May 7, 2015

Industrial Security and Environmental Protection in the Hydrocarbons Sector

By Jose Maria Lujambio I.

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 Security 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 Security, 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 Commission of Hydrocarbons (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 nineteen 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 security, 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 value chain of hydrocarbons.
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 accustoms 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 is 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 unities and general administrative departments, to be occupied by high level public servants. This is not about forming an army of generals but
rather and 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 emitted from this change. The expectation is that the new regulatory entity that
Mexico is debuting will be up to par with tasks and responsibilities it is being tasked with.