Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market.
This 15th Q&A in the series is with Horacio Polanco, an energy and environmental lawyer who has worked in the Mexican oil and gas industry for nearly 40 years. Since 2014 Polanco has been an environmental legal consultant at Estrategia Ambiental Sustentable del Siglo XXI (Sustainable Environmental Strategy for the 21st Century). He worked previously at ORPC Legal Consultants as head of the environmental legal area where he represented Mexican fishermen in a lawsuit against BP plc following the Macondo blowout in the deepwater Gulf of Mexico, as well as several other cases of citizens seeking compensation against energy companies for environmental damage.
Polanco worked at Petroleos Mexicanos (Pemex) from 1982-2004 in several different areas of the state-owned oil company, including refining, human resources, oil production and security regulation. He has a master’s degree in political administration and environmental law from the Universidad Anáhuac and a bachelor’s degree in law from the Universidad Veracruzana.
Polanco may become the next director of Mexico’s Energy & Environment Security Agency (ASEA) following the resignation in late August of Luis Vera Morales. Polanco spoke to NGI about his plans for ASEA and why he should be the next director.
NGI: What is your background in the energy sector and why do you think you’d be a good candidate to lead ASEA?
Polanco: I am a lawyer and graduate from the Universidad Veracruzana and member of the class of 1977-1981. I was born and raised near and around oil-producing fields, which is why these current issues related to oil exploration and production and its benefits and social consequences are ones that, if you grow up around them, you become very passionate about as a professional and a lawyer.
As you know, as a result of the energy reform, Mexico is faced with a different scenario in regard to the development of oilfields and deposits and other energy sources. The most recurring topics that have arisen from new energy projects — in terms of social impact — have to do with exploration, production and refining activities, both onshore and offshore. Throughout my life, I have participated — for free — in advising local communities, farmers and fishermen that have been affected by oil extraction activities.
For example, events such as explosions, oil spills, or land and property impact when Pemex or other oil contracting companies temporarily or permanently occupy areas, generate conflicts about who pays for the damages to goods or property. This can create cases where abuse has taken place by a party that has occupied the land and can become a combative scenario. I have dedicated myself to cases such as this in recent years.
The truth is that I consider myself a friend of progress and a friend of private investment, but also a friend of the law. I consider that, for things to function well, all of the actors involved in these types of energy projects — from electricity co-generation plants in Tuxpan, Veracruz that include gas and fuel to generate energy, to things like the construction of the Dos Bocas refinery — all the aspects of the industry involving new projects should be properly handled with care. If anything should be considered important and transcendent, it should be industrial security and the operational security of the companies to guarantee the security of the people, of the environment and the infrastructure.
For those reasons, ASEA was created, to be a regulator of all the players. Remember that before the energy reform, the only players in Mexican energy were Pemex and the CFE. But, in a new scenario where there is participation from international private companies, there has to be an autonomous entity with a high level of specialization in the industry. The director of ASEA and the people who work in the agency have to have experience in the areas of electricity and energy generation, as well as experience in oil field development, and in the area of industrial transformation, or refining. ASEA has to have experience and knowledge across the industry, from the exploration of an oil block and its prospects to the opening of a gasoline station. It has to be present in all situations in the industry.
I think that if we all do our…homework and fulfill our duties, we can generate synergies that moves Mexico forward and pulls the country out of its current energy rut. If ASEA runs at it should, it can encourage foreign and national investment and generate fresh resources in these activities that are very profitable.
With more participation in the industry and less monopolistic presence, there’s more competition. With more competition, consumers are the ones who win. So, for that reason, I think that ASEA plays a very important role, like that of a referee, where it monitors the performance of all the players and assures that the playing field is fair and balanced and that there aren’t any abuses by participants.
I also think that it is of equal importance for the ASEA to make sure that the social impact and environmental studies are carried out appropriately to assure all involved agree with the project prior to the commencement of construction and operation. If that is done correctly, there is better probability of a higher profitability for Mexico. With more profitability, if everything works as it should, the money is distributed within the government, the state governments and the municipalities that require help.
For that reason, I am willing to leave my comfort zone and follow my heart in search of a challenge that I consider very interesting and important. It is one that I consider intellectually challenging and, in the event that I am given the position as the head of ASEA, I would do my best to put Mexico first. While doing so, it is important to remember that the energy industry is global and that Mexico is just a single player and, as the country’s industry develops, maintaining the well-being of the people is the most important objective.
We are seeing conflicts all over the world between people defending their land and resources against development projects in the oil and gas industry. The creation of new energy projects in a sustainable way is a worldwide push and we, in Mexico, must incorporate similar practices. That is where ASEA must play an important role.
So, to answer your question, I know the energy industry, have studied it for years and am an expert in the issues that are overseen by ASEA. I want to see Mexico do well. I want to see progress and better well-being, and I want to see that we create sustainable operations in this country. There is an opportunity for real social progress and a chance for people in this country to have a better quality of life as a result of better synergies within the energy industry.
