… Ayuk says N$450 billion is required for oil production.
Oil and gas experts have highlighted the multi-million-dollar bill that awaits Namibia’s quest for oil and gas, further expressing that one of the biggest tests of whether huge new oil and gas projects are able to attract the necessary financing will come in Namibia.
In recent weeks, NJ Ayuk, Executive Chairman of the African Energy Chamber, has attempted to quantify this bill, noting that Namibia will need US$25 billion (about N$450 billion) in annual investment to sustain oil production at two million barrels per day (b/d).
If this were to materialise, this would mean that investment requirements for Namibia will surpass the US$22.1 billion, which marked the peak of investment in Nigerian oil in 2014.
International oil companies have made huge hydrocarbon discoveries in Namibia’s deepwater blocks. Total’s 2022 oil discovery in the Venus field is thought to be among the largest ever made in Africa.
Venus is expected to produce up to 180,000 b/d of oil, with approval sought to move forward by late 2025. This influx of investment has earned Namibia the nickname “new Guyana,” highlighting its potential for rapid growth in oil production.
Oil and gas consultancy Wood Mackenzie stated in a research note published last November that it expects Namibia to be pumping 500,000 barrels per day within a decade, making the country one of the top producers in Africa. But it is not a foregone conclusion that these resources will be brought into production.
“At a water depth greater than 2000 meters and reservoir depth of 6000 meters, exploiting these fields will push the boundaries of industry capabilities,” Wood Mackenzie said. “Innovative solutions and high-specification equipment will be needed, adding to development costs.”
The bill for developing oil and gas fields off the Namibian coast is sure to run into many billions of dollars. The fact that Namibia is almost entirely lacking in existing infrastructure will only add to the costs. Developing a major deepwater “greenfield” project in Namibia will be considerably more costly than working in a country where discoveries are adjacent to existing production infrastructure and where logistical support is already in place.
“Timing will also prove a complication,” says Nick Branson, associate director and energy transition lead at consultancy Africa Practice. He notes that the Namibian government is pushing for gas to be piped to a gas-to-power plant, whereas developers want to reinject gas from the fields to maximise oil output, at least until liquefied natural gas (LNG) export infrastructure is available. While Branson says that revenues could be “transformational” for Namibia, he adds that the government has to contend with scepticism over whether it can cope with the changes.
“Outsiders question whether Namibia has sufficiently robust public financial management and oversight mechanisms to maximise the benefits of an oil and gas windfall that is set to coincide with an energy transition that will likely constrain global crude demand.”
Forecasting demand for oil and gas decades into the future is far from easy. Oil consumption is already falling in Europe, and the IEA predicts that global demand will peak by around 2030. “Peak gas” is a more distant prospect globally since it remains important in electricity generation—though many projections point to significantly lower gas demand in Europe, a key export market, particularly for West and North African projects—within the next decade.
Given that international oil companies face finely balanced decisions on whether to proceed with developments, their relationships with governments and regulators could prove to be a decisive factor. Governments in Namibia and potentially The Gambia can draw lessons in this respect from other African countries where developments have been beset with problems. Uganda is still to begin commercial production nearly two decades after oil was first discovered in the country, partly due to tax disputes between the government and oil companies. Mozambique has also faced a difficult journey on the road to becoming a major gas producer, with a series of massive corruption scandals delaying many of the expected benefits of its developments. Even Senegal has sent shivers down investor spines. Its new president, Bassirou Diomaye Faye, announced a review of oil and gas contracts immediately after taking office.
Ultimately, it is hard to imagine that the truly vast oil and gas resources that are being discovered off Africa’s coasts will be left in the ground. But while few governments would seriously consider turning down the windfall that can come from hydrocarbons, turning potential into production is becoming steadily more challenging. Oil and gas deposits have rested undisturbed beneath Africa’s soils and seabeds for millions of years.
But for African countries that want to make use of their hydrocarbon wealth, the window of opportunity may be closing. Only 26 years remain until 2050, usually mooted as the global target date for net zero. As this deadline approaches, delivering oil and gas projects will become more difficult than ever.