Greenland is one of the least explored areas for oil and gas and will be part of the solution to the issues raised by resource depletion. However, it will take years to explore, develop and build the infrastructure needed before this area contributes to the global oil supply. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)
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The U.S. Geological Survey (USGS) recently updated its assessment of the potential for oil and gas resources in Greenland. In 2007, the USGS estimated that Eastern Greenland contained reserves of approximately 31.4 billion barrels of oil equivalent (BOE) of oil, gas, and natural gas liquids. Western and Southern Greenland also may have reserves of oil and gas.
Although Greenland currently has no current production or reserves of oil or gas, it has been awarding licenses on blocks to several exploration and production companies over the last few years.
Exxon Mobil (NYSE:XOM) has a block in West Greenland that expires at the end of 2012, and Chevron (NYSE:CVX) has interests in three separate license areas. BP, Inc. (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.A) have interests in a shared block in Eastern Greenland.
Cairn Energy, a smaller exploration and production company, which is listed on the London Stock Exchange, has interests in eight blocks in several offshore regions of Greenland. EnCana (NYSE:ECA) has two blocks offshore and sold 40% of each of them to Cairn Energy in late 2007.
History and Possibility
The oil and gas industry explored Greenland in the late 1970s as a response to the high oil prices experienced at the time. Several exploratory wells were drilled, declared to be dry holes, and then the industry left. Will it be different this time?
The technology has obviously improved, as the industry can drill deeper into the earth, farther offshore than before and in harsher environments. It can also be more precise in what it is looking for due to technological advances.
Also, as the ice cap retreats in Greenland, more onshore areas will open up that will be easier to drill. Any resources found here will be available for export, as the country has such a small population that it uses very little energy for its own needs.
Probability and Challenges
Many countries that have substantial oil and gas reserves have major geopolitical problems that impact the reliability of supply, something that is absent from Greenland. Greenland is technically part of Denmark, which was awarded control of the area in a dispute with Norway. Residents of Greenland voted for home rule in 1979, and the area is considered a "special cultural community" of Denmark.
Despite the industry interest in Greenland, it will take years to bring any resources here to market, as there is no offshore infrastructure available to handle any oil and gas resources. Several of the companies with licenses to explore have had the right for years and have not spud a well yet.
The Bottom Line
Greenland will one day provide the oil and gas resources needed for consumers, but it will take at least a decade if not more, before this promising region can contribute significantly to worldwide supply.
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