Namibia’s oil discoveries: a promising path to a prosperous future

The discovery of substantial oil reserves off the coast of Namibia marks a significant turning point for the country, which has historically faced challenges in the realm of oil exploration. In early 2022, oil majors Shell and TotalEnergies announced the discovery of oil offshore Namibia, after the successful completion of deepwater exploratory drilling in their respective licence blocks within the Orange Basin.

The Orange Basin, situated between Namibia and South Africa off the western coast of Southern Africa, has emerged as a pivotal area in the oil industry, primarily due to its geological characteristics that indicate the presence of significant hydrocarbon deposits. The potential of the basin has been further substantiated by the promising oil discoveries made in the Namibian territory of the basin, namely Venus (TotalEnergies), Graff (Shell) and Jonker (Shell).

These notable discoveries have firmly positioned Namibia as a hot spot for oil and gas exploration. Early speculation suggests that these finds potentially hold billions of barrels of oil equivalent – enough to make Namibia one of the most prominent oil producers in the world. However, whether it is commercially viable to extract the oil from these deepwater discoveries, situated roughly 270-290 km offshore Namibia at water depths of up to 3,000 metres, is still being evaluated. Extensive tests are currently being conducted by the oil majors to acquire an in-depth understanding of the reservoirs’ quality and the associated flow rates. These appraisals are crucial in determining the commercial viability of extracting oil from the deepwater discoveries.

Preliminary data emerging from these tests indicate a high likelihood of commercial viability. A recent article by Upstream, a prominent oil and gas news source, reports that Shell’s Graff-1X discovery achieved remarkable oil flow rates following production tests and that this development is a positive sign for commercial potential. In a separate article, Upstream reported that TotalEnergies’ probe of its Venus appraisal well has met expectations. This remark holds significant weight, particularly in light of market speculation surrounding the huge potential of the Venus discovery. It has been estimated that the discovery may contain over 10 billion barrels of oil equivalent, along with substantial gas reserves.

There is a strong probability that the development of these oil fields will be accelerated once the commercial viability of these oil discoveries is confirmed. The National Petroleum Corporation of Namibia (NAMCOR) has expressed its intention to streamline the development process and strives to commence production by 2029, which is plausible if all goes well. NAMCOR also believes that these discoveries will establish Namibia as one of the prominent global oil producers by 2035. Consequently, Namibia finds itself on the verge of an extraordinary transformation as it transitions into a prominent oil supplier.

However, it is important to acknowledge that oil production will come with both positives and negatives. Let’s explore some of the benefits and drawbacks that the oil industry may bring to Namibia.

Starting with the positives, economic growth is on top of the list. Some projections suggest that Namibia’s GDP could double by 2040 on the back of the discoveries. This means the GDP is projected to grow from an estimated N$204.4 billion in fiscal year 2022/23 to over N$400 billion by 2039/40, or by roughly 4% per year here on out. The actual trajectory of this growth will of course look a lot different.

The increased economic activity should see more job opportunities – a boon for a country with one of the highest unemployment rates in the world. Increased government revenues are also among the benefits in store for the country. The government is poised to generate substantial income from the oil production in the form of taxes and royalties, some of which it could use to fund the newly launched Sovereign Wealth Fund meant to create generational wealth for Namibian citizens. Infrastructure development should see a surge, especially housing to accommodate the expected influx of people. Also on the cards is the possible development of an oil refinery which could mean lower fuel prices at the pump. However, the feasibility of such an investment may rely on regional support to ensure viability and success.

On the downside, Namibia may fall victim to the so-called “resource curse” which is often associated with corruption, conflicts and even anarchy. Social disruptions could arise due to increased inequality. It is therefore imperative for industry stakeholders, particularly the government, to ensure that the promised economic prosperity translates into tangible benefits for the wider population. Additionally, oil production carries the risk of environmental harm, such as oil spills and leaks. However, it is worth noting that the occurrence and severity of such incidents have witnessed a decline over the past decades due to improved safety standards, amongst others. The good news is that most of the risks associated with oil production can be prevented or mitigated. Moreover, Namibia has the benefit of hindsight and can learn from the mistakes that other countries made in the past to avoid the same pitfalls.

Overall, the potential advantages of oil production for Namibia are expected to outweigh the negatives. The oil industry is anticipated to bring substantial opportunities for generations to come, and it would be a significant missed opportunity to not fully pursue this prospect. Therefore, it is crucial to seize this moment and responsibly harness the potential of the oil industry, ensuring that it is developed in a sustainable and environmentally responsible manner. By doing so, Namibia can secure a prosperous and economically stable future for its people.

Hugo van den Heever – Research Analyst

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