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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Will Namibia Become Another Pawn on China's Global Energy Chessboard?

Western investors can be forgiven for having the perception that China has bought Africa's energy assets lock, stock and barrel.

Last month however, a new oil frontier opened in South West Africa, which as yet represents a level playing field, with no Chinese investment as yet. Accordingly, investors should watch developments in Namibia, which earlier this month announced massive offshore oil finds.

On 6 July Namibia's Mines and Energy Minister Isak Katali announced the discovery of vast oil reserves off the southern Namibian coast in the South Atlantic.

During his ministerial briefing to Parliament Katali said, "Enigma Oil and Gas, a company owned by Chariot Oil and Gas, has identified five prospects in its northern blocks of 1811A and B. The company again has contracted Senergy GB Limited to design a first well to test one of these prospects in the Tapir area, which lies in water 2,100 meters deep. Target reservoirs range in depth from 3,900 meters to 4,800 meters and most likely reserves, in the event of success, are estimated to be nearly 500 million barrels. Enigma is currently actively seeking a deep-water rig to drill this well during the fourth quarter of this year. Enigma expects to find oil rather than gas and would develop a discovery through a floating production, storage and offloading vessel on a fast track basis with first production planned for 2015/16. Currently, Enigma holds 100 percent equity in the blocks but is seeking industry partners to share the well cost or risk in this venture."

According to the weekly Namibian Economist, the offshore blocks are estimated to hold total reserves of up to 11 billion barrels, which is nearly equal to that of neighboring Angola's reserves of 13 billion barrels of oil.

The discoveries represent a massive potential windfall for the Namibian government. In neighboring Angola, oil production accounts for nearly 85 percent of its GDP, 90 percent of its export revenue, and nearly two-thirds of government revenue.

Namibia could certainly use the income.  According to the United Nations Development Program, Namibia is a middle-income country with one of the most unequal income distributions in the world, According to the recent Namibia Household Income and Expenditure Survey, more than one in four households live in poverty and the poorest 10 percent of households command just one percent of the country's total income, whereas the wealthiest 10 percent control more than half. The country has massive social problems, with an estimated unemployment rate of 51 percent, while the UNDP's 2005 Human Development Report indicated that 34.9 percent of the population live on $1 per day and 55.8 percent live on $2 per day.

The economy is heavily dependent on the extraction and processing of minerals for export. Mining currently accounts for 8 percent of Namibia's GDP, but provides more than 50 percent of the country's foreign exchange earnings. Rich alluvial diamond deposits make Namibia a primary source for gem-quality diamonds. Namibia's other mineralogical assets include being the world's fourth-largest producer of uranium as well as a significant producer of large quantities of zinc along with smaller amounts of gold and other minerals. Namibia's mining sector employs only about 3 percent of the population, while about 35-40 percent of the population currently lives on subsistence agriculture.

In developing its hydrocarbon potential assets Namibia has a number of advantages over many other African countries. The nation has firm macroeconomic policies, efficient political structures, growing financial institutions, and its level of corruption is low in comparison with other African countries. Namibia's currency, the Namibian dollar (NAD), is also directly linked to the South African Rand and is therefore not as much affected by currency fluctuations.

For investors seeking a share of Namibia's incipient energy wealth, this is no time to be complacent. On 26 July nearly 50 Chinese companies attended the one-day Namibia-China Business Forum held in the Namibian capital Windhoek. Namibian Ministry of Trade and Industry Undersecretary Edward Kamboua called upon Chinese businesses to create new joint ventures with Namibian partners in high priority areas of government interest, including oil, natural gas and mineral exploration.

Last year bilateral trade between Namibia and China was worth about $713 million, 60 times more than a decade ago. Currently 27 Chinese state-owned companies are operating in Namibia in the fields of construction, mining, engineering, information technology and financial services - but, as yet no significant hydrocarbon investments.

So, Namibia's new energy assets remain as yet open to nimble-footed foreign investors who have the ability to move quickly.  Otherwise, it seems likely that the Namibia's energy riches will become yet another pawn on China's global energy chessboard.

By. Dr. John C.K. Daly

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