Government studies increasing local content requirements in oil and gas exploration

The Brazilian government is studying the possibility of increasing local content requirements in oil and gas exploration and production in the country.

The measure aims to boost the national industry and encourage the naval sector. Currently, the foreign oil companies operating in Brazil do not have the same obligation as an oil field in the country, since practically half of the nationalization rates were reduced during the Michel Temer (MDB) government in 2017.

O Minister of Mines and Energy, Alexandre Silveira, told CNN that the intention is to find a “balance point” between the old and current demands, guaranteeing stimulation to the national industry, without strangling the competitiveness of the foreign oil companies and without risking delivery delays. The idea is not to resume the nationalization rates of the past, but to boost Brazilian industry.

Critics of local content policy argue that foreign oil companies operating in Brazil, mainly Petrobras, paid more for items such as platforms and suffered from recurring delays in the delivery of equipment. You tankers, in turn, defend that each 1% more of national equipment in the offshore construction generates nearly four thousand jobs.

Local content indexes during the Dilma Rousseff government

The local content indexes during the Dilma Roussef governmentf ranged from 37% to 55% in the exploration phase for offshore blocks. In the three other stages, they were between 55% and 65%, depending on the bidding notice. However, the combination of high Petrobras debt and advances in Operation Lava-Jato led most of the orders, in the last decade, to Asian shipyards.

O Petrobras strategic plan for the period 2023-2027, it foresees the implementation of 18 FPSOs (floating production, storage and transfer units) in the five-year period. However, in 2014, the naval sector had BRL 9,5 billion in contracted projects and 82 jobs. Last year, the sector had less than R$ 600 million in projects and around 21 jobs.

The importance of local content for the reindustrialization of the country

According to Minister Alexandre Silveira, the demand for local content in the oil and gas exploration and production could play an important role in the reindustrialization of the country. However, there must be clarity, legal certainty and regulatory predictability for the implementation of the project.

In this way, the increase in local content requirements can boost the national industry and the naval sector, guaranteeing more jobs and since the oil companies will need national equipment that meets local content requirements. The measure has the objective of not strangling the competitiveness of oil companies foreign companies installed in Brazil and does not generate risk of delays in deliveries, which may harm the development and oil and gas production in the country.

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