NGI: ASEA is still a relatively new agency. What is your opinion of ASEA’s performance in its first few years of existence?
Polanco: It has been a bit erratic. A good example is the state of Tabasco, which is the state with the most onshore oil activity in the country. There are so many problems in the state, such as the current issue with the indigenous Chontales in the western part of the state regarding the drilling of an onshore well a few years ago. There are recurring issues with oil spills in the installations of the San Ramón oilfield, and there is a petrochemical company that has spilled waste into mangroves. There continues to be an excess of environmental and social issues caused by energy companies, yet little has been done to resolve the problems.
In La Fortuna, Tabasco recently there was a man who drilled for water for his home and discovered oil! I went to visit the home and the oil, which is still flowing, smells of gas and has been contaminating the air for weeks. People in the municipality sought assistance from local leaders and authorities, but they weren’t equipped to handle the situation. So, for more than 30 days, people near the site are breathing in gas, and oil is leaking out into the public, though no one is doing anything. That should be the job of the ASEA. That is the role of the agency. In the laws that formed ASEA, it says that the people of Mexico are first, then the environment, then infrastructure. But nothing is being done.
I find that worrisome and if I am given the opportunity to work with ASEA, I would be able to utilize my experience to resolve problems like these. I am in the process of putting together a concrete work plan that, as a priority, would involve experts in the industry so that they can apply their knowledge to resolve issues such as these.
ASEA needs to be more present in the states of the country and have closer and stronger relationships with local leaders so that they can attend to problems in a more efficient way. The agency has the funds to create regional attention centers, and I think that is necessary to improve operations throughout the country.
Currently, the people in Tabasco, for example, who need environmental assistance from ASEA have to send someone from the state or a messenger to request it from someone in Mexico City. It can take days or weeks to reach someone who can attend to the situation, and there’s no guarantee anyone at the agency will even be able to help. That has to be improved, and that would be a priority for me should I be given the opportunity to work at ASEA.
NGI: This year, we’ve seen a lot of issues with natural gas pipeline projects. What would be your approach at ASEA to natural gas pipeline projects and the social issues that have arisen as a result of their construction?
Polanco: The most important natural gas project in the country is the marine pipeline constructed by TC Energy Corp. that recently entered in operation. We don’t have much natural gas in Mexico and we need it from the U.S., both for electricity generation as well as for our industrial companies.
I think that what would be done in ASEA would the creation of a very good working group where we would devise a plan that prioritizes the resolution of the social problems that have occurred recently. The idea would be to discuss with people the benefits of the natural gas projects and to assure with the companies that the maintenance and security of their operations would be conducted with best practices and standards.
The idea would be to facilitate pipeline projects. Natural gas projects are key to national development because a country without sufficient energy is condemned to failure. Obviously, the implementation of these projects could be done more carefully and with better transparency and evaluation, particularly in negotiation with communities where the pipelines are installed.
I think the role of the director of ASEA is to act as a facilitator. A facilitator that assists projects so that they become a reality where they generate opportunities and not problems.
NGI: What is your opinion on hydraulic fracturing (fracking) and development of unconventional oil and gas in Mexico?
Polanco: I spoke with a drilling expert about fracking at some point about a year ago and he said that the biggest fear about fracking is the residual wastewater that is produced in the process. That wastewater requires very careful management because it is highly contaminating and very dangerous to health.
The expert told me that the process of fracking has been developed so that it is not as damaging or as worrisome for the environment as the wastewater that is produced. That wastewater has to be shipped to a treatment plant and, to do so, it is often done by truck. That creates a big risk should there be any sort of accident.
So, fracking is something that should be debated and analyzed. However, currently in Mexico there is still so much oil in other areas and regions that there are other options for crude production to be exhausted before fracking.
NGI: For ASEA and for the Mexican energy industry, what do you consider to be the most pressing issues currently?
Polanco: I think the first task for ASEA is to emphasize creating more awareness. I think that ASEA needs to better inform the people of Mexico of their role and demonstrate that they can follow-through with their word. The agency is designed to assure the safety of petrochemical plants, private and public oil and gas companies, fuel transport and storage facilities, gasoline stations, gas compression plants; all kinds of industry operations. We have to maintain these operations and assure they run well so that the people have access to energy and are safe in the event of problems.
The role of ASEA is to protect people and the environment from potential energy industry dangers, and that needs to be communicated to the people. It needs to be known that the agency is a facilitator of projects and that the development of energy resources in the country can be done in a responsible way. That also includes generation of energy through clean sources, such as solar and wind. It is important that people understand the benefits of an agency that monitors these developments to assure they are done well.
The truth is that, for the next director of ASEA, there is no time for a learning curve. It is urgent that ASEA appoints someone who is prepared and equipped to attend to the country’s current needs.
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