Impacts of the review of the Brazilian local content policy on the attractiveness of oil and gas projects

Abstract

The study assesses the relevance of the recent local content policy (LCP) reforms for the oil sector in Brazil on the attractiveness of investments in exploration and production (E&P), and in terms of employment and income generation. For this, a cash flow of a typical E&P project was simulated in the Brazilian pre-salt environment in a field with reserves of 5 billion barrels of oil equivalent, under the regime of production sharing, adopting the assumptions of government participation of the tender protocol of the Libra field. In addition, in order to estimate the impact of the LCP on the generation of employment and income, the methodology of the Input–Output Model (IOM) was applied. The results indicated that high commitments of local content (LC), in contexts of restricted oil prices, compromise the profitability of E&P projects. In addition, the results showed that a greater volume of investments can more than offset the impact of higher levels of LC in generating employment and income for the country. Finally, the article concludes by arguing that the LCP reforms, undertaken since 2016, were necessary to guarantee the competitiveness of the Brazilian upstream in the current context of the international oil market.

Industrial policy matters: the co-evolution of economic structure, trade, and FDI in Brazil and Mexico, 2000–2015

“…Although it fostered the development of supplier industries, such as shipbuilding, the prices were considerably above the international prices and the quality of goods and services typically lower. Thus, while the policy may have induced FDI in supplier industries (Piquet et al, 2016), it also made oil extraction less attractive to foreign MNEs (Clavijo et al, 2019), thus reducing competition in bids (Tordo et al, 2013). The lack of focus on a selected few industries or products with a greater potential to engender competitive producers has been pointed out as the main fault of a policy that seems to have overestimated the capacity of the domestic industry in meeting its high targets (Florencio, 2016).…”

Petróleo como palanca para el desarrollo económico

“…Sin embargo, cambios drásticos en los términos establecidos en los contratos, motivados por posturas nacionalistas en períodos de expansión del precio del petróleo, son bastante comunes en los países productores (ALMEIDA et al 2016). En tal sentido, las presiones excesivas para aumentar las participaciones gubernamentales y la participación de la industria local en la cadena de suministro de equipos, servicios y mano de obra pueden desincentivar las inversiones (CLAVIJO et al, 2019).…”