However, a significant development has occurred: major oil companies have discovered vast quantities of gas.
Firms such as Shell, TotalEnergies, Chevron, and Portugal’s Galp Resources are actively exploring for oil in the Orange Basin off Namibia's coast, and they are indeed finding oil.
Shell has made a notable discovery at a site named Graff, which is estimated to hold up to 1.7 billion barrels of crude oil.
TotalEnergies’ Venus discovery may be even more substantial, with estimates suggesting it could contain as much as 3 billion barrels of oil.
Galp also reported an oil discovery earlier this year, although the size of this find has not been publicly disclosed.
Nevertheless, these companies face a challenge: the presence of excessive gas alongside the oil.
Maggy Shino, head of the Petroleum Affairs Directorate at Namibia’s Ministry of Mines and Energy, noted in October, as reported by Reuters, that all recent discoveries exhibit a high gas-to-oil ratio.
Given Namibia's ban on flaring, the gas must either be reinjected into the wells during extraction or processed for sale, according to a recent Reuters report.
This requirement will necessitate investment in additional infrastructure, potentially delaying the commencement of commercial hydrocarbon production in Namibia.
According to the report, executives from major oil companies are expressing dissatisfaction with this situation, as any delay in monetizing Namibia’s oil and gas resources could complicate future efforts, as highlighted by Reuters.
This concern appears to be influenced by long-term demand projections from organizations like the International Energy Agency (IEA), which anticipates that peak oil demand is just a few years away, followed by a significant decline.
Current data appears to contradict this perspective.
REACHING RECORD LEVELS
In October, Standard Chartered announced that global oil demand reached a record high in August, totaling 103.79 million barrels per day. This finding contrasts with the assertion made by the head of the IEA, who indicated that oil demand this year has been significantly weaker compared to previous years. However, this does not seem to reflect the reality.
What is actually slowing is the growth rate of global oil demand, and there are valid reasons for this trend. The years 2021 and 2022 experienced a recovery following a sharp decline in demand during the 2020 lockdowns. The demand in 2020 was influenced by external circumstances rather than fundamental market factors. Once those circumstances ceased, demand surged back.
It was inevitable that this momentum would eventually wane, which is what we are currently observing. Therefore, the forecast for oil demand growth may not be as pessimistic as some analysts suggest.
There is a robust market for Namibian oil and gas. Resource assessments indicate that Namibia could possess natural gas reserves of up to 8.7 trillion cubic feet. The prospects for natural gas demand appear even more promising than those for oil, as evidenced by the situation in Europe.
The Namibian government has begun collaborating with major oil companies operating in its waters to establish gas extraction infrastructure. However, these companies are proceeding with caution. The supermajors will only advance their plans in Namibia if production costs remain sufficiently low.
As reported by Reuters, TotalEnergies seeks to lower production costs at the Venus discovery to under US$20 per barrel. This objective might necessitate renegotiating the agreement with the Namibian government, potentially involving the reinjection of a substantially larger gas volume into the wells than initially projected. Additionally, Shell has encountered greater complexities in its Namibian operations, prompting CEO Wale Sawan to emphasize the need to explore commercially viable development strategies.
At present pricing, the economic incentive to address the challenges in Namibia may be insufficient. However, it is possible that this situation could change in the future.