Mexico: Bill To Ban Hydraulic Fracturing In Mexico

Senators from the Morena (Moviento de Regeneración Nacional) political party, have submitted a bill to enact the General Law to Ban Hydraulic Fracturing (Ley General para la Prohibición de la Fractura Hidráulica) (the "Bill"). The Bill is sponsored, among others, by the Chairman of the Mexican Senate, Mr. Martí Batres, who is very close to President López Obrador (who, in turn, is openly opposed to the development of hydraulic fracturing activities in Mexico).

The Bill's explanatory memorandum starts by criticizing the energy policy adopted by the Mexican government in the 90s to move away from coal, fuel oil and diesel, and instead generate electricity from natural gas (in light of the efficiencies brought by combined cycle power generation). In a nutshell, this criticism is based on the lack of development of natural gas projects by Pemex and the Mexican government during that period.

This explanatory memorandum moves on to describe hydraulic fracturing, emphasizing the negative aspects of this technique, including the use of a "cocktail" of ~750 chemicals in the proppants used. It further elaborates on the massive amounts of water used, and the absence of regulation to dispose such water.

The Bill also elaborates and briefly describes the negative social and environmental aspects of hydraulic fracturing, including the GHG impacts that venting and uncontrolled emissions from these projects have on the environment.

Finally, the Bill cites multiple reports (some of which are 10 or 15 years old) to elaborate on: (a) the negative environmental and health impacts this technique has had in the United States and other jurisdictions, and (b) the economic unfeasibility of these projects in Mexico.

As to the proposed legislation itself, below are the main points:

  1. Establishes a general –nationwide– ban on hydraulic fracturing in any hydrocarbons exploration and exploitation activities. In other words, it does not distinguish conventional from unconventional resources;
  2. Seeks to establish the "Precautionary Principle" which establishes that the absence of scientific certainty over certain technological processes representing a harm to the environment or the public health, is reason enough to establish a ban and/or stop their development;
  3. Grants the Ministry of Energy (Secretaría de Energía) ("SENER") and not the National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos) ("CNH") or other environmental agencies, the authority to enforce the proposed statute;
  4. Reiterates many of the concepts that are already included or provided for in the Hydrocarbons Law (Ley de Hidrocarburos); a statute that is regulatory of the Mexican Constitution on oil and gas matters;
  5. Commands SENER to "(...) Definitively cancel the exploration and exploitation of hydrocarbons through hydraulic fracturing projects in effect and in process (...)".
  6. The saving provisions (artículos transitorios) establish that: (a) within a term of 120 days following the effective date of the law, Congress shall amend the existing legislation to make it consistent with the provisions of this statute, (b) ASEA will be in charge of conducting drilling activities using hydraulic fracturing for "scientific purposes", and (c) the Federal Environmental Prosecutor (Procuraduría Federal de Protección al Ambiente) shall enforce this law (even though the body of the proposed statute establishes that it will be SENER).

In addition to the obvious economic, technical and financial implications that the Bill could have in Mexico's energy industry, we have identified a number of provisions that could be subject challenge from multiple angles. Those provision include the following:

  1. the Bill does not consider that the Hydrocarbons Law already grants jurisdiction to different ministries and agencies of the Mexican government on the subject matter; it inexplicably empowers the Energy Regulatory Commission (Comisión Reguladora de Energía) to impose fines under this statute. It is also questionable whether SENER could "cancel" any authorized projects; while SENER has an involvement in the award/migration process of all hydrocarbons exploration and extraction contracts, it does not have the power to cancel/terminate them; it does however, may have such authority in the case of entitlements (asignaciones) granted to Pemex.
  2. the Bill fails to consider that the Agency for Safety, Energy and Environment (Agencia de Seguridad, Energía y Ambiente) already regulates hydraulic fracturing through considerably strict regulation; and
  3. the proposed statute uses terms and concepts that have far been repealed and replaced in Mexico's legal framework. One example is the use of minimum daily wages as a reference value for fines/penalties; this concept was replaced by the so-called UMAs back in 2016.

Considering the strength sponsor of the Bill – Morena currently holds sufficient votes to pass the bill in both houses of Congress – and the political environment (e.g. President Lopez Obrador "ordered" to suspend Pemex's hydraulic fracturing activities in an oil field located in Huampa, Tampico, notwithstanding that the relevant plan was approved by the CNH the day before this announcement), the industry should closely monitor its legislative process.

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