Namibia's Ambitions: A Song of Oil & Water
Ukraine knocks out Russia's refineries, Benin blocks Niger's exports, Malaysia ignores sanctions and the U.S. orders more SPR purchases.
10 min read
The word dry is often used to describe not only my sense of humour, but also Namibia, a country nestled on Africa’s Atlantic coast just north of South Africa. While it is roughly 1.5 times larger than France, its arid landscape makes it the second least densely populated country on Earth behind Mongolia. Only 2.5 million people live across this quiet republic, whose economy is largely driven by its natural resources, especially from the mining sector – well known for its rich diamond and uranium reserves.
Namibia has never produced any significant amount of oil. But, after many years of exploration yet no production, offshore oil reserves started being discovered as of February, 2022. Over 11 billion barrels of light crude oil (more than Angola’s proven 9 billion) and up to 8.7 trillion cubic feet of gas have been located over the past 18 months. All of these reserves sit off the desolate coast with geology somewhat similar to Brazil’s, which is seeing a boom in oil production.
Shell has received approval to drill ten additional exploration wells in the region, while TotalEnergies plans to invest $300 million, half of its global exploration budget, in Namibia this year. ExxonMobil has now also acquired acreage. Chevron has entered the game now too, as has Portuguese oil company Galp which recently announced new discoveries that added $2.5bn to its market value last month. Three weeks ago even OPEC publicly announced its courting of Namibia as a potential new member. If successful, the discoveries could turn Namibia into one of the world's newest oil-producing nations, or petrostates, like its neighbour to the north: Angola. In terms of GDP per capita, with a relatively small population Namibia already ranks 8th out of the 54 African nations – a surge in upstream oil and gas production could elevate the country into becoming an African gem of economic prosperity, that is if it is managed well. This brings us into the challenges.
Infrastructure
The immediate challenge is that to successfully develop offshore fields, the country would need to build an entire new industry. This includes infrastructure from rigs to pipelines and supportive economic policies that attract foreign investment while retaining some of the profits for Namibians. Shell has said it would not expect any oil from the country until after 2030 due to the amount of time needed to develop the fields and logistics. While the country does have deep water ports, The Namibian Ports Authority is working on a port masterplan study which will be published later this year and set the scene for investments into further developing tanker-loving harbours, although much of the attention here is on hydrogen exports rather than the offshore crude.
State Ownership
By policy the National Petroleum Corporation of Namibia (abbreviated to NAMCOR) has received a 10% carried interest (in other words, a 10% share of profits) in the exploration licenses that have been issued in Namibia. The Ministry of Mines and Energy has also announced that it wants to have a minority stake in all energy producing assets to reap the rewards of its natural resources in perpetuity, although the structure of this is yet to be confirmed.
Exports
Then comes the question, where will the crude go? Namibia does not and will not have the refining capacity to gobble up significant volumes of it. Instead, it would export this crude on tankers in both directions, largely to China, India and Western Europe, although this will depend on the exact specifications of the crude and which constellations of refineries are built to ingest these. Neighbouring Angola is also ramping up its refining capacity and could be a source of demand.
As for the nation’s downstream fuel market, it’s small, with consumption sitting at less than 48,000 barrels/day. The country saw a 64% increase in retail fuel prices in 2022 in tandem with the broader increase in prices globally. This made it far too expensive for many Namibians to drive their vehicles, leading to a 25% decrease in domestic fuel demand. Ultimately, the vast majority of any oil produced in the country will be exported.
If Namibia can prove it has accessible and sizeable reserves, attract enough investment into its energy infrastructure while retaining some ownership over the revenues and, most importantly, avoid the resource curse (I.e. instability in oil producing states due to conflicts over the resources), it will be well positioned for a new wave of economic fruits over the next two to three decades.
Fresh water: The Next Commodity Frontier
During the 1950s the capital, Windhoek, faced a challenge as its natural resources could not keep up with its rapidly expanding population, leading to serious water shortages in the city. However, this crisis spurred creative solutions, and in 1968, the Goreangab Water Reclamation Plant achieved a groundbreaking milestone by becoming the world's trailblazer in generating drinking water directly from sewage, a technique referred to as direct potable reuse (or DPR). This might sound nasty, but it is completely safe. The facility has never been linked to an outbreak of waterborne disease, and now produces up to 5.5 million gallons of drinking water every single day, up to 35% of the city’s consumption.
