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    From the Editor: Namibia should not let LNG play second fiddle to oil [Gas in Transition]


Namibia should be proactive in fostering gas/LNG development from the outset as it starts its journey into offshore oil production. [Gas in Transition, Volume 3, Issue 10]

by: Ross McCracken

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Natural Gas & LNG News, Asia/Oceania, Liquefied Natural Gas (LNG), LNG Condensed, Insights, Premium, Gas In Transition Articles, Vol 3, Issue 11, Namibia

From the Editor: Namibia should not let LNG play second fiddle to oil [Gas in Transition]

In its updated report Net Zero Emissions by 2050: A Roadmap for the Global Energy Sector,  the International Energy Agency (IEA) predicted that oil, gas and coal demand could peak this decade even without the enactment of additional climate policies. In the original report, published in May 2021, the agency said that no new fossil fuel developments should take place, apart from those already planned, if net zero emissions were to be achieved by 2050.

Forecasts and policy recommendations such as these will no doubt create pause for thought for countries sitting on newly-discovered oil reserves such as Namibia.

However, the reality is that it will likely spur rather than retard development. If the window for benefiting from oil and gas production is closing, then from the perspective of Windhoek, it makes sense to make the most of the opportunity while it is still open.

Particularly so, when Namibia is a developing nation, has little to no responsibility for historic greenhouse gas emissions and when the promises of financial transfers from those countries which do bear responsibility are proving slow to become a reality.

However, there are other factors to take into account.

The IEA’s net zero pathway by 2050 though laudable is hugely ambitious and unlikely to be achieved. Even if some of the richer economies do come close to or achieve net zero by 2050, there is much less chance of global success. As a result, oil and gas demand in 2050 is likely to be higher than the net zero pathways suggest.

Second, even in falling oil and gas demand scenarios, new production is needed to address natural decline. A difficult-to-manage risk in the energy transition is that investment falls in what are perceived as sunset industries (fossil fuels) before new technologies (renewables) are sufficiently well developed to replace them.

As a result, there is a good chance that offshore oil development in Namibia will follow a path similar to that of Guyana, although, as the discoveries push at the edges of deep and ultra deep water drilling, greater technical complexity may mean slower development.

Fiscal terms

Development depends, as ever, on agreeing mutually-beneficial fiscal terms. Namibia would not be the first country to overreach, resulting in delays.

Tanzanian LNG is a prime example. Under John Magufuli, Tanzania’s LNG ambitions were stalled for years as no agreement on development could be reached between the development companies and the government, despite major gas finds being made between 2011 and 2016.

With a new government in place following the death of Magufuli in 2021, it still took until May this year for a deal to be agreed with developers Equinor, Shell and ExxonMobil. And, even now, a final investment decision is not expected until 2025, suggesting completion of the planned onshore LNG plant will not be complete until after 2030.

Consider LNG from the outset

However, Namibia is looking at oil not LNG and to ignore the latter would be a mistake. Gas is expected under almost all energy transition scenarios to see a longer period of growth, a later peak in demand and a less rapid decline. Gas, as a cleaner and chemically much simpler fuel than oil, also has better decarbonisation options, through for example the control of methane leakage, more efficient usage and Carbon Capture and Storage (CCS).

This is already recognised in the strategies of the oil majors which have made the discoveries in Namibia and have the capacity to develop them. Shifting to a production mix in which gas plays a greater role is a key means of achieving their corporate emissions reductions goals.

And, given the limited onshore markets for gas in southern Africa, either on or offshore LNG production should be a first rather than secondary consideration.

Coupled with CCS, carbon dioxide could be stored offshore or used for enhanced oil recovery.

As a result, LNG production should be at the forefront of development concepts from the initial design phase.

Gas plans often come as an afterthought

Brazil’s deepwater oil developments are a good, or rather bad, example of gas taking second place to oil. Huge quantities of gas are reinjected into the country’s prolific offshore oil fields, while Brazil suffers a gas deficit on land, which has to be made up with imports from Bolivia and as LNG.

When rainfall is low, Brazil has to scramble for LNG. Imports of LNG jumped more than threefold to 10.1 bn m3 in 2021 from 2020 as hydro power, which dominates the country’s electricity mix, delivered significantly below average output. Development of gas pipelines to bring reinjected offshore gas to shore has been slow, owing to the focus on increasing oil output.

Guyana is another example. The development of its oil resources has been exceptionally quick and it is a model which Namibia will likely seek to emulate, but Guyana could have been more proactive in terms of early gas monetisation from the outset.

As oil production rises in Guyana to an expected 750,000 b/d by 2025, gas output will also rise to nearly 1bn ft3/d of associated gas. Some of this will be flared, but the majority will be reinjected, helping to maintain reservoir pressure, but also over time increasing the ratio of gas to oil produced.

The gas could be piped back to Guyana for use in electricity generation, which would have emissions benefits as it would mostly displace fuel oil use, but this would only absorb a small proportion of the produced gas. The other option is LNG, either from an onshore processing plant or from offshore floating liquefaction vessels. LNG could be exported to a variety of markets, including Asia where coal use is most prolific and in need of displacement with cleaner fuels. 

US oil company Apache has proposed an FLNG vessel as part of its development of an offshore oil discovery in neighbouring Suriname, which could take place in cooperation with Guyana. Even though gas would be reinjected into the fields in the short term, the company is thinking ahead about the potential of the associated gas.

Guyana is only now belatedly realising the potential of its associated gas production. In May, the country’s vice president Bharrat Jagdeo said that he believed the gas should be monetised. He said he was expecting a plan this year from US major ExxonMobil, the primary developer of the country’s offshore oil. The plans are likely to address a variety of downstream gas options, but with the global market thirst for LNG strong, LNG exports are an obvious option.

Namibia should take note now. If it is successful in becoming a significant oil producer, the oil production will also most certainly be accompanied by significant volumes of gas for which there is no immediate domestic market. From the outset, Windhoek should encourage developers to have integrated plans for gas use that go above and beyond reinjection. 

It will take some years to become an oil producer, does Namibia really want to wait another decade beyond that to monetise its gas?