Fossil, green fuel not competing interests

Jo-Maré Duddy – There is no reason why government’s green hydrogen ambitions and its hopes to become a major oil producer should be seen as competing interests, as both will drive largescale economic growth and development in Namibia.
“These should be seen as two sides of the same coin ... while potential fossil fuel discoveries could in fact help realise Namibia’s green hydrogen, or rather renewable energy, ambitions,” Cirrus Capital says in the update to its economic outlook.
Government has been marketing Namibia as a green hydrogen hub since the United Nations Climate Change Conference or COP26 in Glasgow, Scotland late last year. Early this year, TotalEnergies and Shell both announced discoveries of light oil offshore Namibia.
“This comes as the world, especially developed nations, talk of the energy transition, net zero emissions targets, and proposed bans on internal combustion engines over the coming decades,” Cirrus says.
“However, the recent energy crisis (specifically for Europe) has showed that the transition cannot be as quick or straightforward as many had believed,” the analysts add.
They explain: “Fossil fuels remain a key input for industries the world over, and cannot be foregone at the flip of a switch. Many years of underinvestment given the energy transition focus and emissions concerns have seen supply unable to match a sudden rebound in demand, further complicated by the sanctions imposed on Russia and domestic unrest reducing supply from some African states (such as Libya and Nigeria).”
UNCERTAINTY
Cirrus says while there remains much uncertainty on Namibia’s oil discoveries, notably their size and commercial viability, the confirmation of oil has seen increased interest in the country and has boosted an improvement in general sentiment.
“Namibia’s championing renewable energies on the global stage has done similar. Both are a short-term boon for the country.”
However, there are materially different timelines and certainties around both industries, they point out.
“While there is no confirmation yet as to whether Namibia’s oil discoveries are commercial, should any be found to be commercially viable, it would take more than five years to reach first production.
“While government has made ambitious mention of any potential production starting by 2026, the appraisal work to be done, Namibia’s frontier nature and the complexity around such deep-sea projects means that 2028 may be a more realistic, yet still very ambitious, target,” Cirrus says.
MATERIAL CHANGES
According to the analysts, confirmation of a commercial find would nonetheless see material changes from an early stage. This includes investment inflows related to the industry - further appraisal, technical skills, infrastructure development, increased exploration activity, staff recruitment - and other industries positioning for the growth such a development would bring.
“In other words, there would be tangible, broad-based benefits well before any production begins,” Cirrus says.
Commercial oil or gas reserves would also indicate substantial future revenues for the state, which it would be able to front-run, they add.
“This is not to say that green hydrogen holds no potential or should be dismissed,” Cirrus stresses.
Of the three current proposed projects, Hyphen is the biggest. The reported investment size of Hyphen is US$9.6 billion, which is nearly the size of Namibia’s gross domestic product (GDP).
“However, years of work are yet to be done (environmental monitoring, impact and scoping studies, feasibility studies, etc.) before a pilot project can even begin, whereafter commercial viability could be better determined,” Cirrus says.
They continue: “This also depends on whether the project can go ahead in the proposed area along the Southern Corridor Development Initiative, which is yet to be determined.
“Thus, the reported largescale investment, employment and export benefits are nowhere near certain, and upwards of five years away (at best) should they be realised.”
COMMITMENT
Cirrus says government’s commitment to get the green hydrogen efforts off the ground in such a short span of time is positive.
“They show that where there is real political will and effort, progress can be achieved in a short span of time – especially by partnering with the private sector.”
“This level of zeal and drive should be channelled to other areas, particularly the state’s core objectives (e.g. education, healthcare, safety and security, etc.),” Cirrus says.
On the oil front, government’s commitment to private property rights and best practices relating to the extractives sector have also “been encouraging”, they add.
PITFALLS
“The development of an oil and gas industry would promise significant wealth, but this has been the downfall of many other states that have either incorrectly utilised this wealth, or allowed greed to override pragmatism,” Cirrus says.
The analysts continue: “While Namibia’s citizens should undoubtedly benefit from the country’s natural wealth, short-sighted views on nationalisation of resources that are complex to appraise and extract will bring more harm than benefit.
“The government’s rhetoric on the matter thus far has been reassuring, but this must also reflect in government’s actions.”