Future challenges in the supply chain

Both great challenges and tremendous opportunities await those interested in investing in the Brazilian oil and gas supply service industry. “But for suppliers it is mandatory to take the local content requirements seriously. Regulation will be increasing”, says Marcio Magalhães from Petrobras.

On December 1st Petrobras, BNDES, Swedcham, NBCC and DNB hosted a seminar on financing of the Brazilian oil and gas  supply service industry. About 100 people were present at the seminar where local content was among the subjects discussed exhaustively.

“Petrobras is going to need a lot of equipment, but there are challenges. For the 2011-2015 timeline, the requirement on local content is of 37 percent in the exploration phase and 55 percent in the development phase. Certification and accounting procedures of local content are increasing. From 2019, the requirement on local content in the development phase will be of 65 percent. This is a way of no return, so if you want to supply the Brazilian oil and gas sector, it is mandatory to manage these requirements. Brazil is simply trying to not waist this opportunity to develop our own oil and gas industry”, says Marcio Magalhães, senior equipment engineer and coordinator of exploration & production supplier relations at Petrobras.

Capacity
Petrobras is to invest 127,5 billion US dollars, 57 percent of the total investments outlined in the ambitious 2011-2015 business plan, in Exploration & Production. Petrobras intends to install eight platforms for the pre salt blocks and nine platforms on post salt blocks the years to come. 17 systems for extended well tests are also among the projects outlined in the business plan.

“The main part of this will be invested in infrastructure for the pre salt exploration, and Brazil does not have the capacity to provide the goods and services needed in the upstream segment. This gap represents a challenge for us, but it also offers tremendous opportunities for suppliers from countries like Norway and Sweden,” said Mr. Magalhães.

The main gaps between future demand and availability on the Brazilian market are found on turbomachinery, instrumentation and automation, structure and naval systems, piping and valves and telecommunication. A wide range of subsea and well equipment is not yet available on the Brazilian market, like rigid flowlines, well casings and drilling and production columns.

Other future challenges mentioned by the seminar speakers are qualification of personnel, financing and competitiveness of the Brazilian industry.

Support program
The Brazilian development bank BNDES, who was co-hosting the event, has created several programs in order to face these challenges. One is the BNDES P&G, a support program for the oil and gas sector supply service industry that was launched in August of this year.

“This program was set up especially to develop oil and gas production chain, and to increase the research & development (R&D) -activities. Innovation is a key priority for BNDES and we want to support innovation in the supply chain by offering attractive conditions. Another ambition is to contribute to increasing the local content in projects, to strengthen the Brazilian industry”, said André Pompeo do Amaral Mendes, a senior manager in the department for the oil and gas production chain in BNDES.

Small companies
Estimates show a local demand for offshore Exploration & Production goods and services worth 400 billion US dollars by 2020, and the pre salt discoveries represents a new paradigm. According to Mr. Mendes, 85 percent of the suppliers to the Brazilian oil and gas sector are small and medium companies (MSME-s). High interest rates, the high cost of capital and the access to technology are problems frequently pointed out by the MSME-s.

“BNDES wants to reduce the bottlenecks, facilitate the access to credit and lower the financing cost for the MSME-s”, says André Pompeo do Amaral Mendes. This financing is on most competitive terms both in Reais, linked to the TJLP long term interest rate and also available in USD.

Vinícius Samu de Figueiredo, also a BNDES manager, talked about the projects already financed by BNDES. From 2006 to 2010, BNDES has financed 271 oil tankers, support vessels and other kinds of vessels. 30 vessels has been financed for Transpetro, and Mr. Figueiredo also highlighted the DOF-vessels “Skandi Salvador”, “Skandi Vitória” and “Skandi Niteroi” as some of the most advanced offshore vessels ever built in Brazil.

“Currently 90 vessels are under construction in Brazil, and the oil and gas sector is the main drive for the recent growth. Brazilian shipyards do not have sufficient capacity to supply the long term demand, and there is a need for investment in development of the shipyard industry and in technology, he said.

By Runa Hestmann Tierno, NBCC journalist

Presentations:

PETROBRAS’ Upstream Capital for NBCC Event

BNDES Financial Support for Offshore Projects in Brazil

The BNDES Financing Program to the O&G Supply Chain