With resource nationalism rising as fast as oil prices, Iceland is looking to provide international oil companies something they increasingly lack -- access to new areas potentially rich with oil and gas.
WHAT’S THE CATCH?
The 100 or so offshore licenses the island plans to offer in 2009 are in remote Arctic waters of the north Atlantic and at depths of up to 2,000 meters (6,560 feet). Still, Reykjavik is betting that hunger to replace waning reserves, stoked by historically high oil prices, and new technology to more easily exploit hard-to-reach deposits will lure both the majors and minnows of the oil world to its waters. “It’s a busy and exciting time, with lots of unknowns,” said Thorarinn Arnarsson, hydrocarbon licensing manager at Iceland’s Energy Authority.
“But we believe this is a good time to introduce our area and we are finding a lot of interest.” “We’ll love to have the big companies come in but it’s likely to be the risk-takers that get here first and hopefully show the others,” he told Reuters in a telephone interview late on Tuesday.
Iceland is hammering out the financial terms and tax rules for its first licensing round, which is due to cover about 40,000 square kilometers of seas about 330 km north-east of Iceland and due south from Norway’s Jan Mayen islands. The first licenses will have a duration of 12 to 16 years and, following any successful exploration, production for up to 30 years, according to industry weekly newspaper Upstream.
Unlike oil-rich Venezuela and Russia, which have tightened the screws on international oil players to boost their state energy producers, Iceland does not have a national oil company. “We want to attract international investors...(And) we do not have plans to build a national oil group,” Arnarsson said.
Underground seismic surveys of the area, many of them carried out in the 1980s and shelved for decades due to low oil prices and high exploration costs, have been encouraging. “The geology of the Jan Mayen ridge area is related to what we have off eastern Greenland, where hydrocarbons have been found,” said Arnarsson. British oil and gas group Cairn Energy, which has stakes in six blocks off Greenland, said in June that the region could hold billions of barrels of oil but warned the costs of extracting it will be high and any developments a long way off. Other firms have been less enthusiastic after initial tests.
According to some estimates, as much as a quarter of the world’s undiscovered oil and gas may lie in the Arctic. But the environmental stakes are higher too because it takes longer for spills to dissolve in the icy and still pristine eco-systems. To drum up demand for licenses, Iceland will publish seismic data for the Jan Mayen region, including new scans, at an exploration conference in Reykjavik next month, Arnarsson said.
Part of the area on offer is covered by a treaty with Norway which gives Oslo the right to take a 25% interest in licenses -- a fact welcomed by Iceland as a way to inject more of the Norwegians’ North Sea offshore know-how. As it has in Norway, Iceland hopes development offshore will spur activity onshore by oil services providers and contractors.
Icelandic authorities are already debating where a big harbor could be built and whether oil investment could dovetail with plans to construct more aluminium smelters in Iceland, which has abundant hydropower and thermal energy resources. (Reuters)