Industrial Safety and Environmental Protection in the Hydrocarbons Sector

October 19, 2015
Industrial Safety and Environmental Protection in the Hydrocarbons Sector

One of the most important developments that the energy reform has brought to Mexican law is the creation of a new institution known as the National Agency for Industrial Safety and Environmental Protection in the hydrocarbons sector. Due to its lengthy name, in April 2015, it was announced that such agency will be officially identified as the Safety, Energy and Environment Agency (ASEA for its Spanish acronym).

The constitutional reform of December 2013 ordered Congress to create a decentralized agency of the Department of the Environment and Natural Resources (SEMARNAT for its Spanish acronym), with technical and administrative autonomy, and a certain degree of budget autonomy. Contrary to the National Hydrocarbons Commission (CNH for its Spanish acronym) and the Energy Regulatory Commission (CRE for its Spanish acronym), ASEA is not configured as a coordinated regulatory agency, independent from any other state department. According to transitory Article 19 of the constitutional reform decree, this agency is granted the authority to regulate and supervise the installations and activities of the hydrocarbons sector on matters of industrial and operational safety, and the protection of the environment, including dismantling and abandoning the installations, and integrated control of waste. In this manner, an institutional guarantee was conceived for the new Article 25 of the Constitution, in accordance with which companies will be subject to the use of productive resources for the common good, monitoring its conservation and protecting the environment. In addition, there will be a national policy for sustainable industrial development.

The most recent reference to the creation of ASEA comes from the United States, where in 2011, the Bureau of Safety and Environmental Enforcement separated from the Bureau of Ocean Energy Management, with both separating from the Department of the Interior following the Deepwater Horizon platform disaster that, in 2010, took 11 lives and provoked the leak of 4.9 million barrels of oil into the Gulf of Mexico. The first of these offices is in charge of industrial safety and environmental regulation, and the latter is in charge of the responsible development of offshore energy resources, including the assignment of blocks that are federal property. The intent here was to avoid conflicts of interest following accusations of certain favorable regulatory treatment for the oil industry. Following the same premise, in Mexico it was believed that the CNH should not be in charge of safety and environmental matters. However, Mexico went a step further than its northern neighbors given that ASEA not only supervises ocean activities, but also everything that forms a part of the hydrocarbons value chain.

During the debates held on the new energy laws that took place in 2014, one of the main topics of concern and that took up most of the discussion time was the impact fracking had on the environment as a method of extracting oil and gas from the ground. The possible negative effects of this technology have been analyzed in the United States from a legal and civil liability stand point. Given the legal tradition in Mexico, it is safe to assume that the regulation will be scrupulous, one that incorporates the better practices of the U.S. industry and, above all, making such regulations easily enforceable with efficiency.

ASEA’s mission does not end there. It will be responsible for the supervision of thousands of kilometers of pipelines that transport and distribute all types of combustibles, flammables, and explosives, the huge refinery facilities in the country, gas stations and the pipelines that distribute liquefied petroleum gas (consider the recent tragedy where a hospital in Cuajimalpa in Mexico City collapsed). Petroleos Mexicanos (Pemex), an entity accustomed to self-regulation, will surely be the main entity being regulated. It is known that the first Executive Director of ASEA will come from Pemex, due to its accumulated expertise; however, such individual should look to assert its independence from Pemex in order to gain credibility.

As far as other environmental matters, the SEMARNAT has transferred some of its authorities to ASEA. For instance, matters such as the evaluation of environmental impact, integrated waste management and also control of pollution emissions and greenhouse gasses are now under ASEA’s jurisdiction. In accordance with the latter, strict regulations on methane venting and leaks in both upstream and the midstream are important. The ASEA is going to be a smaller SEMARNAT that specializes in oil and gas activities and their related products.

On the other hand, it will be interesting to see how the ASEA will coordinate with the CRE. According to the Hydrocarbons Law, to grant transportation, storage and distribution permits, the CRE must ensure that the applicant utilizes facility designs and equipment in accordance with the applicable regulations and the best possible practices, with the appropriate conditions to guarantee the continuity of said regulated activities.

The ASEA will require dozens of men and women with vast expertise on the matter and some knowledge on administrative procedures. The concern of a lack in human resources in the energy sector is justified to this effect. Nonetheless, it is worth noting that the internal organizational regulations of the agency have created many units and general administrative departments to be occupied by high level public servants. This is not about forming an army of generals but rather an army of soldiers and lieutenants that work well, both on the field and in the office.

According to the transitory regime of the energy regulation, on March 2, 2015, the ASEA assumed all its authorities. It is important to be aware of general administrative-law regulations that might be issued from this change. The expectation is that the new regulatory entity that Mexico is debuting will be up to par with the responsibilities it is being tasked with.

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