The Kudu gas project : an analysis of the legal risk to the development of offshore upstream gas operations

Abstract

The overall need for the Kudu Gas Project is for Namibia to meet its projected electricity demand and to export excess power to neighboring countries. As the Namibian population grows and the economy develops so does the increase in the demand for electricity and the current generation capacity is below the demand needed and this has led to Namibia importing approximately over 50% of its electricity demands from other utilities in the region, primarily Eskom of South Africa. The development of operations of the Kudu gas field would therefore be imperative for the energy supply goals of the country as it is also in line with the main targets of the Namibia white paper on energy policy aiming towards reducing electricity imports and achieving security of electricity supply in Namibia. Although the Kudu gas field was discovered in 1974, today in 2018 which is 44 years later, gas operations have still not commenced. This raises a point of concern as to what the possible delay to the project is, accordingly this paper focused on establishing how legal risks may have contributed thereto by assessing how legal risks affect offshore upstream gas operations. This was done by conducting a legal risk analysis of the legal framework that governs legislative and contractual upstream gas risk and determining what the consequences of these risks are towards the development of the Kudu gas project. It was established that that legal risk can hamper the development of offshore upstream operations quite negatively if legal compliance to the regulatory requirements are not adhered to, however, from the information available at the time this study was done, the Kudu gas project complies very well with regulatory requirements and the project delay is not linked to legal risks. The paper observed that other risks to the project, namely market and financial risk may be the underlying cause of the project delay. As oil and gas operations are plagued with various risk and constant increases in regulatory pressure the recommendations of this paper were directed towards the establishment of a risk management process for the Kudu gas project which will identify and monitor risks and implement risk responses that have been established by internal risks controls to mitigate and avoid the stern consequences that come with no- compliance with legal and regulatory requirements.