Editorial

Mexico’s Oil & Gas Sector Under Scrutiny in Wake of Gulf’s ‘Eye of Fire’

By: Gerelyn Terzo of Sharemoney

Not too long ago, a section in the Gulf of Mexico became consumed with flames, more closely resembling a scene from the Twilight Zone than anything seen in real life. The source of the fire, which erupted near the Ku Maloob Zaap offshore oil platform controlled by state-run oil company Pemex, was apparently a gas leak that led to a burst pipeline. In turn, flames labeled on social media as an “eye of fire” erupted beneath the surface of the sea.

A trio of ships battled the blaze, which was located only within a stone’s throw, or about 400 meters, of the offshore platform. The inferno persisted for five hours, and the incident has sparked a debate on Mexico’s regulatory landscape and fossil fuels that is likely to last much longer.

The offshore oil platform is a key oilfield for Pemex, producing some 700,000 barrels of oil equivalent per day, which represents 40% of the company’s total output, as per the Energy Ministry. Production at this particular oilfield has been on a downward trajectory for years. Pemex is reportedly saddled with close to USD 114 billion in debt, which reportedly prevents it from pouring capital into new exploration and production technologies, not to mention proper upkeep and maintenance.

Mexico is on a quest for energy independence. While Pemex is reportedly struggling to keep up with maintenance costs, the company recently agreed to pour nearly USD 600 million of the government’s money to gain total control of an oil refinery near Houston, Texas. Pemex currently shares ownership with Royal Dutch Shell but is buying out Shell’s 50% stake in a deal that is expected to close by year-end.

Plenty of Blame

Pemex addressed the incident, which involved a pipeline from beneath Mexico’s Gulf waters that links to the Ku-Maloob-Zaap drilling platform being ruptured. Pemex blamed the incident on electrical storms coupled with “the presence of gas on the sea surface.” The valves on the pipeline, which has a diameter of 12 inches and are located 78 meters deep below the surface of the sea, apparently burst, triggering the blast. The valves have since been turned off. Fortunately, there were no injuries from the fire, while production remains on course.

Angel Carrizales, executive director of Mexico’s Environment, Safety and Energy Agency (ASEA), said on Twitter that the “event did not generate any spill.” Pemex states that the repairs are underway, and it is launching an analysis to identify “the root cause of the gas leak in the pipeline.” The damage was already done, however. The images of the eye of fire captured by a helicopter already went viral on social media, leaving users to draw their own conclusions about the regulatory landscape for the oil and gas sector in Mexico.

Calls for Change

While Pemex and Mexico’s ASEA are seemingly attempting to sweep the matter under the rug, activists are not convinced that there was zero environmental impact. These climate activists are demanding that a probe be launched to assess the fire’s effect on the climate and environment. Rather than putting their trust in the local authorities, these groups and individuals are seeking support elsewhere.

Climate change activist Greta Thunberg was among the first to speak up, taking aim at the powers that be for grouping themselves among “climate leaders” while striking up production at new fossil fuel-powered plants comprising oil and coal at the same time. She went on to lament, “This is the world they are leaving for us.”

Clearly, this is a global issue beyond Mexico– countries as close to the Gulf as the Dominican Republic and may also feel the effects of these global climate events that continue to occur time and time again.

Greenpeace Mexico has also come out swinging, saying that the fire is proof of the risks surrounding the use of fossil fuels. The climate organization is taking Pemex’s explanation with a grain of salt and instead is waiting for an assessment of what the damage was to marine life. In the interim, the environmental organization is of the opinion that infrastructure failures are to blame for the explosion.

Greenpeace points to the risks from fossil fuels like oil to the climate and human life, all of which has been exacerbated by Pemex’s “low maintenance” standards. The organization says that the risks surrounding oil E&P are present 24/7 and command an overhaul of the “energy model,” according to Greenpeace Mexico Executive Director Gustavo Ampugnani. He goes on to call the energy production model “inoperative” and one that exposes the environment to serious risks.

The problem, according to Greenpeace, is that fossil fuels are still in the mix instead of turning the tide toward renewable energy sources. Greenpeace is calling for a “fossil-free revolution” in the wake of the disaster, suggesting that fossil fuels need to be erased from the world.

Greenpeace Mexico’s Pablo Ramirez is cited by Climate Home News as saying that the environmental impact from the gas leak that seemingly led to the fire is incalculable due to Mexico’s non-transparent energy industry including the details surrounding the pipeline at the center of the accident, which he characterizes as “very problematic.”

It is also possible that the pipeline could have been experiencing a slow leak that eventually led to the explosion, Oil Change International Senior Research Analyst Lorne Stockman suggested. Stockman described an oil and gas sector that “pollutes with impunity,” saying that she would like to see it closed down entirely sooner than later.

Uphill Battle

Those calling for an overhaul of Mexico’s oil and gas sector face an uphill battle, even in light of the eye of fire. Mexico President Andrés Manuel López Obrador does not see a problem. In fact, he is quite proud of the Latin American nation’s energy industry and believes that oil is “the best business in the world.” On the flip side, he is no fan of renewable energy and has described wind turbines as “visual pollution.”

Law firm DLA Piper recently published a report in which it states that for the past year and a half, the Mexican government has touted “legal reforms” that show a preference toward state-run entities Pemex and the  Federal Electricity Commission in the hydrocarbon and electricity markets over private investments. Mexican lawmakers are willing to tighten regulation on hydrocarbon imports so that Pemex can have a bigger share of the market pie.

Nevertheless, experts say that Mexico’s pursuit of energy independence is hurting the country as local entities are not able to keep up with demand on their own. Making matters worse, regulators are doing spot checks at privately owned storage facilities. They have reportedly shuttered activity at Sempra Energy’s IEnova division located in Puebla, which has also affected Valero because the company uses this terminal to load fuel.

All told, Pemex will likely get through the fire incident unscathed. This is not only because Pemex is owned by the government but also because ASEA does not have the power to investigate the company.

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