'Difficult for Pemex to survive energy transition' – NGO

New York-based NGO the Natural Resource Governance Institute (NRGI) is predicting a tough future for Mexico's state oil and gas company Pemex, saying it will likely “not survive” the energy transition due to its financial crisis and declining production. 

“It is difficult for Pemex to be part of the group of state oil companies that survive the energy transition until the end, or to be one of the last ones left standing,” it said in a report released on Wednesday.

The state-owned company’s debt is projected to reach US$94.5bn by the end of this year. Although that would be a reduction from the current US$106bn, it is still said to be the most indebted oil firm in the world, despite having received significant public funds from President Andrés Manuel López Obrador's (AMLO) administration.

In the 2024 federal budget, the federal government allocated 481bn pesos (US$29bn) to Pemex, plus a 145bn-peso cash injection to help tackle its debt.

“Without sufficient profits, Pemex's debt will increase. For their part, creditors have shown themselves willing to continue lending money to Pemex, given the expectation that government support will continue,” the NGO said. 

“However, insofar as more creditors take the risk of the energy transition and the need to decarbonize their investments seriously, this support will be increasingly questioned and interest rates for Pemex and/or the Mexican government will increase (in fact, they have already started to increase). This could make the company's borrowing costs prohibitive and cause a spiral of financial problems that, in turn, make government support too costly,” it said. 

However, the firm's finances are not the only problem for the company's future. The NGO also criticized its business model, which has focused on refining plans that have caused it losses amid declining output of oil and gas. Pemex and its partners reported their lowest crude production in 13 years in the first quarter, averaging 1.54Mb/d (million barrels per day) . 

“Oil extraction has experienced a long-term decline. Even with substantial financial support from the government, Pemex has been unable to significantly reverse falling production and it is unlikely that this situation will change radically,” NRGI added. 

Concerns over the future of the federal oil and gas firm have grown this year with the outlook for the presidential elections on June 2. 

On one hand, Claudia Sheinbaum, the president’s chosen candidate and frontrunner in the polls, has vowed to refinance the company’s debt and continue the plans started by AMLO, and on the other, opposition candidate Xóchitl Gálvez has called for the modernization of Pemex so it can focus solely on exploration and production, in addition to adding other alternatives to its activities such as geothermal energy and green hydrogen. 

Moody’s lowered Pemex's credit rating to 'B3' from 'B1' on February 11, which is just one level above junk status.

Pemex unveiled its sustainability plan at the end of March, in which it outlined its intentions to cut its greenhouse gas emissions by 54% in the next six years and achieve net zero by 2050, among other measures. 

This followed the publication of a sustainability strategy with options created by Standard & Poor's to help Pemex improve its ESG image, particularly with the ratings agencies. In that publication, the company included two business models based on green hydrogen as long-term options for sustainability, among other things.