Hydrocarbon exploration efforts in Namibian offshore waters have increased significantly in the last two years. This has led to several encouraging petroleum discoveries in the Orange basin.
But the IMF has warned the country that demand for hydrocarbons could decline severely.
Appraisal of the discoveries is still underway and, despite industry speculation, none of the stakeholders have yet pronounced the commercial viability of the discoveries.
In addition, there are also plans to expand natural gas and hydrogen production in the vicinity of the Orange basin.
Hydrocarbons, composed of hydrogen and carbon atoms, are naturally-occurring organic compounds used in energy sources like crude oil, natural gas and coal, producing carbon dioxide, water and heat.
“If the projects were to move forward, the mega projects could have a transformative impact on Namibia, providing a substantial but temporary increase in government revenues over several decades,” stated the International Monetary Fund (IMF).
In a report released this month by the IMF, in response to a request from finance and public enterprises minister Iipumbu Shiimi, the fund warned that depending on the pace of the energy transition, demand for hydrocarbons could decline severely. This, the IMF stated, raises the possibility that some of the discovered petroleum resources may become “stranded assets”.
The International Energy Agency (IEA) recently cut its forecast for 2024 oil demand growth.
This is in contrast to the Organisation of Petroleum Exporting Countries (OPEC), which believes demand will increase.
The IEA and OPEC also differ over the demand outlook in the medium- and long-term, with the difference largely due to assumptions regarding the speed at which internal combustion engine vehicles will be replaced by electric vehicles.
The IEA expects oil demand to peak by 2030, while OPEC thinks oil use will keep rising for the next two decades.
IMF experts were in Namibia from 28 November to 13 December 2023.
The purpose of the visit was to provide technical assistance on the taxation and fiscal management of large-scale petroleum investments currently under consideration.
Since news of the Namibian discoveries were made public, mines and energy minister Tom Alweendo has vehemently objected to industrialised economies and major global influencers pressuring Africa not relying on fossil fuel resources for growth and industrialisation.
He last year noted a lack of concern about the negative impact Africans will face when rushing to transition from fossil fuels to more carbon-neutral renewable energies.
“What I, however, find unreasonable is when some countries and global interest groups try to dissuade Africa from leveraging some of its natural resources. They suggest, and at times demand, that Africa give up its fossil fuel energy sources. They coax us to, as soon as possible, switch to clean renewable energy sources such as wind and solar. This urging is akin to the proverbial ‘kicking away the ladder’,” said Alweendo while addressing the Africa Energy Week (AEW) last year.
He also told the gathering that pushing Africa with a rushed energy transition on any timetable other than its own is yet another example of the lack of appreciation the global community has for African priorities.
While there is recognition of the inevitability of an energy transition, Alweendo called for a transition that is just and equitable among nations.
He also told the AEW gathering that those countries who polluted the most should decarbonise the most – and that they should do so fast. Meanwhile, the IMF report noted that preparations should begin for potential petroleum development.
In the fiscal area, this includes ensuring a petroleum fiscal regime, in policy and legislation, is fit for purpose, and enhances capacity to administer revenue-collection.
“Consideration of options for the macro-fiscal framework should be underpinned by scenario analysis, using a petroleum revenue forecasting framework. Critically, capacity for petroleum regulatory functions should be boosted, with a move over time toward a separation of policy, regulatory and commercial institutional responsibilities,” the IMF advised.
Recommendations
To ensure sustained benefits for its citizens, Namibia should pre-empt any challenges by adhering to the highest standards for transparency and governance.
“An immediate down-payment on this effort could be realised by making publicly available in an easily accessible manner all petroleum agreements concluded by the government,” the IMF proposed.
Furthermore, it emphasised that Namibia should ensure effective and consistent policy coordination, moving forward.
Also, government should establish an inter-ministerial committee to coordinate petroleum sector policy design and implementation.
This, the IMF noted, should be supported by a technical level cooperation mechanism between relevant ministries and agencies.