Mexico's Oil and Gas Methane Regulation: Global Best Practice

Just over a year ago, in November 2018, Mexico published the most comprehensive regulation for oil and gas methane to date. We wrote about the reasoning and circumstances of it in a previous blog post. The regulation set out a process that companies would follow to implement measures to reduce methane emissions from their operations. The most immediate steps call for development of an “emissions diagnostic” (an assessment that identifies and quantifies all methane emissions in each facility) and submission of a plan to implement a suite of required mitigation measures in the next 6 years.

The companies had one year from the regulation’s publication to develop the diagnostic and come up with a “Program for Prevention and Comprehensive Control of Methane Emissions” or PPCIEM from its name in Spanish. A 3 month period would follow to have the PPCIEM verified by a 3rd party before it had to be submitted to ASEA, the country’s regulator for the oil and gas sector. Given that the deadline for submission is fast approaching (March 31st, 2020), we thought it would be timely to review in more detail the actual content of the regulation.

The overall vision of Mexico’s regulatory approach is based on a “virtuous cycle” of continuous improvement. It starts with the emission diagnosis, followed by a plan to mitigate the emissions that were found. This plan then needs to be implemented and an annual progress evaluation needs to be performed. This evaluation then leads to a report and its ensuing verification by an authorized third party. It is at this point were the emissions are diagnosed again and compared to the progress planned within the PPCIEM, that could then be adjusted to reflect the actual progress achieved in the previous year. This cycle is then repeated annually until all measures included in the regulation are implemented, ideally 6 years after the PPCIEM is originally submitted, which will be in 2026.

Figure 1. “Virtual cycle” schematic. Source: adapted from ASEA

Before going into detail on the content of each of the regulation’s four “titles”, there are a few highlights that we would like to point out:

• Mexico’s regulation is considered the most comprehensive and ambitious to date, when it comes to reducing methane emissions in the oil and gas sector.

• The regulation doesn’t , but rather sets out operative actions that will end up reducing emissions, leaving specific technological choices up to the company as long as they can demonstrate that they are equal to or better than what are considered best practices. However, it is expected that implementing all required measures will deliver up to 75% emissions reductions, well beyond the 45% included in the NASL commitment from 2016.

• Leak Detection and Repair (LDAR) programs are mandatory and must be performed on a quarterly basis. LDAR is also the one measure that must start from year 1; the timing of all the other measures is left to the company’s discretion.

• Aware of their lack of supervising personnel, rather than reviewing each report in-house, ASEA designed a 3rd party verification scheme that will allow a certain degree of homogeneity and quality in the reports while reducing ASEA’s inspectors tasks to spot-checking and overall compliance verification. This approach is rather new to the sector, and remains a challenging part of the implementation.

Title One frames the regulation and establishes the actions and mechanisms that companies will have to comply with, which are then detailed in the following titles. It starts by setting the application boundaries and provides definitions for technical terms used throughout the document. It is important to notice that methane emissions from the whole value chain of hydrocarbons are included, from exploration and extraction to oil refining and storage and natural gas transport and distribution.

Title Two differentiates requirements for new and existing facilities. Existing facilities, which include any facilities already built or with approved permits at the time the regulation became active, will have to present a PPCIEM and implement all actions of Title three. New facilities are required to already include all the title three mitigation actions in the design period and therefore by the start of operation.

The requirements for the emission diagnostic are also elaborated in Title Two. Applicable to facilities, the emissions diagnostic includes identification, classification and quantification of all methane emissions sources, and the determination of a base year for an emissions baseline.

Title Three lays out the main technical details of the mandatory mitigation actions per source. Each of the first 11 chapters covers a type of equipment or process, which includes vapor recovery systems (VRS), pneumatic pumps, compressors, pneumatic controllers, dehydrators, transport and distribution pipelines, tanks, well stimulation and completion activities, liquids unloading, flaring/combustion, and leak detection and repair programs. Some of the measures included are gas collection and diversion to VRS, substitution of high-emitting components, and ensuring equipment air tightness, among others.

Title four is where the aforementioned cycle is completed. It introduces the “continuous improvement” element by requiring companies to include annual goals in the PPCIEM (this could be in the form of actions, timeline and percentage of expected reductions), evaluate progress internally and then report to ASEA the achievements of the year.

It is worth mentioning that CCAP has been involved since the planning phases of the regulatory development, and has witnessed how ASEA has considered and included all the international best practices relevant to the country’s sector every step of the way. While its overall success can only be judged by the actual emissions reductions it achieves, we remain impressed with the level of ambition and technical soundness that was included in the final document. We are optimistic that this will improve the environmental performance of the sector, and remain committed to promote similar regulatory actions in every oil and gas producing country in the world.

Countries like Colombia, Argentina, Nigeria and Cote d’Ivoire have indicated their interest in following a path similar to the one Mexico took, and CCAP will continue to be a resource to them in this quest.