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Oil & Gas – Will Iceland become a Oil Production State?

30/12/2012 | By | Reply More

Oil licences from Iceland has been offered on Dreki territory

Iceland have actual the possibility over coming years that the oil will be found in Dreki Area, south of Jan Mayen Island. New research strengthens the belief that there is oil in the seabed around Jan Mayen.

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Map of Dreki Area and Jan Mayen. Click on map to get a bigger picture.

Jan Mayen is a Norwegian archipelago north of Iceland. However, the Dreki Area is also within Iceland’s jurisdiction (See map of Dreki to left and from the Iceland Continental Shelf Portal), so Iceland could benefit if oil is found.

Furthermore takes place, already oil exploration under the east coast of Greenland and southwest of the Faroe Islands into Brugdan area.

It may say that in recent years, the Arctic region has indeed moved centre stage, becoming crucial to the future of the world, to developments in energy production and global transport, to the monitoring of climate change and the future well-being of those who rely on the ice and the oceans for their very survival.

Petroleum activity in the Arctic is nothing new. The first onshore well was sunk in the Mackenzie River valley in Canada almost one hundred years ago. Since then, more than 400 Arctic oil and gas fields have been discovered on the west part of Arctic. However, their development has been slow – chiefly because of the high cost of operating in the Arctic. Now are focus on the west part of Arctic where the ice has melted fast, because of the global warming.

That’s why many of the world powers countries, like China, Russia, USA and the European Union (EU), covet today full right to participate in this new territory, after the ice has retreated.

NEA, The National Energy Authority of Iceland (Orkustofnun), has finished processing two applications for licences for exploration and production of hydrocarbons in the Dreki Area. The Ministry of Petroleum and Energy in Norway has on 3 December 2012, notified NEA of their decision to participate in both licences to a 25 % share in accordance with the agreement between Iceland and Norway.

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Allocating licences to Faroe Petroleum and Valiant Petroleum.

NEA made a decision to grant licences to Faroe Petroleum Norge AS, Branch in Iceland and Iceland Petroleum ehf., on the one hand, and Valiant Petroleum ehf. and Kolvetni ehf., on the other.

“The samples from the seabed around Jan Mayen is stunning, the oldest bedrocks are 260 million years old. The analysis of the material is surprising”, Sissel Eriksen, exploration director of Norwegian Petroleum Directorate told the webmedia Geo365.no.

“We had hoped, but not expected, to find so ancient sedimentary rocks around Jan Mayen. The influence of volcanic rocks in the area is less than we previously thought – volcanic rocks generally have no potential for oil and gas. But this means we have rocks that may contain material that forms the oil and gas. Two important prerequisites for potential petroleum deposits are thus met”, says Eriksen.

The expedition was in July this year with agreement with Icelandic authorities. The samples were taken from both the Icelandic and Norwegian side of the Jan Mayen ridge.

Aberdeen oil firm Faroe Petroleum has secured provisional exploration licences in the Dreki area on the Icelandic Continental Shelf.

The company said the oil licences were “extensive”, encompassing seven blocks located inside the Arctic Circle to the north east of Iceland.

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We expect to see many Oil Rig like this one, in the Dreki area in coming years

Faroe Petroleum said samples indicated the area had a working hydrocarbon system.

It said it was “very excited to get the opportunity to explore and derisk these prospects”.

Experts have predicted the Arctic will be the next major oil producing region, with reserves of about 20 billion barrels of oil.

However Edinburgh explorer, Cairn Energy, has failed to make a commercial discovery of oil and gas after a major drilling campaign.

Graham Stewart, chief executive of Faroe Petroleum, said: “We are very pleased to announce our entry into Iceland’s offshore, which represents an important extension of our frontier exploration portfolio in the UK west of Shetlands, Norwegian Sea and Norwegian Barents Sea”.

“As with our Norwegian Barents Sea licences, this new Icelandic Jan Mayen Ridge licence has significant hydrocarbon potential, and is located in ice-free waters”.

Faroe Petroleum focuses mainly on exploration and production opportunities in the Atlantic Margin, the North Sea and Norway.

Watch this video below where a very interesting information is given about the Icelandic exploration licences for Oil & Gas issues, which was hold by a conference, sponsored of Arion Bank, June, 7. 2012. The whole conference and speeches can be found from here

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Oil & Gas in Icelandic Continental Shelf

Norway intends to make Iceland oleaginous and help Icelanders to become rich. So says in a headline of the Norwegian newsmedia, e24.no, on the occasion the forthcoming signing agreement of this two nations next week, where Norway will participate in a oil exploration in the jurisdiction of Iceland.

The oil agreement is described as historical for Norway, where this will be for the first time, that Norwegian government participate in a oil exploration, outside own jurisdiction.

The Minister of oil & gas industry in Norway, Mr. Ola Borten Moe, minister of the Norwegian Ministry of Petroleum and Energy, has decided to make a special trip to Iceland to be at the signing on January 4. 2013 “to cast a glow on the incident”, as it is termed in the news of e24.no.

Not only Norway intends to help Icelanders. Norway will also provide help from the foremost experts in oil and gas industry which the Norwegian government can offer from the state oil company, Petoro.

