Mexico’s Gas Flaring Is a Revenue Problem Before an Engineering One

Most people assume a gas flare is an engineering problem. In Mexico it looks more like an accounting one. PEMEX flared and vented an average of 778 million cubic feet per day (MMcf/d) in Q2 2026, roughly one fifth of its gas output, and the treasury collects nothing from it. That makes Mexico gas flaring a revenue question as much as an environmental one.

The country ranks as the world’s fifth-largest flarer. A rule requiring operators to use 98% of associated gas, the gas that comes up alongside crude oil, has been in place since 2016. Analysis by Andres Brugmann of SL Intelligence, published on 7 September 2026, argues that the burned gas should be treated as an underused national asset that private capital could monetise.

How you read that argument affects where you think capital can earn a return, and where poor policy design could erase that return.

This piece sets out which policy model suits a cash-strapped national oil company, how the US$150 million estimate is built, and where the real openings and traps sit for private investors.

Why is Mexico burning a fifth of its gas?

What the satellites and filings show

Start with the scale. Mexico flared 9.7 billion cubic metres (bcm) in 2025, an average of about 940 MMcf/d. Its flaring intensity reached 15.4 cubic metres per barrel of oil, nearly triple the global average.

Mexico’s 9.7 bcm sits inside a much larger picture: global flaring data for 2025 shows worldwide volumes rising again, which places PEMEX’s record among a broader pattern of underused associated gas.

The headline figure 778 MMcf/d flared and vented in Q2 2026, about one fifth of PEMEX’s total gas output (SL Intelligence, citing PEMEX disclosures).

Most of it comes from one place. Ku-Maloob-Zaap (KMZ), Mexico’s largest oil development in the Bay of Campeche, averaged about 830 MMcf/d of associated gas in early 2026. In the latest compliance data cited by Brugmann, the complex used only 66-74% of that gas, and 2026 disclosures show flaring and venting have nearly doubled since.

The waste is visible from orbit. Satellite instruments pick up both persistent flare heat from KMZ’s offshore platforms and plumes of unburned methane.

Four reasons the flares keep burning

The shortfall is concentrated in PEMEX’s ageing, high-volume fields. Private operators, mostly running newer fields with modern gas handling, sit close to the 98% standard. General commentary from institutions and Mexican specialists points to four drivers, though these attributions have not been independently confirmed:

• Infrastructure: The World Bank’s Global Gas Flaring Reduction Partnership (GGFR) has flagged that offshore gas from complexes like KMZ cannot be gathered, processed and shipped economically at scale.
• Finances: International Energy Agency (IEA) methane work notes that indebted national oil companies under-invest in gathering and compression, and PEMEX’s debt has reportedly exceeded US$100 billion.
• Enforcement: Legal scholar Miriam Grunstein and consultant Gonzalo Monroy have argued that regulators lack the resources and political backing to enforce rules against PEMEX.
• Price signals: Think tank IMCO has noted that cheap imported US pipeline gas weakens the incentive to capture associated gas.

Verified PEMEX compliance statistics against the 98% rule are not publicly available. That gap is itself telling.

Put a 98% mandate beside a roughly 20% loss rate and the conclusion is plain: the rule exists on paper. Any investment thesis you build here should assume enforcement will not do the heavy lifting.

Regulation or incentives: which model actually cuts flaring?

Brugmann argues that countries which cut flaring over the past decade followed one of two paths. The regulatory model imposes binding mandates, such as routine flaring bans, leak detection and continuous monitoring, backed by penalties. The incentive model changes a tax, tariff or price so that capturing gas pays better than burning it, then lets private capital do the work.

The regulatory route: Canada and Kazakhstan

Canada introduced federal methane rules in 2018 and announced enhanced regulations in December 2025. These phase in from 1 January 2028, largely prohibit upstream venting by 2030, and require combustion systems to reach at least 98% efficiency. The national target is a 75% cut in oil and gas methane by 2030 against 2012 levels.

The costs look modest on paper. Brugmann reports about US$34 per tonne of CO₂-equivalent and a net economic benefit of about US$17 billion in constant 2025 US dollars. Separate projections of 304 Mt of avoided emissions and US$36.3 billion in avoided climate damages are gross figures and do not compare directly with that net number.

Kazakhstan has banned routine flaring since the mid-2000s and cut flared volumes by more than 70% between 2012 and 2022. Major international firms such as Chevron, Eni and Shell carried the burden.

That is the point. Both regimes worked because the operators footing the bill were well capitalised.

