Can Namibia unlock its vast oil reserves?

Namibia, once considered a frontier market in the energy sector, is fast emerging as a potential oil powerhouse. Recent discoveries in the country’s offshore Orange Basin, particularly the Venus and Graff discoveries, have attracted significant attention from international oil companies, raising hopes of transformative economic impact. However, several factors, including geopolitical considerations and the financial viability of extraction, will play a crucial role in determining the success of Namibia’s oil ambitions.

Recent oil discoveries in Namibia have sparked an explosion of interest from some of the world’s biggest oil companies. TotalEnergies, Shell and Galp have made significant investments in exploration and production activities in the country. The presence of these international oil companies brings not only financial resources, but also technical expertise and experience in the development of large-scale oil projects. The French energy giant has been particularly active in Namibia, holding a 40% operating stake in several offshore blocks, including Block 2913B, home to the Venus-1X discovery. This discovery is estimated to contain more than 3 billion barrels of oil equivalent. Shell, with a 45% interest in the PEL 39 license, made a significant light oil discovery at the Graff-1 well in 2022. This discovery further strengthens Namibia’s oil potential. Portuguese energy company Galp holds a 10% stake in the PEL 83 license, collaborating with other players to explore and develop oil resources in the Orange Basin. The involvement of these major players signals confidence in Namibia’s oil potential and underscores the country’s attractiveness as an investment destination.

While the full extent of Namibia’s oil reserves is still being assessed, recent discoveries suggest significant potential. As of 2023, estimates place Namibia’s proven and probable (2P) reserves at approximately 11 billion barrels of oil equivalent. This figure is expected to increase as further exploration and appraisal activities take place. With the recent discoveries, the country is expected to start producing oil as early as 2026. Initial production estimates range from 120,000 to 250,000 barrels per day, with the potential to increase to 500,000 barrels per day or more over time long. However, developing Namibia’s oil resources will not be without its challenges. The country’s offshore fields are located in deep water at depths of up to 3,000 meters, which adds complexity and cost to extraction. In addition, Namibia will need to build the necessary infrastructure, including pipelines and export terminals, to transport and sell its oil. The estimated cost of developing these fields is tens of billions of dollars. Related: Oil prices rise 3% as hurricane takes 675,000 bpd offline in Gulf of Mexico

On the other hand, Namibia’s oil boom is taking place against the backdrop of complex geopolitical dynamics. The country’s proximity to South Africa, a major regional power, and its location on the Atlantic coast give it strategic importance. Namibia has sought to encourage regional cooperation in developing its oil resources. It is a member of the Southern African Development Community (SADC), which promotes economic integration and collaboration among its member states. Namibia also actively participates in the African Petroleum Producers Organization (APPO) to share knowledge and best practices in the petroleum sector. The African country has also actively sought partnerships with international organizations and countries. While Namibia currently remains outside OPEC, the country has expressed a strong interest in joining the organization. Recent oil discoveries have fueled this ambition, as Namibia recognizes the potential benefits of joining OPEC, including increased market access, technical cooperation and a stronger voice in global oil policy discussions. It also maintains good relations with Western nations, ensuring a balanced approach to international cooperation.

The economic and financial viability of oil extraction in Namibia will depend on several factors, including the global price of oil, the cost of production and the availability of financing. The global price of oil is a determinant of the profitability of oil projects. A higher oil price makes extraction more economically attractive, while a lower price can make projects unprofitable. Recent discoveries in Namibia are considered commercially viable even at moderate oil prices, given the large reserves and relatively low operating costs once production begins. The cost of producing oil in Namibia is estimated to be between $25 and $35 per barrel. While this is higher than some onshore fields, it is still competitive compared to other deepwater projects globally. Technological advances and economies of scale could further reduce costs in the future. By the way, securing financing for oil projects can be challenging, especially in a volatile market environment. Namibia has managed to attract investment from international oil companies, demonstrating confidence in the country’s potential. The government is also working to create a favorable investment climate to encourage further participation from domestic and international sources.

To summarize, Namibia’s recent oil discoveries have the potential to transform the country’s economy, providing a significant boost to GDP, government revenue and employment opportunities. However, the success of this endeavor will depend on several factors, including the ability to attract investment, develop infrastructure and address geopolitical challenges. If Namibia can successfully manage these factors, it could become a major player in the global oil market, contributing to energy security and economic growth in the region.

Source: Rystad Energy

Source: S&P Global Commodity Insights, upstream E&P content

By Antonio Garcia for Oilprice.com

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