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Local Content crucial for long-term strategy in Suriname

Local Content as a Catalyst for Economic Growth in Suriname

Local Content crucial for long-term strategy in Suriname

With only a few days left until Total Energies’ anticipated Final Investment Decision (FID) for its first oil project in Suriname, interest is growing in the impact of Local Content on the investment strategies of major oil companies. In countries like Suriname, where the oil industry is set to become a significant economic pillar, Local Content plays a crucial role in the CAPEX (capital expenditures) and OPEX (operational expenditures) plans of “BIG OIL” (major oil companies).

Local Content as a Cornerstone of Development

In the oil and gas industry, “Local Content” refers to the use of local labor, suppliers, goods, and services in the development of oil and gas projects. For companies like Total Energies, this means not only complying with local regulations but also contributing to the long-term economic development of the host country.

Implementing a Local Content strategy offers several benefits for both the company and the host country. For Total Energies and other major players in the sector, the focus is on building local capacity and infrastructure, which ultimately leads to lower costs and an improved reputation for corporate social responsibility.

CAPEX: Investing in Local Infrastructure and Training

In the initial phase of an oil project, where the largest capital expenditures occur, a significant portion of the CAPEX budget is allocated to developing local infrastructure. This includes building roads, ports, and facilities that can support local suppliers and contractors. For Suriname, this means direct investments in improving local infrastructure, benefiting not only the project but also the broader economy.

Additionally, programs are established to train and develop local suppliers and manufacturers. This requires capital-intensive investments initially, but this step is crucial for bringing local businesses up to the international standards of the oil industry. In Suriname, local businesses are expected to play a significant role in Total Energies’ supply chain, provided they receive adequate support and training.

Another key aspect of CAPEX is investing in the training of local labor. Through technical training and certifications, Surinamese workers can not only fill low-skilled jobs but also take on management and technical roles. This reduces long-term dependence on foreign labor.

OPEX: Cost Savings Through Local Supply Chains

As the project transitions from the construction phase to production, the focus shifts to OPEX. Here, Local Content plays an increasingly important role. By employing locally trained labor and utilizing local suppliers, operational costs can be significantly reduced. For Total Energies, this could mean less dependence on foreign companies during the production phase, lowering costs for transportation and importation of goods.

Moreover, once local suppliers are integrated into the value chain, they can provide necessities such as chemicals and spare parts. This reduces logistical costs and import duties, resulting in direct savings on operational expenditures.

Sustainable Development and Regulatory Compliance

In many host countries, governments are becoming stricter about Local Content requirements. For companies like Total Energies, it is crucial that their investment strategies align with these regulatory frameworks. In Suriname, Local Content is expected to become an integral part of future regulations, meaning companies will need to continue investing in the development of local capacity and the integration of Surinamese companies and labor into their projects.

A Win-Win for Companies and Host Countries

While integrating Local Content may initially involve high costs, it offers significant long-term benefits. Investing in local infrastructure, labor, and supply chains ensures that oil companies like Total Energies not only meet local requirements but also benefit from lower operational costs. Additionally, the risk of political instability and social unrest is reduced, as the benefits of oil exploration are more directly felt by the local population.

Challenges and Opportunities

One of the biggest challenges in implementing Local Content strategies is building local capacity that meets international standards. This requires time and resources, but the returns on these investments can be substantial. In countries like Suriname, where the oil industry is still emerging, there is a tremendous opportunity for companies to have a lasting and positive impact on the country’s economic development.

With Total Energies’ anticipated FID on the horizon, many stakeholders in Suriname are eagerly looking forward to the next steps. The commitment to Local Content will not only ensure the project’s sustainability but also pave the way for closer collaboration between the company and the host country.

Date: 10 September 2024

Categories:  Investments, Legislation, Oil and Gas Industry, Opinions 

Tags:  Block 58, Economic growth, Final Investment Decision (FID), Local Content, Local Content Development, Staatsolie Maatschappij Suriname NV, Sustainable development, TotalEnergies 

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