbonization planning.
Among the 58 NOCs we studied last year, Pemex ranked 11th in terms of its exposure to transition risk. The biggest of these risks is the changing economics of the oil sector, with demand likely to markedly diminish in coming decades as countries seek to meet their emissions reduction goals. Mexico’s remaining oil reserves will be increasingly costly to extract, meaning that as global oil prices fall, Pemex may be caught out, its assets “stranded.” We found that approximately $10 billion in Pemex's expected investment over the coming decade would not break even under the International Energy Agency’s Announced Pledges Scenario for future oil demand. Given Pemex’s already problematic debt obligations, this presents the government with the specter of more bailouts to alleviate the company’s financial situation, generating an even deeper crisis.
Value of Pemex's upstream oil and gas investments breaking even in each of the IEA's scenarios.
In late 2022, Pemex presented a new business plan which, for the first time, explicitly referenced the energy transition. The plan recognized as risks the international hydrocarbon market contraction due to the increase in electric vehicles, and the downward trend in the demand for oil-derived plastics. While this recognition was an important first step, we still know little about what government officials and Pemex executives plan to do with respect to the transition.
In March 2024 Pemex released a sustainability plan that included more detail on some aspects of its intentions to reduce production emissions. But the plan did not address the transition risk in terms of falling global demand and prices.
Early dissemination of our findings in a workshop with climate and energy experts in Mexico yielded more insight:
- Pemex’s diversification plans remain somewhat vague, and their technical feasibility is uncertain.
- Pemex must be more transparent and accountable about its financial situation.
- Many sector insiders believe that the transition will be slow, and that Pemex will remain competitive.
We are confident that experts from Mexico’s oil and gas sector and its climate community can work with Pemex to improve understanding and communication of its plans.
How to improve Pemex’s future
Our research and consultations have led us to propose three categories of recommendation:
1. Pemex should further recognize and analyze transition risks.
This means more thorough scenario planning around market conditions, shared publicly. And Pemex officials should include more acknowledgement of transition risk in their financial reporting—not just in planning.
2. Pemex should adopt and adapt transition risk mitigation approaches from other oil companies.
Executives should look very carefully at large fields with high production costs. Factoring in lead times (7.5 years on average) and changing market conditions, these may not represent the bonanza that some imagine. One such find is the Kante field in Tabasco state; our analysis suggests that increased investment could be a financial misstep. Ambitions around producing more “no matter what” should give way to innovative thinking about Pemex’s potential role in a domestic energy transition.
Regarding diversification and downstream activities, executives have several opportunities. First, Pemex should better coordinate with CFE, Mexico’s state-owned electricity company. Both can play a fundamental role in advancing the energy transition. Leadership should build a coordinated and integrated vision and action plan that defines the role of each company.
Decision-makers must also carefully consider the viability of diversification options. For example, the two leading presidential candidates have been enthusiastic about expansion in petrochemical production. But petrochemicals only account for 12 percent of current oil demand and the global market may soon be oversupplied as many oil companies seek to expand. This presents a risk of overinvestment and therefore warrants caution.
3. Mexico’s next president should oversee key changes in the government’s approach to the oil and energy sectors.
Mexico’s energy ministry (SENER) should assume a transition planning role in which officials consider the transition risk and build synergies among the country’s state-owned energy companies.
Meanwhile, the finance ministry (SHCP) should review the conditions for financial support to Pemex in the interest of fiscal responsibility and transparency in the management of public resources.
Moreover, the state, as Pemex’s owner, has a crucial role in holding the company accountable. SENER, SHCP, the Congress of the Union and the Federal Superior Audit Office determine and supervise the company's ownership policy. These actors should therefore play a role in improving transition-related decision making within Pemex.
Whoever triumphs on 2 June must stop Pemex from making risky bets and have a clear vision for the company—and Mexico—in a world in transition.
Mexico’s risky bets
Learn more about the transition risks Pemex faces with new NRGI research.
Growing resource-backed loans seen threatening oil economy
Transición energética puede agravar crisis de Pemex y generar una en México: NRGI
Avoiding $1.6 Billion in Debt and Making Fossil Fuel Transitions in Ghana
- In July 2021, the Ghana National Petroleum Corporation stated its intention to spend USD 1.65 billion of public money to purchase a share of undeveloped offshore oil projects held by Aker Energy, a Norwegian company.
- NRGI provided technical analysis to an alliance of civil society actors interrogating GNPC’s request, and raised questions around the value of the asset, GNPC’s capacity to jointly operate the field, and the riskiness of the investment, building on prior NRGI research including Risky Bet. This underpinned advocacy by the alliance calling for investigation and greater transparency around the transaction.
- Following persistent advocacy, the Ghanaian government reduced the value of assets in the Aker-GNPC transaction from $1.65 billion to $1.1 billion and committed to further evaluating the deal. Media investigations revealed that Bank of America had appraised the oil field’s value at $300 million.
- In May 2023, Aker returned ownership of the two offshore blocks to the Ghanaian government for a sale price of $1.
Building partnerships for united advocacy and reform
The extractive sector contributes significantly to Ghana‘s economy. Gold mining has been important for the country for over a century, and Ghanaians have more recently hoped that the country’s oil and gas assets will contribute to public revenues.
