Brazil Local Content Regulations – A Historical Perspective

As we look into the oil and gas industry in Brazil, local content regulations are of strategic importance to the country. It enhances domestic industry and promotes jobs as well as increase in incomes.

The promotion of import substitution industries in the fifties and sixties was no doubt an indiscriminate.  There were not attempts to concentrate on industrial sectors which might have had a potential comparative advantage. All industries irrespective of their sizes had protection policies implemented to safe guard the growth in Brazil.

It is thus important to focus on only issues that border on oil and gas industry of which a number of illustrations can be referenced from.

In 1944, for example, the Venezuela government passed a hydrocarbon law that forced oil companies to refine oil in the Republica Bolivariana de Venezuela.

Brazil Local Content Regulations – History

Brazil as country has a long history of import substitution policies. Infact, the government was anxious to promote maximum vertical integration, to promote both final consumer goods industries and intermediate and capital goods sector.

This would thereby give the government national control over most sectors and even more precisely the energy sector.

From 1934, Presidents Vargas regime was eager to pass the mantle of exhaustible natural resources to the nationals. Therefore, the promulgation of the Mine Code declared that mineral resources from the ground belonged to the Federal Union.

In addition, the code declared that foreign and domestic firms alike interested in exploring, production and even refining needed permission from the federal government.

Birth of Petrobras in Brazil

In addition, an announcement that saw an inclusion of local participation came in 1953 by President Vargas when he declared that Petrobras (NOC) should use only Brazilian capital, workers, and know how.

It was a landmark for the people of Brazil and a clear sign of independence from foreign dominance and the beginning of industrialization of the country in the oil and gas industry.

Even though Brazil didn’t have a sophisticated outlook to industrialization in the fifties and sixties, ISPs helped to increase local participation in joint ventures with foreign companies. Brazil was finally able to operate modern technology and developed a capacity and capability to supply the countries needs in the oil and gas industry.

But an even more pressing goal came about in the seventies when Brazil commenced its offshore drilling which resulted to a more national orient model in the eighties.

As a result the transfer of responsibility to the national oil company Petrobras to find and develop a new and national supply industry.

In turn many laws were passed and regulations bodies were set up to foster the growth of the industry. Today it is said that Brazil is one of the countries that focus on new, innovative and complex technologies.

In addition, and more importantly Petrobras is referred to as one of the most experienced operators in deep waters exploration and production in the world.

But could this be as a result of the higher coefficient by multinational companies in Brazil? Research conducted by Clare Rodriguez shows there is a positive externally from MNCs to supplier which creates a positive knowledge spill over’s which would intern lead to higher total factor productivity.

New Brazil Local Content Regulations

Brazil’s local content regulations have been the subject of much debate. Introduced in the fifth licensing round in 2003, the requirements, along with fines for non-compliance, increased exponentially over subsequent rounds.

This resulted in not only stifling offshore development, but also restraining the domestic industry that the regulations were meant to cultivate in the first place.  

In 2017, the Brazilian National Petroleum, Natural Gas and Biofuels Agency(ANP) rewrote the terms for the Libra (now Mero) FPSOs.

On April 11, 2018, after two years of discussions, the Brazilian National Council for Energy Policy (CNPE) and the ANP published a resolution allowing companies to swap the local content commitments of their existing exploration and production contracts for lower and simpler requirements with reduced fines.

You check out; Can local content spur economic prosperity of a country?

Winning Awards – What are the benefits of winning upstream awards?

Winning awards as a company in the upstream oil and gas industry has many benefits. In this article, we look into the 4 ways your company can profit from winning an Upstream Award this year.

Has your company hired a number of new employees? Do you contribute to philanthropic endeavors? Do you have a great CEO or believe your company is a great place to work? It may be time to submit your company for an award.

Benefits of Winning Awards

Many companies shy away from the idea of entering into award competitions because they think it’s too self-promotional and they worry the entry might be too time-consuming.

The benefits of entering and winning an award largely outweigh any reasons not to.

Entering and subsequently winning awards makes your company shine and sets it apart from your competition. Here are four advantages to winning at Upstream Awards.

Winning Awards helps to elevate the status of your company.


Upstream Awards can raise the credibility of your company, its brand and products. An award also increases visibility for your company.   

Educate and attract.


Awards can draw new customers and new employees to your business.

Winning Awards improves company morale


Current employees are excited to share the news of an award with others. Awards can also build motivation within your team.

Increase customer loyalty.


Knowing that you are skilled and recognized for your work, team, product or service encourages customer loyalty and drives sales.

Upstream Awards – Judging Process

Upstream Awards panel of judges is made up of key business people. The panel also includes cultural leaders as well as eminent oil and gas stakeholders led by a chairperson.

