Pemex Needs Nearly $110 Billion to Hit Mexico's Output Targets

Mexico is dependent on oil and gas imports for two-thirds of its energy consumption, despite the fact that the country has abundant domestic fossil fuel resources. But instead of exploiting its own producing power to the greatest potential, Mexico relies on its neighbor to the north for the majority of its energy needs, leaving it in a vulnerable position. However, the answer to Mexico’s energy insecurity is not building up more domestic oil and gas production and refining capacity, according to a recent assessment from the International Institute for Sustainable Development (IISD). Rather, the report argues, the country’s limited resources would be far better spent on diversifying its energy sector through the expansion of renewable energies and supportive infrastructure.Mexico’s energy vulnerabilities stem from more than just its reliance on the United States to keep the lights on. The country has concerningly low levels of diversity in its energy mix, and extremely concerning reserves of those energy resources it does rely on. At present, the country has just 2.4 days’ worth of gas storage capacity, leaving Mexico extremely exposed to shocks in supply or market volatility. The Mexican government has responded to these pressing vulnerabilities by working to significantly increase national energy output, and especially oil and gas production and refining capacities. However, the IISD argues that this strategy is misguided. “Domestic oil and gas production targets would come at very high costs and produce limited energy security gains,” the IISD wrote in a press release accompanying the report. “Pursuing the government’s current oil and gas production targets would require around USD 160 billion in capital expenditure—including nearly USD 110 billion from Pemex—while developing uncommercial fields that could generate net losses of USD 17.4 billion over 15 years,” the press release goes on to summarize. “Even with this level of spending, production targets may not be met within the planned timeframe.”Moreover, Mexico’s development of its oil and gas sector would come at a major cost to the climate as well as the environment. Environmentalists have raised major concerns over the recent two-year partnership forged by Brazil’s Petrobras and Mexico’s Pemex in June. The partnership between the two state-run fossil fuel companies aims to explore mature and deepwater oilfields in the Gulf of Mexico, warning that the project could majorly derail the countries’ respective decarbonization commitments, significantly increase the risk of oil spills in the Gulf, and displace coastal communities.“This is an effort from the Mexican administration to increase oil barrels, but at what cost,” Renata Terrazas, vice president of the Mexican branch of the marine environmental group Oceana was recently quoted by Mongabay. “Right now we’re just guessing. There’s no transparency about what this actually means, and that’s one of the things that we fear the most.”In addition to being more environmentally responsible, prioritizing investment in renewables just makes good economic sense for Mexico. The IISD suggests that Mexico would be better off investing in a more diversified and resilient energy system by building out and refurbishing energy grids and transmission infrastructure, increasing the development of distributed solar energy and other renewable energies, and increasing energy storage capacities.“Mexico has a choice about where to direct public investment. Investing billions in uncommercial oil and gas fields risks large losses without meeting the government’s production targets, while investing in domestic renewable power, grids, and storage can cut imports, strengthen sovereignty, and attract private capital,” said Luis Martínez, co-author of the IISD report. This assessment reflects a larger turning point in energy security at a global scale. In the past, fossil fuels have represented reliability and security, while renewable energy growth has been driven by policy and climate imperatives rather than economic and security strategy. That script has flipped. Worldwide, renewable energy adoption is soaring as renewables simply become too cheap to fail and increasingly represent a pathway toward energy independence. By Haley Zaremba for Oilprice.comMore Top Reads From Oilprice.comPashinyan’s Nuclear U-Turn Gives Moscow an Opening in Armenia5 Stocks Cashing In as $100 Oil Pushes Drivers Toward ElectricRubio Warns Ukraine Stalemate Could Turn Into Wider Conflict