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Offshore oil production in Greenland inevitable: prime minister

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

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

Greenland, the world's largest island, gained full control of themanagement and exploitation of its subsoil resources under a self-governmentlaw that came into force in June 2009. Under that agreement, Denmark keeps itsauthority over Greenland's foreign affairs, defense and monetary policy, butfreezes its annual grant to Greenland at 2009 levels, a funding loss Hammondsaid Greenland hopes to compensate for through mining and offshore oilrevenue.

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

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

In 2007, USGS estimated that there was a potential 17 billion barrels ofoil 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 strictregulations" and "closely monitored" by the government and said if she feltdrilling posed an environmental risk, "we wouldn't do it."

While she declined to comment on a potential timeline for drilling tobegin, the official Oil and Mineral Strategy unveiled by Greenland'sgovernment in February aims for at least one exploratory well to be drilled by2018 and at least one significant oil discovery within the next five years. Itis also anticipating an oil exploration well to be drilled every other year.

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

Greenland, with a population of less than 57,000, is the least populatedcountry in the world, and also geographically isolated, which would forceextraction project to be built from scratch, the report said. In addition,while the impacts of climate change have extended the summer explorationwindow and open more land to geologic research, it has also increased drillingrisk. An acceleration in ice melting could lead to more icebergs, imperilingexploration activities.

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

Charles Ebinger, director of the Energy Security Initiative at Brookings,said under optimistic circumstances, commercial oil production could begin in10 years, but said 20 years is more likely.

Still, Ebinger said many companies may look to Greenland as preferredalternative to more politically unstable regions in the Middle East, Russia orelsewhere.

"Despite the problems of an area like Greenland, they're still seen bymany oil companies as less politically risky," Ebinger said during an eventthis week. "Companies believe that they can handle the technologicalchallenges in the Arctic better than they can handle the political vagaries ofthe Middle East."

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

"Although it seems unlikely that commercial oil production will take offin the near future, virtually all of the international oil companies seem tohave an interest (in the form of licenses) to see whether the long-heldpromise 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 fourexploration/exploitation licenses for Northeast Greenland. At the same time,however, Cairn Energy, which has drilled the last seven wells offshoreGreenland, announced it was decreasing its interests in these "high riskfrontier" 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