The chairperson will preside over a nomination committee of prominent companies. In addition, he or she will preside nomination of individuals from various backgrounds and walks of life across upstream oil and gas value chain.

A transparent process will determine the winner for each of the award categories.

We aim to increase participation to be part of the upstream oil and gas industry . Winners of a few awards will be decided through a thorough nomination process.

In conclusion, I would propose that you consider being part of the upstream oil and gas awards this year.

Let me know if you would like to know anything more. Leave a comment below.

Local Content Requirements – Background of Local Content Policies

Local content requirements were not an objective in itself.  It was however a means to improve industrial policy. This was the case during their rigorous implementation as productive development policies (PDPs) during and more so after the Second World War.

From a general economic strategy, local content policies were referred to as import substitution policies/Industrialization (ISP/I). This meant encouraging the development of domestic industry and elimination of foreign goods and services.

It is done through exchange control barriers such as tariffs and quota. In addition, it includes exchange rate policies as well as fiscal and credit policies.

Evolution of Local Content Requirements – Start of Industrialization

No doubt that the initial design of ISP was actually at the beginning of industrialization of Europe in the 1750. You should know that this had its origins in the writings of List (1841), which outlined the ‘Infant Industry Argument’.

As the basis for formulation of local content policies is the idea of bringing about industrialisation. In this regard, it is essential that domestic circuits be built in the economy. This can only be achieved by protecting the domestic economy from the world economy.

However, the major facilitation and actual inducement of these policies was as a result of World War I, the Great Depression of the Thirties and more so the  World War II in larger Latin American, Asia and some African countries.

Import substitution policies have distinct objectives in the different countries where they are or have been adopted. There are historical reasons why some of  the countries of Africa, Asia and Latin America did not undergo ISI at the time of, or right after, the European ISI’s but only at a later stage in the 19th Century.

Local Content Requirements – Economic Strategies

The idea of ISP gained further prominence as government interventions increased. In particular, this is towards inward looking strategies which are an attempt by economically less-developed countries to break out of the world division of labour.

In Latin Americas for example, a catalyst to that effect was the United Nations Economic Commission (UNEC) that advocated vehemently for Latin American countries to be self-sufficient in petroleum products and avoid over dependency on exports.

Under this division, Latin America as well as most areas of Asia and Africa specialized in natural resources and the export of food and raw materials. However, they are importing manufactured goods from Europe and the United States.

If anything, throughout most of the fifties and sixties many Latin American as well as Asian governments adopted ISP. This was as the principal method to achieve domestic economic growth and socio-economic modernization.

Conclusion

In conclusion, Latin American countries grew predominantly on the basis of their  natural resource base. On the other hand, the Asian market grew exponentially as labour-intensive sectors which were facilitated by high level of education.

As a result the concept of protectionism came about and the use of complex system of policies like LCPs was geared to promoting these sectors.

We continue to read and learn more about local content policies evolution.

Joe Watson Gakuo – The Man Behind Upstream Awards

Joe Watson Gakuo is the founder of Upstream Awards. He has been actively involved in the upstream oil and gas industry, and in the promotion of local participation.

You can join my network here.

More about Joe Watson Gakuo

My journey began on the slopes of Mount Kenya. The past 20 years have been a whirlwind of experiences; from school, to investment banking, to oil and gas. I have learned to adapt fast, be resourceful and build friendships with diverse people from across all walks of life.

Like every human being, I have made my share of mistakes. However, I am proud of what we have achieved so far, and am truly excited about the future. I feel more equipped to take new challenges, and add value to someone’s life.

I believe in creating genuine ties to form communities of diverse yet like-minded ecosystems. This is what we have been building in the upstream oil and gas sector, and that is what Upstream Awards is all about.

Joe Watson Gakuo Promotes Local Content

In every country with natural resources like oil or gas, the government will often implement local content policies. Local content initiatives are intent or are an effort to create jobs, spur local industries and tame ‘Dutch Disease’.

The policies aim at promoting a system where international companies work with locals or source local products or services as well as local human resources.

Joe Watson Gakuo – Views on Local Content Policies

Local content policies have their origins in the writings which outlined the ‘Infant Industry Argument’. The argument was first articulated in the 1790s.

Local content is a topical issue, and has become a hot issue in the natural resource industry in general, and oil and gas in particular.

In Africa, local enterprises are the drivers of economic activity and development. Efforts have been made to promote inclusivity and local participation in this emerging sector, and local content as a whole.

The local content policies aim towards maximization of the national value creation. This is by means of employment, value addition, technology transfer and the acquisition of knowledge.

The pre-requisites for enhancing local content are the rule of law, skilled workforce, and investment-friendly atmosphere. However, we also need to be aware that on their own, these policies are not a silver bullet

Examples of Companies Served 

We serve the upstream oil and gas value chain. The clients include operators, oilfield contractors and service providers in the industry drawn, both local and international.

For example, we have worked with logistics, banking, drilling, camp facilities and oilfield services companies among others.

We have served companies such as National Oilwell Varco, Stanbic Bank, ATS Group, Vivo Energy, Schlumberger, Spedag Interfreight, Liberty Insurance, Britam Insurance, Weatherford, Tullow Oil, Shell, Total, Tsavo Oilfields, Afex Group, Kenya Pipeline Company and Delta Air Lines among others

Upstream Awards going forward

In the short-term, we are keen to continue promoting local participation by providing information about the emerging opportunities.

In addition, we are seeking individuals and companies that are making positive impact in the industry. This is across the many African countries with oil and gas resources.

Infact, we shall continue to look for men and women in the industry. This is to celebrate positive contribution in the upstream oil and gas industry.

In the long-term, we need to have more local businesses involved including and not limited to oil and gas exploration. This is part of the larger local content discussion.

We are on a mission to tell the positive stories from across the upstream oil and gas industry in Africa.

How has the market responded to the Upstream Awards?

The response has been great. I am glad to see more people joining this initiative.

There is increased participation and nominations indicate that more people, as well as companies want to be part of this important initiative.

Look, it is our mission to tell our positive stories, and Upstream Awards is a proactive initiative that sees the best in other people.

 

Upstream oil and gas industry in Africa?

We have come from far. Many oil and gas producers in Africa have put in place mechanisms to support local content. We want to celebrate that.

Africa is not where we truly want to be, and a lot needs to be done, but we can appreciate that we are moving in the right direction.

International oil companies, national oil companies and oilfield services companies that are making great efforts in working with locals. The companies are also putting in place measure to support local enterprises in the oil and gas industry.

There is also need for more citizen’s involvement to ensure that they participate in this new industry. We need to also put in place measures that will ensure the oil and gas resources are well managed for the benefit of all.

I am happy that we are witnessing final investment decisions being made in countries like Mozambique and Senegal. In addition, we expect FIDs in Kenya and Uganda among other countries.

Conclusion

In conclusion, Upstream Awards is going to be on a tour to several countries. These are Kenya, Uganda, Mozambique, Angola, Nigeria, Ghana and Senegal.

Upstream Awards is a platform that takes us on a journey to celebrate individuals as well as companies that have contributed, and continue to positively impact the upstream oil and gas industry.

We are also in discussion with partners to collaborate in hosting the Upstream Awards across Africa. We shall keep you updated! Watch this space.

Local Content Bill Kenya – Can it Spur Economic Prosperity?

Local content bill in Kenya when well implemented has the potential to spur the economic prosperity in the country.

Local content is an engine that can create value in the economy. Promoting local participation in the upstream oil and gas industry is critical.

Every country with natural resources like oil or gas often implement local content policies with a noble intent. This is in an effort to create jobs, spur local industries and tame ‘Dutch Disease’.

These kinds of policies aim at promoting a system where international companies work with locals. In addition, it promotes the buying local products or services. Therefore, Local Content Bill 2016 is a great start.

Origin of Local Content Bill Kenya

Local content policies have their origins in the writings which outlined the ‘Infant Industry Argument’. This is an argument that was first articulated in the 1790s.

Local content is a topical issue. It has become a hot issue in the natural resource industry in general, and oil and gas in particular.

In developing countries like Kenya, local enterprises are the drivers of economic activity and development.

Since the discovery of commercially viable quantities of oil in Kenya, efforts have been made to promote inclusivity. This improves local participation in this emerging sector, and local content as a whole.

Local Content Bill Policies

The Local Content Bill policies aim towards maximization of the national value creation. This is by means of the oil and gas value chain through employment, value addition, technology transfer and the acquisition of knowledge.

The pre-requisites for enhancing local content are the rule of law, skilled workforce, and investment-friendly atmosphere. However, on their own, these policies are not a silver bullet. Two issues come to mind;

Skills Gap in Oil and Gas

First, skills gap are typically the most prevalent barrier to meeting local content requirements. These gaps creates a void which is bridged through various technical assistance and training initiatives.

Local suppliers who bid for procurement opportunities often fall short of meeting industry requirements. This is in areas such as information technology, systems management, environment, health and safety standards.

This is not surprising given that Kenya is a new entrant in the upstream sector. I would argue that for the technical initiatives to be sustainable in the long term, the government must take the lead.

KEPTAP Program in Kenya

One such program is Kenya Petroleum Technical Support Project (KEPTAP), a USD 50M credit facility from the World Bank whose aim is to strengthen the capacity of the country to manage its petroleum sector and create wealth for sustainable development. 

It is also worth noting that Kenya Pipeline Company (KPC) has taken the initiative to bridge this gap through their Morendat Oil and Gas Training Institute.

Oil and Gas Local Enterprises in Kenya

Secondly, the implementation of the local content regulation will promote the growth. Infact, this will help small and medium-sized enterprises across the value chain. 

The procurement of local goods and services is very important as it establishes a multiplier for local economic development. This will happen through contribution to employment, skills strengthening, supplier and local enterprise development.

Oil and gas exploration companies expend up to 80 per cent of their investments on products and costs that are supplied from without. Thus, indirect employment in the sector accounts for a large proportion of total employment and value addition.

The opportunities available however have not been sufficiently usurped by SMEs due to the information gap on how to create business partnerships, requirements of the industry and actors in the industry.

This is serious challenge given a National Economic Survey report by the Central Bank of Kenya indicated that SMEs constitute 98 percent of all business in Kenya and creates over 80 percent of jobs

Conclusion

In conclusion, if these regulations are implemented effectively, they can have great impact on the Kenyan  economy.

For example, since Brazil, a giant in the offshore oil industry, passed its local content rules, an estimated 875,000 jobs have been created. The value of domestic purchases has reached USD 14 Billion (Kshs.1.4 Trillion).

With the envisaged creation of the Local Content Training and Development Fund, the bill is very futuristic. It ensures that the local content requirements are implemented in full.

BASF – Global Oilfield Chemicals for the East African Market

BASF provides a range of high-quality chemicals for oil and gas exploration and production. This enable customers to meet technical challenges encountered in the field.

By constantly improving the quality and reliability of our chemical solutions, we help service companies to meet the industry’s overall drive for greater efficiency and productivity.

BASF in East Africa

East Africa has become a focal point for oil and gas exploration after discoveries were made in Uganda, Kenya and Tanzania.

One of the major challenges faced in this region is the high wax content and elevated pour point of the oil, making viscosity levels too high to easily produce.

Due to the year-round mild temperatures experienced in East Africa, there is little chance for nature to create workable conditions for the oil.

Therefore, heating or chemical injection is required to decrease the viscosity and allow the oil to be commercially produced.

BASF Basoflux Brand

BASF has designed a wide range of high-performance products, under the Basoflux® brand.

This will help you mitigate paraffin deposits and significantly lower the pour point of paraffinic crude.

How BASF PPDs and paraffin inhibitor products work

Upon cooling, wax separates out as plate-like crystals or needles. These crystals interact to form a three- dimensional network in which the crude oil is trapped. This results in increased viscosity or even solidification of the bulk oil phase.

Pour Point Depressants (PPDs) affect the crystallization process and prevent the formation of such three-dimensional networks, thereby reducing the pour point.

Wax inhibitors generally influence the crystal morphology of wax. This creates weaker deposits which are more easily removed by shear forces within the flowing crude.

All Basoflux® products act as highly effective paraffin inhibitors, with the following benefits:

  • Under the correct conditions, they prevent wax deposition on pipeline walls
  • They have proven performance in a variety of crudes
  • By dispersing paraffins back into the oil, the potential waste stream is minimized. This creates additional revenues through increased sales volume (less pipeline downtime) and decreases disposal expenditure

PRODUCT OFFERING and CHEMISTRIES

Our product offering is varied and includes the following chemistries:

  • Maleic Alpha Olefine (MAO)
  • EVA / Acrylates
  • Poly (Meth) Acrylates
  • Hyperbranched bases

Innovation based on creating more sustainable, high-performing products to make our customers more successful, is at the heart of BASF’s strategy.

We continuously invest in improving this offering and have several new paraffin inhibitor products in our pipeline.

Increasing the efficiency of water-oil separation with demulsifiers

As the importance of oil increases in East Africa, so does the volume of oil produced.

One of the most important objectives of any oil production facility is the separation of water from produced crude (demulsification). The quick and efficient breaking of these emulsions is essential to meet tight downstream crude oil specifications.

BASF offers a wide variety of demulsifiers from different chemical classes to help our customers make tailor-made, high-performance formulations. Demulsifiers from the Basorol® portfolio are especially designed for fast water dropping, drying and desalting.

In order to optimize performance, it may be beneficial to blend two or more Basorol® types together. Based on our experience with these chemistries in multiple oils, we have found it is possible to treat many crudes worldwide.

We treat the crudes with a combination of alkoxylated alkyl phenol resins and alkoxylated polyethyleneimines from BASF.

Please contact your nearest BASF representative for more information about our portfolio, and to discover which chemistries might work well for your specific application.

https://energy-resources.basf.com/global/en/oilfield-solutions.html