Gas may dash Big Oil's Namibian dreams
More gas than expected in fields
Geology means oil will cost more to produce
First production may be next decade
Government wants joint gas plan
By Ron Bousso, America Hernandez and Wendell Roelf
PARIS/CAPE TOWN, Nov 7 -International companies and the government of Namibia had high hopes only months ago they could quickly cash in on offshore discoveries and turn the country they saw as the world's last frontier of untapped oil into a prolific producer.
They have since hit a major complication: an unexpectedly high percentage of gas in the fields, meaning they need to install additional infrastructure. That will slow development and may make projects unprofitable, according to executives, politicians and industry sources.
"What we are seeing is that all our discoveries have a very high gas-to-oil ratio," Namibia's Petroleum Commissioner Maggy Shino told an industry conference last month.
Namibian law bans flaring - or burning gas off, releasing CO2 into the atmosphere - meaning companies will have to inject the gas back into the reservoir or process it for consumption, which Shino said was in any case the right thing to do.
"We really want to utilise the gas and generate as much value as possible ... and start then the industry of gas-to-power and petrochemicals, established in Namibia," she said.
After initially hoping for first oil by 2026, Namibia's government is working with operators to agree on a single plan with common infrastructure for the 8.7 trillion cubic feet (tcf) of unexpected gas.
The idea is to revamp a long-stalled project to pipe gas to an onshore gas-fired power plant to supply Namibia, then neighbouring South Africa and the wider region.
Initially designed to handle 1.3 tcf from Namibia's smaller Kudu field, the power plant project and related gas infrastructure would need significant upscaling.
Namibia's government has started talks with Shell SHEL.L, Total TTEF.PA, Galp GALP.LS and Norway's BW Energy BWE.OL, and wants Namibia's national oil company Namcor lead the gas development plan.
For the companies, the problem is the additional work could delay oil production into the 2030s, making it harder to monetise.
Although the industry says oil will be needed for decades to come, the International Energy Agency (IEA) estimates global use will peak before 2030 as the world weans itself off carbon-emitting fossil fuels and as electric vehicle use increases, led by the world's biggest commodities consumer China.
For the major companies that have acquired or are seeking to invest in stakes in development blocks, that is a setback, industry sources told Reuters.
GUYANA DREAM FADES
The oil industry leapt to attention in February 2022 when France's TotalEnergies and London-listed Shell announced major discoveries in Namibia's Orange basin holding a cumulative 5.1 billion barrels of oil.
Investors piled in this April when Portugal's Galp said it found as much as 10 billion barrels in the same area.
Many drew comparisons to Guyana, where discoveries in 2015 led to an oil bonanza that has given the country GDP growth above 20% for the last five years.
But the high gas content, which became apparent over the last year as operators carried out more extensive drilling of reservoirs in Namibia, has since made oil majors cautious.
"We are working on it ... It's a matter of being able to re-inject all this gas in the reservoir at a cost that is acceptable," TotalEnergies CEO Patrick Pouyanne told investors in New York last month.
Injecting gas back into rock under 3,000 metres (9842.52 ft) is already expensive, Pouyanne said. "If we have to have a big gas machine handling 500 million standard cubic feet per day instead of 200 or 300, of course, it changes the dimensions."
Total is struggling to get production costs in Namibia under $20 per barrel - an internal requirement for a final investment decision (FID) on new projects. The company is considering re-negotiating terms with authorities to try to lower costs.
It still hopes to take a FID next year and produce first oil in 2029 based on a plan to reinject all the gas rather than wait for a common solution, said one person familiar with the company's thinking, speaking on condition of anonymity.
The final decision would depend on whether the project would still be profitable enough, another source said.
"Namibia underwhelms," Jefferies analyst Giacomo Romeo summed up in an investor note. Total proposed a smaller-than-expected development of 160,000 barrels per day and did not restate previous hopes for a FID in 2025, Romeo said.
Shell has considered building a floating gas liquefaction unit at the oilfield to produce LNG for export at the block where it made the Graff discovery, according to one source. That would significantly increase development costs and delay oil output start-up.
Shell declined to comment.
Shell CEO Wael Sawan told analysts on Oct. 31 that Namibia's acreage was "very challenging," and that the lower permeability of the rock made extracting oil and gas harder.
"A lot of our focus is on figuring out whether we can find ways to be able to develop commercially investable projects," Sawan added.
Galp, which has put half its Namibian stake up for auction, has postponed the sale pending results of additional exploratory drillings later this year. U.S. major Chevron, as well as Rhino Resources, which is backed by BP and Eni’s ENI.MI joint venture Azule Energy, are also expected to drill in Namibia this year.
Reporting by America Hernandez in Paris, Ron Bousso in London; Editing by Simon Webb and Barbara Lewis
Actifs liés
Dernières actualités
Avertissement : Les entités de XM Group proposent à notre plateforme de trading en ligne un service d'exécution uniquement, autorisant une personne à consulter et/ou à utiliser le contenu disponible sur ou via le site internet, qui n'a pas pour but de modifier ou d'élargir cette situation. De tels accès et utilisation sont toujours soumis aux : (i) Conditions générales ; (ii) Avertissements sur les risques et (iii) Avertissement complet. Un tel contenu n'est par conséquent fourni que pour information générale. En particulier, sachez que les contenus de notre plateforme de trading en ligne ne sont ni une sollicitation ni une offre de participation à toute transaction sur les marchés financiers. Le trading sur les marchés financiers implique un niveau significatif de risques pour votre capital.
Tout le matériel publié dans notre Centre de trading en ligne est destiné à des fins de formation / d'information uniquement et ne contient pas – et ne doit pas être considéré comme contenant – des conseils et recommandations en matière de finance, de fiscalité des investissements ou de trading, ou un enregistrement de nos prix de trading ou une offre, une sollicitation, une transaction à propos de tout instrument financier ou bien des promotions financières non sollicitées à votre égard.
Tout contenu tiers, de même que le contenu préparé par XM, tels que les opinions, actualités, études, analyses, prix, autres informations ou liens vers des sites tiers contenus sur ce site internet sont fournis "tels quels", comme commentaires généraux sur le marché et ne constituent pas des conseils en investissement. Dans la mesure où tout contenu est considéré comme de la recherche en investissement, vous devez noter et accepter que le contenu n'a pas été conçu ni préparé conformément aux exigences légales visant à promouvoir l'indépendance de la recherche en investissement et, en tant que tel, il serait considéré comme une communication marketing selon les lois et réglementations applicables. Veuillez vous assurer que vous avez lu et compris notre Avis sur la recherche en investissement non indépendante et notre avertissement sur les risques concernant les informations susdites, qui peuvent consultés ici.