Water scarcity is not limited to Namibia of course. Only 3% of the world’s water is fresh water, and two-thirds of that is tucked away in frozen glaciers. Not only do 1.1 billion people lack access to water globally, but due to climate change and more extreme weather events even more peoples’ and regions’ water resources are being put under stress – scarcity is on the rise.
A combination of tools can help to partially solve problems of water scarcity:
Desalination: Namibians have invested in desalination plants along their coastline to produce freshwater from seawater.
Dams and Reservoirs: Namibia has constructed several dams and reservoirs to store water for various uses, including irrigation, hydropower generation, and domestic water supply – like the Hardap and Von Bach dams.
Transboundary Agreements: Namibia shares several rivers with neighboring countries, including the Orange River with South Africa and the Kunene River with Angola. Transboundary agreements and cooperation are essential to manage and share these shared water resources sustainably.
Wastewater treatment and reuse: Treating waste or sewage water like the example mentioned before in Windhoek.
Ecosystem Restoration: Protect and restore natural ecosystems such as wetlands, forests, and watersheds, which play a crucial role in maintaining water quality and regulating water flow.
Today, only 2% of Namibia's land receives sufficient rainfall to grow crops. Yet agriculture forms 8% of the national GDP. If effective water management strategies can be implemented, this would boost Namibian industry further. It could be argued that revenues from oil production would help to inject the capital needed to make this expanded water supply a more feasible reality, as we have seen in the Middle East’s Gulf states over the past few decades. What will be important for Nambia is economic diversification to mitigate risks associated with declining demand for oil after the 2030s.
The Oil Story in Data
Global oil supply: 87.1 million barrels/day of which OPEC is producing 27 million b/d and non-OPEC produces 60.1 million b/d.
Global oil demand: 102.5 million b/d.
Global refining capacity: approx. 105 million b/d. This is increasing significantly with new assets coming increasingly on stream including Dangote (Nigeria), Al Zour (Kuwait) and Duqm (Oman).
Global refining outages: over 8.3 million b/d (above average)
Global crude oil inventories: 3,100,000,000 barrels which is relatively high, above the entire 2021 - 2023 range for this time of year.
Price sensitivity: medium-low, driven by significant spare production capacity across OPEC+ (especially in Saudi Arabia and UAE; and underproduction in Nigeria due to technical challenges and theft) and non-OPEC+ supply growth (particularly from the U.S.) that is outpacing demand growth. Crude prices have remained fairly stable in the $80 to $86 range since the start of the year, with the exception of a brief peak into the $90s in the first half of April.
Geopolitics
Ukraine Continues Sizeable Attacks on Russian Refineries
Despite calls from the Biden Administration to calm their attacks, the Ukrainian military has sabotaged a significant portion of Russia’s refining - around 600,000 b/d of crude run capacity has been knocked off online across the assets listed below. Russia has partially offset this by delaying planned maintenance at refineries not (yet) impacted directly by the attacks.
March 12:
Norsi (Lukoil): Fire, 340,000 b/d capacity, CDU halted. FCC unit repairs until summer; CDU AVT-6 back in June. Key domestic gasoline supply source, 800 km from border.
March 16:
Syzran (Rosneft): Fire, 178,300 b/d capacity, main CDU offline; operating at 30% capacity. Diesel exporter to Eastern Europe, domestic supply to central Russia, 700 km from border.
March 23:
Kuibyshev (Rosneft): Fire, 140,000 b/d capacity, one CDU resumed; plant at 50% capacity. Domestic diesel source, heavy fuel exporter, 920 km from border.
April 27:
Ilsky (Kubanskaya Neftegazovaya Kompaniya): Suspected damage to AT-1 unit, now fully operational. Black Sea export hub, 340 km from border. Previous fire in February affected CDU, repaired in a month.
