Mexico’s energy transition: What to do with Pemex?

Experts are concerned about the role Mexico’s federal oil company Pemex could play in the energy transition.

“The challenge is to stop thinking about Pemex from a sovereignty point of view and really think about what we can do so that the company can function” amid sustainability and ESG trends, Lourdes Melgar, research affiliate at the MIT Center for Collective Intelligence, told the Inside LatAm: México 2023 event hosted by Moody’s in Mexico City.

Ever since the Andrés Manuel López Obrador administration took office at the end of 2018, it pushed to ramp up Pemex’s refining capacity to produce enough fuels to meet domestic demand by end-2023.

“The next government that comes is going to have to deal with climate change. This government has not done so, on the contrary. I believe that we are in a critical situation in our failure to comply with international agreements and the national goals that we have set ourselves,” she told BNamericas on the sidelines of the event.

Among Pemex’s flaws is its strong focus on processing heavy oil with outdated refineries such as 44-year-old Cadereyta in Nuevo León state and 109-year-old Madero in Tamaulipas state. Those two might as well be shut down because they are only obtaining one-third of a barrel’s potential, Melgar said.

“They already have problems with lack of maintenance and old infrastructure, and modernizing them would require extremely large investments,” she said, adding it would make more sense to focus on the two newest facilities: the Deer Park refinery in Texas, which the government bought in 2020, and the 200bn-peso (US$11.3bn) Olmeca refinery in Dos Bocas, Tabasco state.

Regarding Deer Park, Melgar said the refinery is forced to comply with ESG standards under US law, while Dos Bocas could focus on petrochemicals. Olmeca began test production of primary gasoline in early September and is scheduled to begin operations soon, with a 290,000b/d (85% capacity) target by December. 

However, the refinery, one of López Obrador’s signature projects, is facing controversy as the 2024 budget proposal doesn’t include any funds for the facility and because finance minister Rogelio Ramírez de la O refused to update capex during a congressional hearing on Tuesday. 

Pemex could learn from other state oil companies, such as Brazil’s Petrobras or Colombia’s Ecopetrol, Moody’s VP senior analyst Roxana Muñoz told the event. The first solved its financial problems with the sale of some assets, while the second embarked on an ambitious clean-energy strategy led by President Gustavo Petro, she said.

Pemex has accumulated a US$110bn debt.

In July, Moody's downgraded Pemex's outlook from stable to negative, while affirming its 'B1' rating, saying the company would need ample external funding but its access to credit would be limited by its poor ESG track record.