Following Aker Energy’s 2017 acquisitions in Ghana of the South Deep Water Tano (SDWT) block and a 50 percent stake in the Deep Water Tano / Cape Three Point (DWT/CTP) block, the Norwegian company dominated the policy environment. It successfully lobbied the government of Ghana to amend the governance architecture of the upstream sector. But more recently, Aker had been seeking private buyers for its stake in these offshore blocks, with no success.
NRGI and many others considered a public investment in the declining oil industry to be a risky bet
In July 2021 Ghana’s national oil company, the Ghana National Petroleum Corporation (GNPC), stated its intention to purchase a share of Aker Energy’s offshore oil projects, after Aker had failed to find any takers. The Minister of Energy submitted a memo to parliament requesting $1.65 billion for the government to finalize negotiations and acquire a 37 percent stake in DWT/CTP and a 70 percent stake in SDWT. NRGI and many others considered a public investment in the declining oil industry to be a risky bet—an accelerated energy transition would reduce the financial returns on this investment and purchasing the assets would divert funds away from programs that were potentially more socially beneficial.
NRGI’s research and technical expertise on national oil companies enabled us to support the Alliance of Civil Society Organizations (CSOs) Working on Extractives, Anti-corruption and Good Governance. We analyzed public data related to the GNPC-Aker transaction, GNPC’s past transactions, its strategic position, and emerging implications of energy transition on Ghana’s oil sector, revenue flows and economy. Concerns arose about the asset’s value, the capacity of GNPC to take on production, and the investment risk amid the transition.
NRGI provided vetted data and technical support to the allied CSOs who were then able to professionally and meaningfully engage on the issues with different stakeholders including the Ministry of Energy, parliament, GNPC, the International Monetary Fund, the World Bank, the Norwegian embassy, the media and the Ghanaian public.
Through an extensive advocacy campaign the alliance called for a halt in the transaction and for the development of a national policy on energy transition. Specifically the alliance (including NRGI) requested that the parliament fully investigate the transaction to verify the actual cost incurred by Aker to date on the blocks, clarify inconsistencies in the presentations by GNPC to Ghana’s cabinet, and allow for open consultation to provide opportunities for independent expert opinions. Alliance members engaged with the media locally and internationally, authored articles, participated in public forums, and called for government transparency regarding the deal. NRGI provided technical support for the development of communication materials and clear infographics for engaging the public. Two press statements were released in 2021 by the CSO alliance—in August and September. These were widely featured in the media in Ghana and abroad.
After 18 months of persistent campaigning, Aker Energy wrote to relinquish its interest in the SWDT block to Ghana for free. This reinforced the CSOs’ position on the risks of investment. In May, 2023 Aker Energy sold the other field to Africa Finance Corporation Equity and Investment for a token price of $1 after the former defaulted on repayment of a loan of $200 million from the latter.
Driving the energy transition agenda in Ghana
In response to the CSO advocacy demands and emerging issues, the Ghanaian government constituted the National Energy Transition Committee (NETC), hosted at the Ministry of Energy. The committee is tasked with developing an energy transition plan to inform a policy for the country and mandated to conduct a nationwide consultation with various stakeholders including CSOs and youth. GNPC and the Ghanaian government officials credited the work of NRGI and the alliance of CSOs as significant influences on the evolution of their approach and requested NRGI’s technical assistance in the development of an energy transition plan.
NRGI continues to advise GNPC and has met with company officials to provide technical support on their plans for developing a comprehensive strategy for diversification in response to the energy transition. Discussions have also addressed the importance of reviewing the law establishing GNPC to understand the governance challenges, the role of government and hindrances to a smooth transition.
In November 2023, NRGI published two reports that reference Ghana and GNPC’s exposure to transition risk—Riskier Bets, Smaller Pockets and Facing the Future—leveraging data in its National Oil Company Database.
Oil’s endgame will be in the Gulf
Facing the Future: What National Oil Companies Say About the Energy Transition
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National oil companies (NOCs) should publicly acknowledge the risk of the energy transition, assess this risk, and act by implementing mitigation plans.
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Only 9 out of 21 NOCs analyzed acknowledge the risk of the energy transition, 4 have mentioned the use of transition risk assessments, and 5 have explicitly mentioned strategies to mitigate the risk.
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None of the NOCs have published “just transition plans” detailing how they will help workers and communities.
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NOCs do not plan to decrease investments in risky oil and gas assets. Petrobras (Brazil), Petronas (Malaysia) and Sonangol (Angola) are divesting from less valuable assets, but not necessarily to mitigate transition risk or downsize operations.
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Some NOCs, such as NNPC (Nigeria) and GNPC (Ghana), want to expedite drilling before oil and gas demand falls and acquire assets divested by other companies.
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At least six NOCs intend to increase oil and gas investment to secure energy supplies.
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Most NOCs intend to diversify, especially into gas, oil refineries, petrochemicals and renewable energy. However, it is unclear how much NOCs are spending on diversification or whether these are effective mitigation strategies.
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NOCs can learn from each other. Two NOCs—Ecopetrol (Colombia) and Petrobras—are clear leaders in terms of recognition of energy transition risk. However, NOCs disclosing more transition risk information are not necessarily also those reducing higher-risk investments.
NOCs’ readiness to manage energy transition risk (based on public statements)
National oil companies (NOCs) produce half of the world’s oil, yet only recently have climate organizations considered NOCs a worthwhile area for advocacy.
