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Offshore oil production in Greenland inevitable: prime minister

Washington (Platts)--26 Sep 2014 305 pm EDT/1905 GMT


An offshore oil industry will inevitably be developed in Greenland, though it is not clear when, the country's prime minister said this week.

"The one thing that we agree upon is that there is going to be extraction, it's just a question of oil price and it's a question of investment," Prime Minister Aleqa Hammond said after an appearance at Brookings Institution, a Washington think tank. "If Greenland thought that this is a totally outrageous idea, we wouldn't do it."

Greenland, the world's largest island, gained full control of the management and exploitation of its subsoil resources under a self-government law that came into force in June 2009. Under that agreement, Denmark keeps its authority over Greenland's foreign affairs, defense and monetary policy, but freezes its annual grant to Greenland at 2009 levels, a funding loss Hammond said Greenland hopes to compensate for through mining and offshore oil revenue.

Hammond said she expects offshore drilling to take off along her country's west coast within Disko Bay, which is a roughly 90-minute flight north of Nuuk, Greenland's capital.

East Greenland may offer the most promise of undiscovered oil, gas and gas liquids, US Geological Survey data showed, but drilling is expected to be concentrated on the country's west coast due to its longer potential exploration season and comparably milder weather.

In 2007, USGS estimated that there was a potential 17 billion barrels of oil equivalent yet to be discovered in the West Greenland-East Canada basin, 31 billion boe in East Greenland and 3.3 billion boe in Northern Greenland. These estimates are expected to be updated by USGS in the near future, according to Brookings.

Hammond added that the drilling will be subject to "very strict regulations" and "closely monitored" by the government and said if she felt drilling posed an environmental risk, "we wouldn't do it."

While she declined to comment on a potential timeline for drilling to begin, the official Oil and Mineral Strategy unveiled by Greenland's government in February aims for at least one exploratory well to be drilled by 2018 and at least one significant oil discovery within the next five years. It is also anticipating an oil exploration well to be drilled every other year.

According to a new report from the Energy Security Initiative at Brookings, this timeline may be overly ambitious.

Greenland, with a population of less than 57,000, is the least populated country in the world, and also geographically isolated, which would force extraction project to be built from scratch, the report said. In addition, while the impacts of climate change have extended the summer exploration window and open more land to geologic research, it has also increased drilling risk. An acceleration in ice melting could lead to more icebergs, imperiling exploration activities.

Costs, estimated to be about $100 million to drill one exploration well and $6 billion-7 billion to develop an entire field, could also prove prohibitive, the report said.

Charles Ebinger, director of the Energy Security Initiative at Brookings, said under optimistic circumstances, commercial oil production could begin in 10 years, but said 20 years is more likely.

Still, Ebinger said many companies may look to Greenland as preferred alternative to more politically unstable regions in the Middle East, Russia or elsewhere.

"Despite the problems of an area like Greenland, they're still seen by many oil companies as less politically risky," Ebinger said during an event this week. "Companies believe that they can handle the technological challenges in the Arctic better than they can handle the political vagaries of the Middle East."

Despite the hurdles, the world's biggest oil companies have indicated interest in looking for oil resources in Greenland, which first drew commercial interest amid crude oil price spikes in the 1970s.

"Although it seems unlikely that commercial oil production will take off in the near future, virtually all of the international oil companies seem to have an interest (in the form of licenses) to see whether the long-held promise of Greenland will materialize," the report said.

Last year, three consortia of oil companies, which include BP, ConocoPhillips, ENI, Chevron, Shell and Statoil, were granted four exploration/exploitation licenses for Northeast Greenland. At the same time, however, Cairn Energy, which has drilled the last seven wells offshore Greenland, announced it was decreasing its interests in these "high risk frontier" plays.

Cairn drilled its most recent wells in West Greenland in 2010 and 2011. There have been only 15 oil wells drilled in Greenland since the 1970s.

--Brian Scheid, brian.scheid@platts.com --Edited by Annie Siebert, ann.siebert@platts.com




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