To determine whether Local Content (LC) strategies traditionally implemented in the oil and gas industry are transferable to renewable energy, we need to ask the following questions: Does LC play a role in the energy transition? Why is it important to continue the efforts on LC in the renewable space? What are the elements of LC and how are they bonded to the overall vision of governments and energy companies?
The answer to the first question is “yes.” LC strategies are transferable to renewable energy to a greater extent. Like in oil and gas, they must be developed and implemented as a fit-for-purpose approach, and LC results should be expected in the long run rather than immediately. LC is an approach that builds the capability of a resource holder by developing its workforce skills, and its suppliers’ capabilities with the goal of generating economic growth, stimulating diversification, and bringing know-how to a given location (community, city, province, region, and/or country). LC involves different key stakeholders such as private companies, governments, non-profit organizations, people (labor and professionals), suppliers, communities, academia, and civil society.
The importance of LC lies in the positive impact that its initiatives can have on the overall economy of a country, the competitiveness of its market, the cost of a project, the interests of foreign investors, the population’s education, and the promotion of private-public partnerships (PPP). There are three main elements in LC:
The first one is workforce development, which includes the recruitment and training of locals to build and improve their skill levels; for this, the role of universities, trade schools, and technical and vocational education training (TVETs) play an important role, as well as human resources and talent management functions of operators and major contractors. Craft labor and professionals not only build their skills in the classroom. Field experience is the most valuable source of upskilling. Time is an important aspect of workforce development as it takes years to form an engineer, train a crane operator, and prepare a welder for offshore work.
The second one is supplier development, which embraces buying local goods and services, building the capabilities of suppliers via training, and creating a competitive market capable of bringing prices down and quality up. Here, the role of the private sector is key as communicating expectations and providing feedback will significantly help suppliers meet their needs, and close gaps in weak areas like safety, quality, delivery, and business integrity. Joined efforts of the private sector, the government, NGOs, multilateral organizations, and civil society, suppliers can become qualified to work for the industry with the highest operational standards.
The third one is technology transfer which includes bringing know-how (also called “tacit knowledge” by Harvard’s Professor Ricardo Hausmann). It is thought technology is only either a computer program or a sophisticated piece of equipment. Tacit knowledge is what everyone has learned through years of academic and practical experience, and it is stored in everyone’s brain. This knowledge can only be transferred from person to person by teaching, listening, repeating, and work shadowing. However, this takes time; it does not happen overnight and is usually interrupted when expatriates are relocated to another assignment or simply sent home.
LC policies and LC plans are two pieces that connect the requirements of a government and the performance of an operator. The regulator or the government entity defines its expectations and requirements through policy frameworks, clauses in commercial or licensing agreements, legislations, and regulations. Those can vary based on the maturity of the industry and the government’s experience in LC (from prescriptive and onerous to promoting and fit-for-purpose). There are groups and organizations that provide advice and hands-on support to governments on how and when to develop mechanisms for LC.
On the other hand, operators and major contractors use LC plans to describe how they are planning to do LC (whether legally required or not), and how they will measure and report their performance. Communication and alignment between these two key stakeholders are essential for the success of LC strategies. Operators should continuously address expectations not only from the government but also from the local workforce and suppliers. Major companies are used to having frameworks and systems to set internal expectations and requirements, and LC is one of them; for some, it is part of the company’s DNA. In this Energy Transition era, LC plays an important role in the “S” and “G” factors in ESG (Environment, Social, and Governance).
The differences and similarities between the oil and gas industry and the renewable energy sector can make a long-detailed list. If they are grouped into categories, these can be expenditures, project lifecycle, risks, technology, skill levels required, supply chain categories, industry standards, and raw materials, among others. The point is that LC is a fit-for-purpose approach that must be adjusted to the context, and therefore can be applicable to oil and gas, mining, offshore wind farms, hydroelectric power, geothermal, and carbon capture and storage (CCS). LC is not a cookie cutter, but a white canvas with three elements to consider. Any source of energy is a source of economic growth, diversification, and know-how for a country, region, or community.
For example, in developing the skills of marine mammal observers (MMO) and fishing liaison officers (FLO) for offshore operations (seismic, drilling and production), the oil and gas industry has skilled professionals who can provide their services and expertise to offshore wind and solar farms developers. Welders and mechanical engineers are always in high demand in oil and gas; now, they have other energy sectors where they can use their skills. Opportunities for service providers are rapidly growing, mainly for logistics and manufacturing/maintenance suppliers. Shore based support is critical for any offshore operation, as it will need all kinds of vessels (installation, crew transfer, cable lay), fuel, aviation service, cranes and heavy lifting equipment. All these examples come with technology (digital twins), sophisticated equipment (umbilicals and power cables), and subject matter experts that will transfer skills, knowledge, experience, lessons and leads from sector to sector making the energy transition a non-stop flow.
There is no need to reinvent the wheel in this energy transition. LC strategies that have been characteristic of the oil and gas industry can also be implemented in the renewables space if they maintain their fit-for-purpose nature. Governments, operators, major contractors, academia, suppliers, workers, communities, NGOs, and civil society should work together on shared value creation. A skilled workforce, competitive suppliers, and cutting-edge technology are needed in the renewables sector, and the oil and gas industry already has the most technical and operationally qualified people and suppliers, as well as centuries of combined know-how readily available for the energy transition.
Headline photo: Engineering students getting hands-on training at a technical and vocational education and training (TVET) facility in Takoradi, Ghana. Photos courtesy of Ileana I. Ferber.
Oil and gas professional Ileana I. Ferber has more than 24 years of experience in the industry. She is a local content subject matter expert (SME), who provides advice on policy, economic growth, and supplier development. She advocates for developing countries’ local content issues, facilitates alignment among key stakeholders, and supports women’s economic empowerment in the supply chain. Ferber has a BA in Languages (with a major in business) from Universidad Metropolitana, Caracas; an MBA in International Development and a certificate in Corporate Social Responsibility & Sustainability from Thunderbird School of Global Management, Phoenix Arizona; and is a candidate for Economic Development Executive Certification from Harvard Kennedy School of Government.