Oil & Gas

In early 2024, international companies and Namibia's government were optimistic about the country's vast offshore oil discoveries, viewing Namibia as the last frontier of untapped oil potential. Major discoveries in the Orange Basin, including 5.1 billion barrels of oil by TotalEnergies and Shell, sparked significant investment and hopes of fast-tracked production. However, an unexpected complication has emerged: a high gas-to-oil ratio in the fields, meaning that large volumes of gas were discovered alongside the oil. This has created new challenges for operators, who now face the need to build additional infrastructure to manage the gas, potentially slowing development and making projects less profitable.

Namibia's Petroleum Commissioner, Maggy Shino, acknowledged the issue at an industry conference in October 2024, confirming that all the country’s offshore discoveries had an unexpectedly high gas content. According to Namibian law, flaring—burning off excess gas—is prohibited due to environmental concerns. As a result, companies will need to reinject the gas into the reservoir or process it for consumption, which Shino described as the right course of action to maximize value. The government is now working with operators to develop a unified infrastructure plan to handle the 8.7 trillion cubic feet (tcf) of gas discovered, with hopes of using it for power generation and petrochemical industries in Namibia and neighboring South Africa.

The infrastructure required to handle this gas, including plans for a gas-fired power plant, was originally designed for a much smaller volume of gas from the Kudu field. Scaling up the project to accommodate the larger volumes could delay oil production significantly, with some analysts warning that first oil might not be reached until the 2030s. For companies like TotalEnergies and Shell, the challenge of incorporating gas into their plans has raised concerns about the profitability of their investments. The high cost of reinjecting gas into deep reservoirs and the need for significant infrastructure upgrades have led to some delays in final investment decisions (FID) and raised questions about the viability of large-scale oil development in Namibia.

The discovery of substantial gas reserves has already caused a shift in the optimism surrounding Namibia’s oil potential. Initially, the country was drawing comparisons to Guyana, where oil discoveries have led to a booming economy. However, as gas content became more apparent, companies have grown more cautious. TotalEnergies has struggled to reduce production costs below $20 per barrel, a critical threshold for approving new projects. Shell has explored alternatives, including building a floating gas liquefaction unit to produce LNG for export, but this would raise development costs and delay oil production. As the companies navigate these challenges, Namibia’s oil industry may face a longer road to profitability, with the high gas content threatening to derail the rapid growth once expected.