Mon, Jun 17 2024 17 June, 2024

After its Orange Basin exploration boom, Namibia aims to strike balance

Oil and gas exploration is booming in Namibia, with the country seeking to strike a balance between developing fossil fuels and building out renewables.

Solar panels in the desert in Namibia (Photo: Adobe Stock/tanzania1)

Namibia is in the midst of an oil and gas exploration boom, with various operators including Shell and TotalEnergies announcing discoveries in the offshore Orange Basin over the past couple of years. Production from these discoveries is some years away yet, but efforts to develop Namibia’s resources come at the same time that momentum is picking up for the energy transition.

This puts Namibia in a difficult position, with international pressure to turn its attention to renewables and the energy transition instead. However, Namibian government officials have been arguing that developing oil and gas resources is still crucial – not only for the country, but for the African continent as a whole – in order to reduce poverty, grow economies and improve local access to energy.

Indeed, Namibian Ministry of Mines and Energy Tom Alweendo wrote in a January piece for African Energy Week that he believed the benefits of fossil fuel development could still be harnessed in tandem with efforts to tackle climate change. He stated that Namibia remained committed to a renewable energy future, pointing to green hydrogen projects under development. At the same time, though, he argued that renewable capacity was too low across Africa as a whole for the continent to be pursuing the energy transition as rapidly as environmental groups and some Western countries wish.

Exploration boom

Given this position, Alweendo has called on African countries to establish attractive environments for oil and gas investors. Indeed, this is what Namibia has been trying to achieve since the recent string of oil discoveries began in 2022, having overhauled its licensing framework in a bid to address a backlog of applications.

This backlog illustrates the growing interest in exploration offshore Namibia – with oil and gas companies also looking across Africa more broadly for new opportunities.

“Africa is seeing a resurgence in high-impact exploration drilling, driven by recent success in the Orange Basin,” a senior analyst at Westwood, Jamie Collard, told Gas Outlook. “The basin is emerging as the largest new oil province since Suriname-Guyana,” he continued. “The basin looks to have certainly delivered commercial success, with TotalEnergies optimistic on progressing its Venus discovery. However, significant appraisal and further discoveries are still required, and time will tell whether the Orange Basin may be able to compete with offshore Suriname-Guyana in terms of scale.”

A complicating factor for Namibia as it tries to attract investment into its nascent oil and gas industry is that some of the most promising areas for exploration are located far offshore – in some cases 200-300 km offshore, in water depths of more than 2,000 metres. This will make them costly and complex to develop. But on the other hand, as a latecomer to the oil and gas industry, Namibia can harness the latest technologies to explore and produce oil in challenging conditions while minimising emissions from any operations.

The presence of international oil companies (IOCs) under these challenging conditions certainly suggests that they are undeterred. Indeed, there has been a trend of IOCs increasingly focusing on a smaller number of particularly attractive offshore prospects, while pursuing their own energy transition goals in various ways.

“We are optimistic regarding Namibia’s potential,” Welligence Energy Analytics’ vice president of Sub-Saharan Africa, David Thomson, told Gas Outlook. “Obviously the deepwater Orange Basin is the main area. TotalEnergies’s and Shell’s discoveries look to be very promising – Venus and Jonker in particular. Both companies also have running room on their acreage so further discoveries are likely.”

However, Thomson cautioned that the successful development of these prospects was not guaranteed.

“Exploration success doesn’t always translate into development success so a certain degree of caution is always required but our feeling is that both companies are likely to have commercial discoveries on their hands and we will probably see production by the end of the decade,” he said. “The fact that they are both skilled and experienced in deepwater projects is a definite boost.”

For now, the discoveries have raised Namibia’s profile as an exploration hotspot and other companies have also flocked to the region. Thomson pointed to GALP’s Mopane discovery, which he said seemed to extend the fairway, adding that campaigns by Woodside and Chevron in neighbouring blocks in the next 12-18 months would also be keenly watched.

“Offshore activity further north nearer the Angolan maritime border is less advanced but ExxonMobil does hold a large acreage position on both sides of the border so we will be looking at its drilling closely,” Thomson said. “There is also onshore potential and ReconAfrica is optimistic regarding its position in the Kavango Basin. Drilling there will resume in the summer and the company has said studies have indicated oil and gas potential.”

There is also the question of what to do with associated gas production from any oil discoveries that proceed to production.

“For the gas outlook, any associated gas in the deepwater discoveries in Namibia will initially be re-injected,” said Collard. “The deepwater discoveries appear to hold significant amounts of associated gas — likely multi-tcf in scale — and it is not yet clear how or when this will be monetised considering the lack of local market.”

Seeking balance

One issue, given the timelines for bringing oil discoveries to production, is that if the energy transition continues to pick up pace, demand for the oil that Namibia could produce may fall by the time these finds are being brought online.

Shell and TotalEnergies are among those that contend that the world will still be consuming oil by 2050, with new oilfields needed to meet demand even as it declines over the long-term. At the same time, though, there is a recognition that the energy transition is picking up pace, and attention is also turning to Namibia’s renewable energy potential.

“From what I have seen, [state-owned] Namcor is in the process of reviewing its strategy for transitioning towards becoming a broad-based energies company,” said Thomson. “The abundance of sun and wind leaves Namibia very well-placed for green hydrogen and it will likely be globally competitive. Certainly, pursuing a strategy that tries to balance both oil and gas with renewables is sensible.”