The incentive route: Texas, Argentina, Nigeria

Texas HB 591 (2023) exempts gas from severance tax, a levy on extracted resources, if it would otherwise have been flared and is instead captured and used on site. Wyoming passed a similar exemption in 2021, and the proposed federal FLARE Act (2025) would extend a full deduction for capture equipment. These exemptions cost the treasury nothing, because flared gas was never taxed; before the laws, capture risked a tax bill while flaring was free.

Argentina’s RIGI regime (2024) offers lower corporate tax and foreign exchange flexibility, and has drawn billions into Vaca Muerta. Nigeria auctions flare sites to private investors and projects up to US$7 billion in investment, though its rollout has been slower than expected and current auction results are unavailable.

Incentives carry their own critiques:

• They can reward higher oil output rather than lower flaring.
• Measurement and verification can be gamed, particularly by a dominant national oil company (NOC).
• They can lock in fossil demand through crypto mining and data-centre power.

Canada’s success rested on firms that could pay the compliance bill. Apply the same rules to an indebted PEMEX and the cost lands on the party least able to carry it, which is why incentives look the better fit here.

How the US$150 million figure is built, and what it leaves out

The headline estimate follows a simple chain of arithmetic, all from Brugmann’s analysis:

1. Start with 778 MMcf/d flared and vented in Q2 2026.
2. Assume half is captured: 389 MMcf/d.
3. Annualise it: about 142 billion cubic feet a year.
4. Convert to energy content: about 147 million MMBtu (million British thermal units, the standard unit for pricing gas).
5. Multiply by an assumed US$1.0/MMBtu: about US$150 million a year, near MX$2.5 billion.

Read with care The US$150 million figure is the author’s own calculation. An independent search found no separate corroboration, and it rests on the US$1.0/MMBtu price assumption.

That assumption sits well below Henry Hub, the main US gas benchmark, which traded at about US$3.13-3.18/MMBtu in early October 2026. Mexican domestic and cross-border price data were not available. The estimate also excludes corporate and payroll taxes that private capture infrastructure would generate.

The sensitivity is linear. Change the price and the revenue pool moves proportionally, so at a Henry Hub-like price the number roughly triples. Treat the figure as a conservative floor that illustrates scale, not as a forecast of what investors would earn.

Where private capital could enter, and where it could get burned

Four routes to monetise flare gas

The investable routes are concrete. Small and mid-scale capture gathers gas at the source, while virtual pipelines move it by truck as liquefied or compressed natural gas. Micro gas-to-power plants burn it for electricity, and data-centre co-location brings the power demand to the gas.

The legal pieces already exist. SENER controls permits and access, and SHCP has recent precedent for adjusting fiscal terms. What is missing is a joint decision on a preferential price for otherwise-flared gas, allocated through a transparent mechanism such as an auction.

Risks that can strand an investment

The appetite needs tempering. Four risk categories stand out:

1. Economics: Modular units cost more per unit than pipelines, and KMZ’s variable flows and remote platforms can sink small projects unless they connect to field-wide systems.
2. Methane leakage: Compressors, dehydrators and temporary storage all leak, which can swap CO₂ from flares for more potent methane.
3. Permitting and reliability: Small projects fall into regulatory grey areas, and flare gas is not firm supply; field decline can strand assets.
4. Community opposition: Noise, trucks and mistrust of PEMEX may turn locals against projects seen as serving outside investors.

Leakage from compressors and storage matters partly because methane trading markets are beginning to put a price on emissions, which could change how capture projects are financed and what a leaking unit costs its owner.

Texas shows modular power can deploy quickly under light regulation. Argentina shows guarantees on evacuation and pricing make capture bankable. Small-scale solutions form part of a strategy, not a cure.

Because the opportunity hinges on a decision not yet made, you should treat these projects as options on Mexican fiscal design rather than near-term cash flows.

What the evidence supports, and what to watch next

The case for incentives holds up against PEMEX’s balance sheet, but only if rewards are tied to measurable cuts in flared volumes and paired with a regulatory baseline that tightens over time, borrowing Canada’s clear standards and timelines.

The limits are real. The US$150 million estimate is uncorroborated and price-sensitive, and Mexican gas prices, verified compliance data and Nigeria’s auction results remain unavailable.

Three indicators will tell you whether the thesis is moving:

• A joint SHCP and SENER decision on pricing or access for flare gas.
• A transparent allocation mechanism, such as an auction.
• Verified flaring data published by PEMEX.

Until the first appears, exposure to Mexican flare-gas capture remains a policy bet you should size accordingly.

Past performance does not guarantee future results. Financial projections are subject to market conditions and various risk factors. These statements are speculative and subject to change based on market developments and company performance.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.