Last Friday, a gas leak from an underwater pipeline sparked an impressive blaze at the surface of the ocean west of the Yucatan peninsula in Mexico. The company pipeline belongs to the State-owned oil company of Mexico. If Pemex is to blame for the disaster, the banks and investors backing the oil company must also be held accountable. Among them : HSBC and JP Morgan Chase, two banks under public scrutiny ahead of COP 26 in Glasgow.
Pemex, a major polluter
In 2019, The Guardian ranked Pemex in the top 20 oil and gas companies with the highest carbon footprint in the world and clearly, the company has no plan for that to change : in fact the Banking on Climate Chaos report lists Pemex in the top 30 oil and gas companies with plans to expand production and tap into new reserves by 2050. If Pemex sticks to its current plans, the company would contribute to the emission of another 2,385 tons of CO2 emissions by 2050, i.e. five times the CO2 emissions of a country like Mexico (estimate based Mexico’s 2018 CO2 emissions).
To make things worse, ¾ of Pemex’s production is offshore. It is highly likely the company will remain a key player of the offshore industry given its current offshore reserves under production (around 8 billion barils) and projections for expansion (around 5.7 billion barils until 2050).
Banks and investors supporting Pemex
Given the company is State-owned, Pemex does not have private shareholders However, investors and banks across the world are backing Pemex through loans, underwriting or bondholding. According to the Banking On Climate Chaos 2021, Pemex has received 55 billion dollars in financing for its carbon intensive activities from 2016 to 2020. The number 1 bank supporting Pemex is HSBC with 6,3 billion dollars. Followed closely by JP Morgan Chase, champion of the fossil fuel bank league for a few years now. BBVA, Bank of America, Japanese bank Mizuho, Citi, SMBC, Santander, French BNP banks Paribas and Crédit Agricole have all extensively backed Pemex in recent years.
According to Bloomberg financial data, the top investors include AM Fidelity Manager Investment (FMR LLC) with more than 5 billion dollars in bonds, insurer Allianz SE holding more than 3 billion dollars, followed by BlackRock, Dodge, Capital Group, and Prudential Financial Inc each holding 1,5 billion USD in bonds. Two French financiers rank among the 10 biggest Pemex investors: Crédit Agricole/Amundi (720 millions USD) and Carmignac (more than 500 millions USD).
Offshore drilling: more environmental disasters in the making?
The latest International Energy Agency net zero scenario stresses the need to stop investing in new oil and gas projects and to start phasing down oil and gas production. The Pemex disaster is a timely reminder that offshore drilling should be on top of the list, starting with ultra deep offshore drilling.
Offshore drilling risks increase with depth. The Ku Maloop Zaap platform and pipeline implicated in the Pemex leak and fire are “only” 100 meters below sea level and still required a complex five hour intervention as well as huge volumes of water and azote to extinguish the fire. Although the Mexican oil security department has stated that to date, there are no spills, there is still no clarity regarding how the leak was stopped and the environmental impact of the accident. After the Deepwater Horizon accident in the same area, the leak was ongoing for some time after the fire was put out. Seven million litres of toxic dispersant were injected to reduce the risk of an oil spill forming at the surface of the water but with very damaging effects on the coral reefs across the Gulf of Mexico.
This is of particular concern as the offshore industry is increasingly looking to drill 1500 meters deep and beyond, despite evidence that the risk of an industrial accident increases by 8.5% with every 30 meters of depth. As the platforms get moved further away from the coasts, the lapse of time for reaction increases and the means of intervention lessen. Also, the extreme temperatures and pressure at such depths make it more challenging to intervene.
It is critical that the financial sector commit seriously to phasing down oil and gas production instead of encouraging further and riskier developments. Pemex is definitely not the only oil and gas company putting the climate and ecosystems at risk. Banks, insurers and investors must come to COP 26 in Glasgow with pledges to end all support to oil and gas expansion and to the sectors concentrating all the ESG risks: ultra deep and Arctic drillings, tar sands, shale oil and gas.