You can't stop the incoming arctic boom!
http://www.nytimes.com/2013/10/02/b...ion.html?partner=rss&emc=rss&pagewanted=print
http://www.nytimes.com/2013/10/02/b...ion.html?partner=rss&emc=rss&pagewanted=print
With oil companies hungry for new undersea reserves, Iceland is opening its waters to exploration. The island nation, which was battered by the financial crisis, is hoping some promising early signs will lead to a big find.
Melting ice is expected to make the Arctic more accessible to drilling, mining and shipping, and Iceland is eager to position itself as a base for some of that activity.
It issued two licenses for oil exploration in January and is finalizing a third, hoping to pave the way for rigs to drill beneath its seas for the first time. Still, any drilling is probably years off, and will happen only if fresh studies confirm the signs that significant amounts of oil may be present under the sea floor.
Geological similarities to oil-rich areas of Norway have raised hopes, said Andy Brogan, oil and gas transactions leader at Ernst & Young in London. A report that was published during the licensing process said analysis of seabed samples had found residues pointing to the presence of oil, offering further encouragement.
“There’s definitely something interesting there,” Mr. Brogan said. If the undersea rocks prove to be as rich in oil as those in Norway, “then there could be some quite big prospects there.”
“It’s one of those high risk, high return options,” he added.
Norway is a major oil producer and has found extensive reserves in the Barents Sea, northeast of Iceland. To the west, Greenland’s waters have attracted the industry’s interest, though early drilling has produced dry holes. A new government in Greenland is now seeking to slow the pace of exploration, responding to concerns about drilling’s impact on the environment and indigenous lifestyles.
But Iceland is moving ahead. It is pinning its hopes on the Dreki region, along the Jan Mayen Ridge, an underwater fragment of continental crust that, before prehistoric shifts, adjoined Norway and Greenland. The area, 200 kilometers, or about 125 miles, north of Iceland, was the subject of a 1981 agreement with Norway giving each country the option to take a 25 percent share of any drilling license its neighbor issues in the region.
Norway has not opened its half of the Jan Mayen area to exploration but has made optimistic assessments of its potential. Oslo is exercising its option on the Icelandic side, with the state-owned oil company Petoro managing its stake.
Iceland first sought to issue licenses for exploration in the area in 2009, but in the midst of its economic crisis, only two companies expressed interest, and both ultimately withdrew their applications.
The 2012 round was more successful. One license went jointly to Faroe Petroleum, based in Scotland and Norway, and Iceland Petroleum. Valiant Petroleum of Britain, since acquired by Ithaca Energy, took the other in partnership with Iceland’s Kolvetni, now merged with Eykon Energy. Petoro holds a 25 percent stake in each license.
The National Energy Authority is preparing to approve a third license, for Eykon, of Iceland, and the China National Offshore Oil Corporation by the end of the year, said Thorarinn S. Arnarson, the authority’s hydrocarbon exploration manager.
The chief executive of Faroe, Graham Stewart, said his company believed there was a high potential for finding oil in the area, because “it’s got all the right ingredients.”
“There’s a reasonably good chance of finding something, and something big,” he said, adding that it would probably be three years before the first exploration well was drilled.
Mr. Arnarson said commercial production, if it happens, would be at least 10 years off. Although the area’s remoteness makes drilling there a challenge, warm currents mean its conditions are milder than is typical for the region, and it is free of sea ice all year, he said.
“It’s manageable, it’s technically feasible now,” thanks to advances in drilling techniques, Mr. Arnarson said. “It wasn’t some years ago.”
The Arctic’s natural riches, including iron ore and rare-earth minerals, are drawing global attention as a warming climate melts the region’s ice. The U.S. Geological Survey estimated in a widely quoted report from 2008 that the Arctic contained 90 billion barrels of potentially recoverable oil, representing 13 percent of its estimate of the world’s untapped yet potentially accessible total.
Many experts say the region will soon become viable as a summertime shipping route, cutting thousands of miles off the journey between Asia and Europe.
That has piqued the interest of China, which would benefit if its cargo ships could avoid long routes through the Strait of Malacca and the Suez Canal.
Iceland would be a useful stop on any new northern route, and could provide an Arctic foothold for extracting the energy and other resources China needs. Beijing is embracing the country as a new partner, signing a free-trade pact with Iceland in April, its first with a European nation. It maintains an enormous embassy in Reykjavik.
For now, China’s interests in the Arctic may be more political than economic, focused on positioning for the future, said Andreas Raspotnik, an analyst based in Cologne for the Arctic Institute research organization.
Iceland, meanwhile, hopes to capitalize on what it sees as the coming Arctic boom.
Beyond the direct benefits of jobs and revenue, building an offshore oil industry could also help the country establish itself as a service center for activity in the far north, said Heidar Gudjonsson, the chairman of Eykon Energy.
“In Iceland, you have good infrastructure, you have a good network of harbors, ice-free the whole year round, international airports, a good health care system, a whole network,” he said. “This is a rarity in remote places such as the Arctic.”
“Shipments, freight, cargo should flow through here,” he said. “If we can be the place that harvests many of these opportunities, I think the living standards here will increase.”
That would be welcome to a country just getting back on its feet after its devastating economic crisis, though the oil licensing effort had been in the works for years and the authorities said it was not prompted by recent woes.
Environmentalists fear that mining and drilling would irreparably damage one of the world’s most pristine regions. And pumping more oil would only speed dangerous climate change, they argue.
Despite oil companies’ relentless search for new finds, and the technological sophistication that has brought once-inaccessible reservoirs within reach, some analysts question predictions of a rush to the Arctic.
Working in remote areas like the Dreki is expensive. And experts say the recent jump in shale oil production, particularly in the United States, could keep oil prices low enough to undermine the profitability of Arctic exploration.
“I’m not so sure that the companies are so eager to enter into this,” said Dag Harald Claes, an oil and gas expert at the University of Oslo. “If you’re going to do very, very large infrastructure investments, you need to be sure you’ll get a very, very high oil price for a long time to come, and I’m not sure we will see that.”
Mr. Brogan, of Ernst & Young, said the enthusiasm with which oil companies pushed forward in Iceland would probably depend on what other options they have.
“People are taking it seriously, but they’ve got a whole raft of places where they can put their money, and there’s quite a few of those which are less speculative,” he said.
“What you may well see is it’s one of the smaller companies that pushes it, rather than one of the big guys,” he continued, “because the big guys have got their books full of stuff in better-known” areas like Brazil and West Africa.