The newsmedia e24.no quotes to the spokesperson of Petoro, Mr. Sveinung Sletten, who says that the Arctic area may contain giant oil resources which still not have been found before on the earth.The whole area are less studied than other known oil resources regions and the uncertainty is high.

Voice of caution

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Ragnar Arnason, professor of economics at the University of Reykjavik

The government of Iceland has oversold an Icelandic oil adventure, maintains Ragnar Arnason, professor of economics at the University of Reykjavik in an interview with the Norwegian Petroleum Directorate.

Plenty of questions and uncertainties exist – are there hydrocarbons in Dreki, are they oil or gas, would a discovery be commercial, is the technology available?

“They say there’s a good chance of finding petroleum in this area”, Prof Arnason notes. “But a lot has to fall into place before we can become an oil nation”.

In his view, the exploration project is something of a lottery. Dreki is a long way from land and in deep water. The climate is tough. Any discovery would be costly to develop, and demand high oil prices.

He refers to a recent petroleum seminar. “It was said there that the international oil companies base their investment decisions on a long-term oil price of USD 40-50 per barrel”.

A Dreki development is likely to need USD 60-70 per barrel, he maintains, but accepts that oil is likely to become increasingly scarce – which would boost its cost in the long run.

Advantageous.

“That might make it advantageous for us to wait”, says Prof Arnason, and adds that the oil project would in any case have little immediate effect on the Icelandic economy.

The exception will be remote areas of the north-east, where some development of service functions can be expected during an exploration phase.

Should commercial discoveries be made, on the other hand, the impact will be substantial for a small economy like Iceland’s. But Prof Arnason notes that it will take many years before cash flows into the government’s coffers.

While nearby countries such as Norway, the UK and Denmark have been oil nations for decades, the Icelanders have preferred to hold back until now.

“We haven’t known enough about the geology,” Prof Arnason (right) says. “We have long experience of drilling on land for geothermal energy, but no idea how to explore for or produce oil or gas offshore”.

So he believes that allowing the oil companies to take on investment and exploration in this phase, and then settle up later via the tax bill, is the right strategy. Companies pay 20 per cent corporate income tax in Iceland. Should oil or gas production begin, they will be taxed on their earnings and pay a royalty.

Should the licensing round lead to discoveries, developments and several decades of production, Prof Arnason thinks it would be appropriate to build up domestic petroleum expertise.

Making it last. Asked how Icelanders should use revenues from possible oil developments, he says that they ought to be used for investment which promotes economic growth and long-term affluence.

But he does not believe that the Norwegian model of a state oil fund would be the best solution for his country. There are severe doubts whether governments are better custodians of people’s money than the people themselves. As he points out, Norway’s fund has certainly lost substantial value with the financial crisis.

It might be a better idea to allocate net oil revenues to individuals and families with the provison that these special allocations have to be put into certain types of trust funds whose principal could not be reduced for several years or even decades.

Iceland is among the countries which have been hardest hit by the recent financial turbulence, and many of its inhabitants have lost their faith in politicians.

These recent economic shocks have boosted the attention being paid to the licensing round, and some people may regard it as a bright spot in a gloomy time. Others take the opposite view.

The government has invested without much success in a number of industries in recent years, such as heavy metals, aquaculture and fur farming. Many people wonder whether oil exploration will be another fiasco, Prof Arnason observes.

No green concerns

But he says that climate and environmental challenges related to the oil industry are not a matter of concern today.

“Most Icelanders feel it’s cold enough here. Global warming would be positive for Iceland, not least for its farming community”.

Nor does he believe there will be big conflicts with the fishing industry, in part because Dreki is not a very important area for catches.

Another factor is the mentality in this sector. “Fish here is about production and income, not emotions. If fishermen get good compensation schemes, and the oil industry pays for possible damage from discharges, I don’t expect much opposition from the fishing sector”.

He is more dubious about relations with Norway.

“Trouble is guaranteed if discoveries are made. Just think of all the conflicts we’ve had over fishing and quotas over the years”.

“It’s by no means certain that the two countries have the same interests when it comes to development and reservoir drainage”.

Appendix:

To avoid any disagreements that may arise in areas of disputed land or waters, rival claimants could devise a formula for sharing in a fair and equitable way any energy resources that are discovered there. Trying to determine the exact terms upon which this is done is of course very difficult, but a model might be agreement between Norway and iceland

The model which Norway and Iceland builds on today, is an agreement was made when Norway and Iceland struck over the Jan Mayen Islands in 1981.

When the two countries were unable to agree upon the exact maritime borders, a conciliation commission established by both governments proposed a compromise deal that gave each party a 25 per cent share of any petroleum discovered on the other’s continental shelf in an area covering 12,000 square miles.

This can be a historic covenant for other countries learning the lesson, how to sharing energy resources.

Norway has a more than 30 year history of petroleum activity in the High North. In order to develop petroleum activities in the High North further in a responsible manner, we need that industries, politicians, governments and consumers together have the capability, flexibility, attitudes, skills and creativity to address the challenges, and implement sound solutions.

 

Category: Iceland

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