To what extent does competition from batteries factor into these development decisions and affect demand forecasts? E.g. Gas peakers that help balance the power grid may face threat from grid scale batteries that can dispatch in milliseconds. Then on the transport side, EV growth may eventually hamper ICE sales. Or is there a sense that the uptake of clean tech is too small to materially affect development decisions?
Thank you for your interest. While early in the process, the TotalEnergies and Galp discoveries in Namibia are very impressive resources and unlikely to be impacted by clean tech because their strong economic return potential. Global oil production faces 4-5% decline rates annually so new barrels are needed even when demand is flat. I suspect faster EV adoption in China weighed on oil prices in 2024 but I believe these projects are developed if crude oil is not much lower than $60/bbl. I do think the world needs these barrels long-term.
Both of these companies are conscious of carbon intensity of barrels produced -- last year Total sold its oil sands assets partly due to carbon emissions. Galp has previously stated future earnings from Namibia will be used in part to fund its long-term decarbonization efforts. I can't speak to specifics on batteries and power grids -- you sound more knowledgeable than me on that topic.
How do you see Namibia’s deepwater exploration fitting into the bigger picture of how companies are allocating capital between greenfield and brownfield projects? With the challenges of limited infrastructure, no domestic gas market, and longer timelines for monetization, do you think Namibia can compete with more established basins like the Gulf of Mexico, where there’s existing infrastructure and quicker paybacks? Do you think what’s happening in Namibia signals a broader shift in how companies and governments think about developing frontier basins, especially given the technical challenges of appraisal and development, the financial risks of long lead times, and the uncertainty around building infrastructure in regions with limited existing capacity?
All great questions. I think a key on Greenfield will be if the investment also comes with future brownfield optionality via nearby discoveries. That potential option value will be important in the capital budgeting processes. Also think some individual circumstances with IOC's will influence their appetite, such as other investments they may be making in other long-cycle investments like LNG. TotalEnergies seems to like greenfield projects because they like scale, but they aren't really that large in mature brownfield regions like US GoM or Norway. Depends on each company's opportunity set. Also I think greenfield decisions will depend on growth scale potential which we will learn about with more exploration and appraisal.
To what extent does competition from batteries factor into these development decisions and affect demand forecasts? E.g. Gas peakers that help balance the power grid may face threat from grid scale batteries that can dispatch in milliseconds. Then on the transport side, EV growth may eventually hamper ICE sales. Or is there a sense that the uptake of clean tech is too small to materially affect development decisions?
Thank you for your interest. While early in the process, the TotalEnergies and Galp discoveries in Namibia are very impressive resources and unlikely to be impacted by clean tech because their strong economic return potential. Global oil production faces 4-5% decline rates annually so new barrels are needed even when demand is flat. I suspect faster EV adoption in China weighed on oil prices in 2024 but I believe these projects are developed if crude oil is not much lower than $60/bbl. I do think the world needs these barrels long-term.
Both of these companies are conscious of carbon intensity of barrels produced -- last year Total sold its oil sands assets partly due to carbon emissions. Galp has previously stated future earnings from Namibia will be used in part to fund its long-term decarbonization efforts. I can't speak to specifics on batteries and power grids -- you sound more knowledgeable than me on that topic.
How do you see Namibia’s deepwater exploration fitting into the bigger picture of how companies are allocating capital between greenfield and brownfield projects? With the challenges of limited infrastructure, no domestic gas market, and longer timelines for monetization, do you think Namibia can compete with more established basins like the Gulf of Mexico, where there’s existing infrastructure and quicker paybacks? Do you think what’s happening in Namibia signals a broader shift in how companies and governments think about developing frontier basins, especially given the technical challenges of appraisal and development, the financial risks of long lead times, and the uncertainty around building infrastructure in regions with limited existing capacity?
Cheers!
All great questions. I think a key on Greenfield will be if the investment also comes with future brownfield optionality via nearby discoveries. That potential option value will be important in the capital budgeting processes. Also think some individual circumstances with IOC's will influence their appetite, such as other investments they may be making in other long-cycle investments like LNG. TotalEnergies seems to like greenfield projects because they like scale, but they aren't really that large in mature brownfield regions like US GoM or Norway. Depends on each company's opportunity set. Also I think greenfield decisions will depend on growth scale potential which we will learn about with more exploration and appraisal.
Thanks, insightful as always