Can Mexico Regain Its Oil Reputation?
Operations in Mexicos long awaited Zama field fail to take off as Pemex once again holds up development of the oil region by halting the drilling of an appraisal well. High hopes for Mexicos oil industry are now uncertain due to slow progress and repeated scandal surrounding the countrys state-run petroleum company Petrleos Mexicanos, or Pemex. The drilling of the Asab-1 appraisal well would determine how much of the Zama field falls under Pemex ownership, and how much is owned by Talos, who discovered it in 2017. Despite being instructed to establish a unitization and unit operating agreement (UUOA) for joint operation of the field by the Energy Ministry Sener last year, both Pemex and Talos hope to operate the project individually. Varying evaluations have been carried out on the Zama oil field, some suggesting that Talos is the majority stakeholder, and others saying Pemex is. Asab-1 is essential in determining the Zama boundaries to settle this argument once and for all. By failing to drill the well, it is unlikely that any UUOA is signed, further delaying operations in the region. While Pemex hopes its most recent evaluation, deeming it the majority owner of the field, will give it the authority to become the fields operator, the outlook is not certain. Commissioner Hctor Moreira Rodrguez of Mexican regulator CNH believes that so long as the unitization process is delayed, no production will take place on either side of the discovery, and I think this has a very large cost for the nation.  This comes at a time when Pemex is facing increased scrutiny over several of its practices. For example, the companys environmental standards have come under fire recently. This month, the Natural Gas Intelligence (NGI) accused Pemex of sliding in two key environmental indicators. The report suggests that Pemex has increased the quantity of excess methane it burns off, also known as gas flaring. Production of high-sulphur fuel oil (HSFO), a heavily polluting energy source, has also risen. In quarter one of 2021, Pemex is thought to have burned off as much as 50 percent more natural gas than in the same period of 2020, despite failing to increase its oil production. This goes against environmental aims set out in the United States-Mexico-Canada Agreement (USMCA), that came into place around a year ago. The new practices seem to go in line with President Andrs Manuel Lpez Obrador's (AMLO) energy policy, which has come under attack by environmental activists since he came into office in 2018. Mexicos Federal Electricity Commission (CFE) appeared to be transitioning towards less-polluting energy options, such as natural gas. However, since AMLOs inauguration, he has encouraged the use of fuel oil and diesel by the CFE. As well as environmental concerns, the lens has been pointed towards Pemex as just last week AMLO requested Dutch energy company Vitol to reveal the name of the Pemex official to whom bribes were paid. Vitol revealed at the end of 2020 that it had agreed to pay $164 million to U.S. and Brazilian authorities, following bribes made in Mexico, Brazil and Ecuador to obtain business over the previous five years. Mexicos once thriving oil and gas sector has stagnated in recent years, with Pemex battling against international supermajors for a stake in Mexicos world-renowned oil industry. The failure to explore the Zama field to determine ownership and commence operations, as well as recent scandals, threatens AMLOs plan to restore Pemex to its former glory. By Felicity Bradstock for Oilprice.com  More Top Reads From Oilprice.com: