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Oil Crisis: Local Content is seen as the main drag on the economy

Paulo Nogueira
14-04-2017 13:52:16
in Uncategorized
Oil Crisis: Local Content is seen as the main drag on the economy

Hello friends and followers of Click Oil and Gas, I would like to provide some personal opinions regarding the crisis in the sector, not only in the offshore sector, but in all segments of the oil sector. Many people, especially young people who have never worked, come to me asking what I think of the moment Brazil is going through and whether they should invest time and money in a sector brutally affected by the corruption schemes involving state-owned Petrobras.


Oil Crisis: Local Content is seen as…

Despite the difficulties, the 21st century world is literally powered by oil. Brazil particularly holds the 5th largest daily production of hydrocarbons in the world, reaching the mark that exceeds 50,000 barrels. Our reserves, according to IBP studies, could reach 200 billion barrels. Possibly the human race would live on another form of energy and we would not be able to produce everything we are capable of in our fossil fuel reserves. But then you ask me: if we have oil, we have companies with technology to explore and skilled workers, what is missing then? What is missing my friend is political will!

In the article where the Click Petróleo e Gás was present at the Avant Premiére event, to which we were with the world's largest oil producers, it was reported that the blame for the lack of investments and opportunities in the sector is solely and exclusively governmental because of Local Content. (Which is the keyword of today's subject)

Local content is a law that says that products and services inherent to oil exploration in Brazil must be provided by national companies. But this is where things start to get complicated.

Let's follow a hypothetical example (which actually isn't): Petrobras needs to produce a certain asset and it needs to hire some BRAZILIAN company to do it. They must consume and do business with other companies in the country. (a kind of territorial screening) Did you notice that because of the local content our market was totally closed? The issue is that Brazilian companies do not have the capacity to explore the full potential that we could if the market were opened to other foreign companies. Petrobras literally sees itself with its hands tied because there are global companies with this technological and operational expertise to produce everything that is under our feet, but cannot hire them because of local content. As a consequence, Brazil ceases to receive investments, which would result in a lack of injection into the economy. We stopped generating jobs because there would be fewer operations and we lost the chance to make fuel prices cheaper, since the greater the number of operators, the greater the amount of oil produced and, consequently, the cheaper and more competitive prices would be, since these same would compete with each other for greater resourcefulness in the domestic market. (which would be the law of supply and demand)

Another issue that affects the economy is the taxes imposed by the government, and Rio de Janeiro is the champion of them. Floods of taxes appear all the time, which hinder and discourage oil operators in Brazil.

Companies such as Shell, ExxonMobil, Total, Chevron and a range of multinationals have already said that they are waiting for the results of the 2018 elections to know if the new president, together with his allied base, will ease the issue of local content and open up the market for foreigners or not. And one thing I say friends, if you vote for the PT government again, we will be literally finished!

The world views the governance of the Workers' Party with a bad eye and they will not invest in a country run by a government that makes it difficult for other operators to enter. And you know a lot about how the mind of this party works: “Petrobras is ours, the oil is ours, but the money is theirs.” Messing with local content laws, no way.

This crisis we are going through is just the tip of the iceberg. I would like you to stop now to think about future generations, for you to look well and deeply into your children's eyes and ask yourself if what you, I and Brazil are going through at the moment due to this crisis, it's fair for them to go through too.

Remember, in 2018, vote for presidential candidates who intend to open the market (to other companies) and change local content, the world's large corporations have already made it clear that if there is no such initiative on the part of political leaders in this sense, no investments, there will simply be long years of crisis instead of just a few.

People who vote for the PT because of Bolsa Família, Bolsa Moradia and a lot of things, I tell you that this “benefit will end”. The government spends more on these social programs than it manages to collect and as a consequence, we are being shot on the social security issue to cover the hole in the public coffers. In 2018, these cuts will naturally also affect government social programs. In other words: It's going to be bad for everyone.

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Paulo Nogueira
With technical training, I worked in the offshore oil and gas market for a few years. Today, my team and I are dedicated to bringing information from the Brazilian energy sector and the world, always with credible and up-to-date sources.