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Opinion – Namibia’s petroleum prospects amid Shell’s write-down

Opinion – Namibia’s petroleum prospects amid Shell’s write-down

Namibia’s ambitions to become a crude oil producer remain intact despite Shell’s announcement to write down US$400 million (approximately N$7.5 billion) on its offshore oil discovery in Block PEL39. 

The discovery, deemed commercially unviable, has sparked a global conversation about Namibia’s petroleum prospects. However, the country’s leadership and ongoing exploration activities suggest that this is only a temporary setback.

Minister of Mines and Energy Tom Alweendo reassured the public that Shell’s decision would not derail Namibia’s oil and gas development. “The recent announcement by Shell… is unfortunate, but it will not significantly impact Namibia’s oil and gas development,” he stated, expressing optimism about the untapped potential of Namibia’s offshore resources.

Shell’s decision: Challenges and context

Shell, in partnership with QatarEnergy and Namibia’s National Petroleum Corporation (Namcor), discovered hydrocarbons in Block PEL39 in 2022, generating significant interest in Namibia’s offshore potential. However, technical and geological challenges—including low rock permeability and high natural gas content—have made the discovery commercially unviable.

Shell CEO Wael Sawan described Namibia’s oil acreage as “very challenging”, reflecting the complexities of extracting resources profitably. The company’s decision to write off US$400 million comes as part of broader exploration challenges, including a separate US$300 million write-off for exploration licences in Colombia.

Namcor, a key partner in the project, emphasised that the financial risks of the write-down rest solely with Shell. Public Relations and Communications Specialist Utaara Hoveka clarified, “As a carried partner, Namcor would not face any financial exposure in the event of a non-commercial conclusion.”

Continued exploration, government optimism

Minister Alweendo pointed to ongoing exploration activities by international oil companies as evidence of Namibia’s strong prospects. TotalEnergies, for instance, is making progress in its multi-well appraisal and exploration drilling campaign in Block 2913B (PEL56). Similarly, Portuguese oil company Galp has achieved significant discoveries in its Mopane complex and is now seeking a new partner to advance its operations.

Meanwhile, Chevron, in partnership with Namcor and Trago, has commenced drilling the Kapana 1X well in PEL90. These developments highlight the ongoing commitment of major players to unlock Namibia’s offshore potential.

“We believe that we have barely begun to scratch the surface of the country’s offshore resources. We will continue working with dedicated companies to develop these resources,” Alweendo said, expressing confidence that Namibia is on track to deliver its first oil production in the near future.

Lessons from global comparisons

Namibia’s current situation is not unique. Emerging oil-producing nations often face challenges in the early stages of exploration. Several countries, including those in Africa, the Middle East and Europe, offer valuable lessons:

1.Africa: A Continental Perspective

•Ghana’s Jubilee Field faced initial challenges but became a cornerstone of its economy following strategic investment.

•Uganda experienced long delays before TotalEnergies began developing its oil fields, showcasing the importance of patience and long-term planning.

2.Regional Comparisons: SADC countries

•Mozambique struggled with commercialising its offshore natural gas discoveries but eventually became a significant player in the LNG market through partnerships and infrastructure development.

•Angola successfully leveraged its deep-water reserves to become a top oil producer in Africa, despite early-stage hurdles.

3. Global Insights: Middle East, Europe, and Asia

•Norway initially faced doubts about its North Sea reserves but transformed its oil sector into a global benchmark through technological innovation and policy reform.

•Thailand overcame geological challenges in its offshore gas fields, ultimately achieving energy self-sufficiency.

These cases demonstrate that setbacks in the oil sector are common, but they can be overcome with strategic investment, technological advancements, and robust regulatory frameworks.

What this means for Namibia

1.Short-Term Challenges

Shell’s write-down is a setback for Namibia’s immediate ambitions to produce crude oil. It underscores the inherent risks and complexities of frontier exploration.

2. Long-Term Opportunities

Namibia’s offshore potential remains immense. The continued interest and investment from major players like TotalEnergies, Chevron, and Galp signal that the country’s prospects are far from over.

3. Reassessing Reliance on Shell

Shell’s decision does not represent a definitive conclusion on Namibia’s petroleum viability. Other operators may achieve different results, particularly with advancements in exploration technology.

4. Strategic Planning and Diversification

Namibia must strengthen its regulatory framework, invest in local capacity, and diversify its exploration partnerships. Drawing from examples like Norway and Angola, the country can create a sustainable and profitable oil sector.

A resilient future

Minister Alweendo’s confidence in Namibia’s future reflects a broader understanding that oil exploration is a long-term endeavour. The progress made by TotalEnergies, Galp, and Chevron illustrates the untapped potential of Namibia’s offshore resources.

Namibia’s experience also serves as a reminder that early-stage setbacks are not uncommon in the oil industry. By fostering resilience, leveraging international partnerships, and learning from global best practices, the country can overcome these challenges and establish itself as a significant player in the energy sector.

While Shell’s decision to write off US$400 million on Block PEL39 is disappointing, it is not a definitive blow to Namibia’s oil ambitions. With ongoing exploration activities and government support, the country remains well-positioned to unlock its offshore potential. 

By drawing lessons from successful oil producers worldwide, Namibia can navigate its challenges and achieve its goal of becoming a crude oil producer in the near future.

*Lot Ndamanomhata is graduate of Public Management, Journalism and Communication. This article reflects his views and writes entirely in his personal capacity.