Mexico’s state oil and natural gas giant Petróleos Mexicanos, or Pemex, is working to improve its environmental, social and governance (ESG) scorecard.
The company has hired an external consultant to devise a plan focused specifically on reducing emissions. The plan would also assess alternative sources of revenue that could include lower carbon options.
Pemex is also trying to assess the risk to income presented by the energy transition, and how low carbon energies might play a role in the long term strategy of the company.
Pemex hosted a presentation on Tuesday to outline details of the project. The long term sustainability strategy will be completed and brought before Pemex’s board before the end of 2023.
The company, if the plan is approved, would first focus on low hanging fruit in terms of decarbonization, according to the presentation. Exploration and production (E&P), and gas processing, accounted for 67% of all emissions in 2022. The effort would be around reducing flaring and venting of natural gas in these processes, along with identifying and eliminating hidden emissions.
Reducing methane emissions is a key pillar in the near-term strategy, according to Pemex.
Last year, Mexico joined the United States, the European Union and eight other major economies in joining the Global Methane Pledge Energy Pathway. The initiative encourages countries “to capture the maximum potential of cost-effective methane mitigation in the oil and gas sector” and to eliminate routine flaring of natural gas “as soon as possible, and no later than 2030,” according to the U.S. White House.
Along with a reduction in flaring, Pemex would focus on improved natural gas usage, including capturing fugitive emissions and monitoring gas usage. Infrastructure would be updated to address leaks. The company would work on energy efficiency and towards enhanced disclosure of emissions.
The overall intention is to improve Pemex’s ESG score. The initiatives would work on making gains in “the ESG perception of the company,” the consultant hired by Pemex said.
Scope 1 and 2 emissions would be the priority. Scope 1 emissions are direct greenhouse emissions from operations, while Scope 2 emissions are indirect emissions associated with the purchase of energy.
Pemex executives said that social and governance strategy plans would be disclosed separately, and would include measures to enhance worker safety. Worker safety “is a key component of the ESG score, but at this moment our focus is on the energy transition,” the consultant said. The company is “working on a comprehensive strategy” on ESG, executives said.
In July, Fitch Ratings Inc. downgraded Pemex’s credit rating on concerns about liquidity, mounting near-term debt, and Pemex’s safety and environmental record. This came shortly after another fatal accident at Pemex facilities. Moody’s Investors Service then affirmed its ‘B1’ Corporate Family Rating for Pemex, but changed the outlook from stable to negative.
Carlos de Regules Ruíz-Funes, former head of Mexico’s Agency for Safety, Energy and Environment (ASEA), told NGI Mexico’s GPI that access to capital “requires meeting higher environmental standards and demands for the projects that receive financing and capital investments.” He added, “And in Mexico, it seems to me that the industry still needs to close that gap that separates it from where it is now to the place it needs to get to meet the demands and standards of what is required by the capital market.”
Emissions goals would be established looking at 2030 and 2050 targets, according to Pemex. If Pemex set net-zero goals, it would join peers such as Brazil’s Petrobras and Colombia’s Ecopetrol SA in doing so. Almost all major oil and gas firms have established major long term decarbonization targets.
The company is aiming to have plans in place by the end of the year at which stage a capital expenditure program would be put in place. Last year, Mexico’s president Andrés Manuel López Obrador said Pemex would invest $2 billion to improve methane capture at the company, without providing details.
A recent study led by the Environmental Defense Fund found that Pemex natural gas processing facilities were emitting “exceptionally high levels of methane pollution” at 10 times the rate being reported by the government.
Pemex executives during their latest earnings call said they were developing infrastructure to increase natural gas use. Pemex flared 6% of production during E&P in the second quarter, compared to 10% in the same period last year. Greenhouse gas emissions decreased by 17.6% in the same time frame, the company said.
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