Commentary: Local content strategies must evolve to support sustainability
Lionel Israel, ChampionX
In key oil and gas hubs across the world, local content is a long-established and often mandatory practice, mainly driven by in-country governments. These regulations offer significant benefits to the regions where they are implemented, ensuring a skilled, local workforce is developed, and manufacturing capabilities are enhanced.
Over the last decade, most of the world’s biggest oil and gas discoveries have been on the African continent, and rapidly developing indigenous companies, along with ambitious local content policies, are ensuring resources serve African economies. In Sub-Saharan Africa, for instance, recent localization strategies have been successful in developing nationally associated industries, particularly within the natural gas supply chain. However, the advantages these policies deliver towards sustainability and climate action goals are rarely discussed.
As we accelerate toward a net zero future, environmental targets have never been higher on the oil and gas industry’s agenda. But how does local content support these ambitious goals? There are a number of elements which are crucial to oil and gas leaders, innovators and decision-makers, working closely with their local workforces to build a more energy efficient future. Local content is a vital player in this ambition.
First, it is important to identify how local content and sourcing can impact on carbon footprint. Calculating each carbon footstep gives transparency and clarity for customers and consumers. To assess the total impact, the product’s bearing on production processes should also be factored in. In the instance of production chemicals, in most cases the use of these products has a positive impact on reducing energy usage. For example, the use of emulsion breakers reduces the need for heat consumption and minimizes mechanical processes, which in turn, translates to a decline in CO2 emissions. This step-by-step carbon-counting journey is now more commonly requested by clients as businesses look to gain a greater understanding of their impact on the environment.
Production chemical solvents account for as much as 80% of chemical formulations. If these products are developed and imported from other regions, the final product has a significantly higher carbon footprint when compared to locally blended solvents which utilize national workforces and local facilities. Local content is playing a significant role in achieving individual sustainability goals, allowing businesses to be less reliant on emission-heavy air travel required for expats flying into country.
Traditionally, the development of local content in Sub-Saharan Africa has been framed around operator requirements. For companies in the chemical solutions sector, local blending was often preferred, as opposed to importing products. Prior to 2015, there was a customized approach for each client, with every operator requesting installation of blending units close to their operational bases. This resulted in a high cost per unit, but with soaring oil prices to match, this was not an issue.
However, when the oil crash hit in 2015, business drivers took a dramatic shift, and unit costs were closely scrutinized. Companies in the region had to re-evaluate, and many in-country bases were consolidated while importing raw materials became a more common practice. At the time, local content was mainly viewed from a people development perspective and the environmental advantages it could offer were widely overlooked. This approach may have reduced operational expenditure, but it had a detrimental effect on carbon footprint, with a considerable increase on travel and logistics.
Today, investors are increasingly making decisions based on Environmental, Social and Governance (ESG) ratings that assess, among other things, sustainability performance and responsible operations. As a result, there has been a significant transferal of investment from companies with poor, or no ESG ratings, to those with a more attractive standing. Companies with favorable ESG ratings typically create increased value for their shareholders compared to their peers. At its simplest, a sustainability focus is about identifying and mitigating risks that are made more transparent when the business is viewed through ESG lenses.
As the world evolves, it is essential that we move with it. We must adapt to our reality, and in 2021, this means businesses must view their activities at all stages of the product lifecycle through a sustainability lens. As companies seek to increase ESG ratings and deliver more sustainable operations, local content is a key driver in achieving this. It is vital that strategies are adopted early to fully realize the benefits. By aligning local content tactics with defined sustainability targets, we can successfully deliver on more skilled workforces and reduced carbon footprints.
The author
Lionel Israel is Business Manager–Sub-Saharan Africa for ChampionX.
