Namibia, once considered the “last frontier” for untapped oil reserves, has been the focus of global energy giants since major offshore discoveries were announced in 2022. Similar to Guyana, hopes of transforming the country into an oil powerhouse ignited investments and exploration activities.

However, technical challenges, geological realities and shifting market dynamics have raised questions about the viability of these ambitions.

Are Namibia’s oil dreams in peril, or are they merely facing temporary obstacles?

The promise of the Orange Basin

The Orange Basin, off Namibia’s southern coast, has attracted significant interest from companies like TotalEnergies, Shell and Galp. Initial discoveries suggested reserves exceeding 5bn barrels of oil, which prompted comparisons to Guyana, where discoveries transformed the nation into a major oil producer.

Namibia’s government, keen to capitalise on this potential, has worked to attract foreign investment through a stable regulatory framework and promising infrastructure plans. Key discoveries in the basin have included oil reserves with high commercial promise and some additional finds containing significant amounts of natural gas. However, it is this gas content that has complicated the narrative.

Challenges on the horizon

1. High gas-to-oil ratios

As drilling campaigns expanded, it became apparent that many reservoirs had unexpectedly high levels of natural gas. This poses several challenges:

• Namibian law prohibits flaring – burning off gas – to minimise environmental impact.
• Companies must either re-inject gas into the reservoirs or build infrastructure to process it for commercial use. Both options are costly and complex.
• The additional infrastructure requirements could delay production by years, potentially into the 2030s.

2. Technical and geological complexities

Shell’s recent decision to write down $400m on its PEL 39 discoveries underscores the difficulties. The company cited issues with reservoir quality, including lower permeability that complicates extraction.

These challenges make it harder to bring oil to the surface at competitive costs. TotalEnergies has also struggled to lower production costs below $20 per barrel, a critical threshold for profitability.

3. Market and policy uncertainty

Global energy dynamics are shifting. The International Energy Agency (IEA) projects that oil demand will peak before 2030, driven by the rise of electric vehicles and decarbonisation efforts. Investors, wary of long-term oil projects, are increasingly prioritising short-term returns. This creates pressure on operators to make quick decisions, often at the expense of projects with extended timelines.

Namibia’s response

Namibia’s ministry of mines and energy has remained optimistic despite setbacks. Officials have emphasised that these challenges represent delays rather than insurmountable obstacles. The government has proposed a unified gas strategy, leveraging the 8.7 trillion cubic feet (tcf) of gas discovered in the Orange Basin to power regional energy grids and petrochemical industries. Talks are underway to integrate resources across operators, creating shared infrastructure that could accelerate development.

This approach aligns with Namibia’s broader energy ambitions, including the Kudu gas-to-power project. Initially designed for smaller reserves, the project requires significant scaling to accommodate recent discoveries. Such initiatives highlight the government’s willingness to adapt plans and work collaboratively with private-sector players.

The role of international operators

International oil majors remain central to Namibia’s energy future. While Shell’s write-down is a blow, the company continues to explore development pathways. TotalEnergies is pushing for a final investment decision on its Venus discovery, targeting first oil by 2029. Meanwhile, Chevron, Galp and other players are pressing ahead with exploration in the Walvis and Orange Basins.

QatarEnergy, a key partner in multiple blocks, has expanded its footprint, showcasing confidence in Namibia’s long-term potential. However, the scale of the investments required, coupled with lingering technical issues, suggests a cautious approach from most operators.

Environmental and social considerations

Namibia’s no-flaring policy reflects a commitment to sustainable resource management. The government’s focus on developing gas-to-power infrastructure aligns with global trends toward cleaner energy. These measures aim to balance economic growth with environmental stewardship, positioning Namibia as a responsible player in the energy sector.

However, the potential social benefits of oil wealth – job creation, infrastructure development and poverty alleviation – hinge on the successful execution of these projects. Delays or failures could dampen public expectations and strain government resources.

What is the outlook?

The immediate future will likely see continued exploration and appraisal activities. Operators are expected to refine cost structures and enhance technical capabilities to address challenges. Namibia’s ability to secure additional investments will depend on progress in these areas.

If technical and economic hurdles can be overcome, Namibia’s oil and gas sector could still transform the nation’s economy. The government’s proactive stance, coupled with international expertise, provides a solid foundation for growth. However, achieving first oil, and reaping its benefits, may take longer than initially anticipated.

Potential game changers

• Advances in extraction and gas processing could lower costs and improve project viability.
• Collaborative efforts between companies and governments, particularly around shared infrastructure, could accelerate timelines.
• A slower-than-expected energy transition or geopolitical disruptions could boost oil prices, enhancing the attractiveness of Namibian projects.

Namibia’s oil dreams are not in imminent danger, but they face significant hurdles. Technical complexities, market dynamics and environmental considerations have slowed progress, raising questions about timelines and profitability.