Shell has announced that it will write off $400 million related to an oil discovery offshore Namibia, declaring the project commercially unviable. This decision is a setback for Namibia, which had high hopes of becoming an oil-producing nation.
The oil giant revealed that resources found in block PEL39, located offshore Namibia, “cannot currently be confirmed for commercial development.” Shell, along with its partners QatarEnergy and Namibia’s national oil company, had discovered hydrocarbons in this block back in 2022.
Namibia’s ultra-deep offshore fields, some located at depths of 3,000 meters, present significant technical challenges. Shell’s decision reflects the high development costs associated with these reserves, compounded by a lack of adequate onshore support infrastructure and slow administrative processes.
Comparisons have been drawn to Shell’s Turitella FPSO field in the Gulf of Mexico, operating at 2,900 meters but benefiting from established infrastructure, which Namibia currently lacks.
Oil and Gas Development Challenges in Namibia
Without investment in critical infrastructure, developers might have to rely on neighboring countries such as Angola or South Africa for logistical support, significantly increasing costs and delaying project timelines. This could stifle the development of a local oil service industry and reduce the direct economic benefits for Namibia.
The risk of oil majors reprioritizing other fields is also significant. Similar situations have occurred in African countries like Senegal, where oil companies deferred projects for years due to challenging conditions. However, Namibia still holds a world-class resource base, and other operators in the region are working on fields that are geologically simpler than Shell’s PEL39.
Government efforts to create a supportive environment for the nascent oil industry have been noted, though challenges remain. Streamlining administrative processes and ensuring clarity in policy frameworks are crucial next steps to make Namibia’s oil fields more attractive for further investments.
Namibia’s Economy and Oil’s Potential Impact
Namibia, with a population of approximately 2.5 million and a GDP of USD 13 billion, faces significant economic challenges. The country has one of the highest GINI coefficients globally, reflecting stark income inequality. Oil and gas development presents a rare opportunity for transformative economic growth, as demonstrated by Guyana, where GDP surged from under USD 1 billion to over USD 60 billion within a decade, largely due to oil production.
If Namibia successfully develops its offshore reserves, the nation’s GDP could experience a five-fold increase, significantly altering its economic landscape. Oil revenues could drive infrastructural development, job creation, and poverty alleviation—provided the sector is managed with transparency and sound policy frameworks.
A Wake-Up Call for Namibia: Embrace Economic Diversity
Namibian analyst Erastus Shipa emphasized that Shell’s write-down serves as a stark reminder of the risks of over-reliance on a single sector. While the oil industry presents significant potential, he stressed the importance of economic diversification.
“As we continue to explore opportunities in oil, gas, and renewable energy, it’s vital that our leaders emphasize the importance of this diversification to all stakeholders,” Shipa stated. “Clear communication and transparency will prevent panic and ensure that the promise of Namibia’s potential remains strong, even in the face of setbacks.”
He further highlighted the need to focus on sectors such as green hydrogen, manufacturing, and local content development to build long-term economic stability.
Prospects and Way Forward
Despite the current setback, Namibia retains a strategic position in the global oil industry. The combination of world-class reserves and a favorable living environment for attracting technical talent remains a significant advantage. However, realizing these opportunities requires decisive action:
Infrastructure Development: Investing in onshore infrastructure to support offshore operations.
Policy Reforms: Streamlining regulatory processes and ensuring policy certainty.
Collaboration: Stronger partnerships between the government and oil companies.
The stakes are high. If Namibia can overcome these hurdles, the oil and gas sector could be a game-changer, potentially transforming the economy, creating prosperity, and addressing long-standing economic inequalities.
