PEMEX's Energy Transition Challenges

PEMEX has approved a sustainability plan towards 2030, which includes reducing its methane emissions by 30%. However, this may also entail a blow to its contribution to the public treasury, according to specialists. "Government revenues from exploration and production could decrease by 84% in a Net Zero Emissions scenario, and PEMEX's contribution to total government revenues could decrease from 18% to 3%, according to an analysis by Carbon Track, an organization based in London," states Fernanda Ballesteros, Director for Mexico, Natural Resource Governance Institute.

More than 70% of all industrial gases causing global warming are generated by oil, gas, and coal extraction companies worldwide, placing them at the center of international efforts to produce less polluting energy sources. Ballesteros and Andrea Furnaro, Policy Analyst, Natural Resource Governance Institute, authored the report PEMEX and the Energy Transition: Timely Responses to Growing Challenges, in which they point out that the NCO is ill-prepared to face a scenario in which fewer hydrocarbons will be required.

"In its business plan, PEMEX acknowledges for the first time the risks of the transition but does not go beyond an analysis and how it plans to face it. In March of this year, it published its sustainability plan where it provides more details but focused on emission reduction without delving into the risk of the transition in terms of falling prices and demand," Ballesteros explained.

In their report, PEMEX ranked 11th among the 58 state-owned companies with the highest exposure to energy transition risk. "State-owned oil companies represent 55% of world oil production. However, we see that they are progressing more slowly than major international (private) oil companies in their decarbonization plans."?

Energy Transition for PEMEX The energy transition comes at a time when PEMEX is already facing challenges. Its oil production has nearly halved since it began declining in 2010, resulting in Mexico becoming a net importer of oil products. To strengthen energy sovereignty and ensure a diversified and secure oil supply, PEMEX has invested significant amounts in the national refining system. Additionally, it carries significant financial commitments stemming from pension expenditures for its workers. Considered the most indebted oil company in the world, PEMEX remains afloat thanks to substantial government support. Its debt exceeds US$100 billion, which is equivalent to 5.6% of the estimated GDP for 2023, mentions the report .?

Meanwhile, a significant percentage of public finances still come from oil revenues. In 2023, oil revenues accounted for 15% of total budgetary revenues. Of these, 10% came from revenues generated by PEMEX. Considering PEMEX's contribution to the Mexican Oil Fund, PEMEX's share of budgetary revenues in 2023 represents approximately 22%. However, a significant portion of this contribution has been absorbed by PEMEX itself through financial support received from the government.

These factors place PEMEX in a particularly challenging position to address the global energy transition challenge. The response from PEMEX and the new government will be crucial for the sustainability of the state-owned company, public finances, energy security, and the 520,000 people employed by the NOC and associated industries, particularly in states like Tabasco and Campeche, where PEMEX extracts the majority of its oil, accounting for 50% and 41% of the company's total production, respectively, states the report.?