The Force Awakens

Building local capacity and content is among the most challenging goals for nations rich in petroleum resources. In the Middle East, particularly among the Gulf nations, governments have begun extensive programs encouraging foreign firms to employ locals. Nigeria has taken a similar approach through its ‘local content’ initiative. The results have been far-reaching and extend far beyond employment rates.

Almost every indigenous Nigerian energy firm interviewed for this publication indicated that the local content act had helped their business to develop and grow. The local content effort began with international oil companies contracting with Nigerian firms in compliance with the act. That, in turn, has spawned a growing value chain of energy-focused businesses in Nigeria. Schlumberger and FMC Technologies, two leading engineering firms, have had a significant impact on the Nigerian market. FMC Technologies has a training program with Port Harcourt University that trains petroleum engineers to the specifications of the industry. Schlumberger, on the other hand, has been active in Nigeria for decades, and as a result, many former employees have gone on to start engineering firms in the country after their careers with the company. A remarkable number of indigenous services firms were started or are staffed by former Schlumberger employees.
The strength of local talent is likely to be tested in 2016 as Nigerian crude comes under pressure from continuously decreasing prices. Nigeria will have to find ways to reduce its costs of production through innovation, or risk becoming less competitive in global oil markets. From chemical manufacturers to engineering consultants and equipment providers, there are entire sectors working tirelessly to reduce costs among petroleum companies, particularly in marginal fields and major deep-water projects.

One major milestone for Nigeria’s local content efforts is the Egina field’s new Floating Production, Storage, and Offloading vessel (FPSO). Such vessels have heretofore been typically manufactured outside of Nigeria. The fact that the Lagos Deep Offshore Logistics Base (LADOL) has been able to locally source all of the expertise and the components necessary to construct the FPSO is significant, given that as recently as five years ago, the capability to carry out such megaprojects simply did not exist among local firms.

Other companies, including indigenous ones, are particularly benefiting from this project, as they have seen contracts coming from the Egina field project in a time when many contracts have been canceled or renegotiated. Such vessels were in the past constructed overseas and towed by barge to offshore projects on the Nigerian coast.

Although the local content act has so far been affiliated only with the oil and gas industry, it has recently begun to spread into the electricity sector. NERC has just implemented a local content act of its own. The vast majority of electrical supplies are thus far imported into Nigeria as well. The power situation that has led Nigeria into such an import-dependent role. A lack of affordable electricity means that businesses must generate their own power from expensive diesel generators. Other programs that have been successful in Nigeria include those focused on indigenous asset ownership. These provide specialized loans for Nigerian firms to purchase ships and large equipment to service the needs of international oil companies and other firms doing business in Nigeria.