Slavyansk (Slavyansk Eco): Suspected damage to naphtha separation column, now fully operational. Export-focused, 350 km from border. Previous fire in March affected CDU and VDU, repaired in a month.
May 1:
Ryazan (Rosneft): Fire, 342,000 b/d capacity, partly operational. One CDU offline; production unaffected. Domestic supply to Moscow, with pipeline to Primorsk for diesel exports, 460 km from border. Previous fire in March damaged two CDUs, repaired in two months.
May 8:
Luhansk Oil Depot: Fire, partly operational. Domestic-focused, 130 km from border.
May 9:
Salavat (Gazprom): Fire in FCC unit, 200,000 b/d capacity, partly operational. FCC expected to restart soon. Exports to Central Asia, Arctic, Baltic, and Black Sea ports, 1,300 km from border.
Krasnodar Oil Depot: Several storage tanks damaged, partly operational. Domestic-focused, 350 km from border.
May 10:
Rovenky, Luhansk Oil Depot: Fire, partly operational. Domestic-focused, 110 km from border.
First Plant: Fire damaged three diesel tanks and one fuel oil container, partly operational. Domestic-focused, 260 km from border.
May 12:
Volgograd (Lukoil): Fire, 314,000 b/d capacity, partly operational. AVT-1 CDU expected back by end of May; CDU AVT-6 under planned works until June. Domestic fuel source with pipeline to Novorossiisk for diesel exports, 350 km from border. Previous fire in February affected CDU VDU 5 unit, repaired in a month.
May 17:
IPP Oil Products Export Terminal: Operations suspended, now fully operational. Export-focused, 400 km from Ukrainian border.
Transneft Grushevaya Oil Depot: Gasoline storage tank damaged, partly operational. Export-focused, 400 km from border.
Novorossiisk Fuel Oil Terminal: Debris hit two storage tanks, partly operational. Export-focused, 400 km from border.
Tuapse (Rosneft): Fire from drone impact, 240,000 b/d capacity, partly operational. Export hub for refinery feedstocks, 400 km from border. Previous fire in January caused VDU outage, unit repaired in three months.
Benin Blocks Niger Oil Exports, Demands Border Reopening
Benin has halted Niger's oil exports via its port, President Patrice Talon announced last week, insisting that Niger's junta reopen the border to Benins’ goods and normalize relations before crude shipments resume. This action threatens Niger's plans to export oil from its Agadem oilfield under a $400 million agreement with China National Petroleum Corp (CNPC), which includes a 100,000 b/d pipeline from Niger to Benin.
Regional trade was expected to improve after the West African bloc lifted sanctions on Niger in February, aimed at deterring it and its junta-led neighbors Mali and Burkina Faso from leaving the union. However, Niger has kept its borders closed to Beninois goods without explanation, according to Talon.
"If you want to load your oil in our waters, then you should not see Benin as an enemy," Talon stated, adding that cooperation with Benin would allow oil shipments to proceed.
Despite reports on May 15 of an agreement to load the first vessel with Niger's crude after discussions with Chinese partners and Benin's government, the decision remains provisional and subject to change. Further meetings between the countries are expected soon.
Malaysia’s Non-Recognition of U.S. Sanctions
Malaysia announced it will not recognize U.S. sanctions, maintaining its ship-to-ship (STS) transfers of Iranian oil to China in its waters. This decision came during a visit by U.S. Treasury officials Brian Nelson and Neil MacBride, who were in Malaysia to discuss disrupting terrorist financing, including illicit oil sales.
Home Minister Saifuddin Nasution Ismail stated that Malaysia only acknowledges United Nations Security Council sanctions, not those imposed by individual countries. He noted that the U.S. delegation respected this stance.
U.S. Strategic Petroleum Reserves
The U.S. Department of Energy has issued a new order to buy 3.3 million barrels to put into strategic petroleum reserves (SPRs) in Texas. This resumes a series of purchases by the Biden administration to refill SPRs after large draws of 180 million barrels in 2022 , used to combat high prices at the time. Biden has already purchased 32.3 million barrels at an average price of $78 USD/BBL in 2023 and 2024 as part of the refilling program. This provides a bullish price floor in the short term for U.S. oil.
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