Namibia has gained attention as a potential player in the global oil market due to its large untapped reserves. The southwestern African nation aimed to become the fifth-largest oil producer in Africa. However, recent discoveries have shifted its trajectory. Major oil companies, including Shell, TotalEnergies, Chevron, and Portugal’s Galp Resources, have been drilling in the Orange Basin off Namibia’s coast. While oil discoveries have been promising, a significant issue has emerged: excessive gas alongside the oil.
Shell struck oil at the Graff prospect, estimated to contain up to 1.7 billion barrels of crude, while TotalEnergies’ Venus discovery could hold up to 3 billion barrels. Galp also found oil, though the size of its discovery remains undisclosed. However, all these companies are facing a common challenge—there is too much gas mixed with the oil.
Maggy Shino, head of the Petroleum Affairs Directorate at the Namibian Ministry of Mines and Energy, explained in October that all recent discoveries have a high gas-to-oil ratio. With Namibia’s ban on flaring, this means the gas must either be reinjected into the wells or processed for sale. This requires additional infrastructure, potentially delaying the commercial production of hydrocarbons in Namibia. Oil executives are concerned that the longer they wait to monetize the country’s oil and gas, the more difficult it will become, particularly with predictions of falling oil demand.
Forecasts by agencies like the International Energy Agency (IEA) suggest that peak oil demand is nearing, followed by a sharp decline. However, recent data challenges this view. In October, Standard Chartered reported that global oil demand reached a record high of 103.79 million barrels per day in August. This contradicts IEA’s claims of weaker oil demand this year.
While global oil demand growth may be slowing, this trend reflects a rebound from the 2020 lockdown-induced drop in demand, rather than a collapse in fundamental demand. OPEC, for example, continues to counter the IEA’s predictions, signaling that there is still a strong market for oil. This includes oil from Namibia, which also has significant gas reserves.
Estimates suggest Namibia could hold up to 8.7 trillion cubic feet of natural gas. While this is smaller than countries like Russia or Iran, it still represents a valuable resource. Natural gas demand is expected to rise, especially in regions like Europe. The Namibian government is already working with major oil companies to build the necessary gas extraction infrastructure.
Despite this, oil companies remain cautious due to the growing emphasis on climate change and environmental concerns. They are only willing to move forward with their Namibian projects if the costs of production remain low. TotalEnergies, for instance, aims to reduce the production cost at Venus to below $20 per barrel. This may require renegotiating its agreement with the Namibian government, particularly concerning the need to inject more gas back into the wells than initially planned.
Shell has also encountered challenges in Namibia, with CEO Wale Sawan acknowledging that operations have proven more difficult than expected. The company’s focus now is on determining whether they can develop commercially viable projects. However, as the U.S. shale revolution has shown, sometimes all it takes is time and the right market conditions. With current oil prices, the incentive to overcome Namibia’s challenges may not be strong enough yet, but this could change in the future.
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