Iceland’s New Era of Offshore Exploration

Licenses for the exploration and production of hydrocarbons were issued by Orkustofnun (Iceland’s national energy authority) on the 4th of January, 2013.  Both licenses fall within the ‘Dreki Area’ section that is subject to an Iceland-Norway agreement from 1981, and thus Norway was given, and has accepted, the right to a 25% share in the project.  Norway will be participating through the licensee ‘Petoro Iceland AS’ branch, in Iceland.

• The first license (in purple on the map above) falls within the blocks IS60808/8, 9, 10, 11, and 12 and covers an area of 2,704 km^2.  Faroe Petroleum Norge AS is the operator with a 67.5% share.  Petoro Iceland AS and Islenskt Kolvetni ehf. have a 25% and 7.5% stake respectively.
• The second license (in blue) includes blocks IS6808/1, IS6809/2, and 3, and IS6909/11, and 12.  This covers an area of 1,119 km^2.  Valiant Petroleum ehf. is the operator with a 56.25% share.  Petoro Iceland AS and Kolvetni ehf. have a 25% and 18.75% share respectively.

Previous concerned posts from 2012;

• May 5, 2012 – Three Applications for Iceland’s Second Licensing Round
• February 24, 2012 – Oil Formations of Iceland’s Dreki Region Confirmed

Economic Development

The developing offshore exploration industry will require new service centers.  The Dreki Area faces the northeastern side of Iceland, and the communities of Langanesbyggð and Vopnafjörður have thus been selected as partners for the creation of a Dreki Area service centre.  The consortium will fall under Dreki Area ltd.

• Vopnafjörður is the planned initial exploration service centre location.
• Finnafjörður will likely be the future home to a deep water port due to appropriate water depth and wind conditions.  The area is also seen as ideal for industrial development.
• Þórshöfn has an airport and heliport.  The airport will be enlarged to accomodate for regional development.
• Electricity for the servicing industry will be brought in on 220 kW connections via the National Power Network

A National Oil Fund

The president of Iceland, Ólafur Ragnar Grímsson, announced in December, 2012 his intention to set up a national wealth fund.  From IceNews, 20th of December, 2012;

Iceland’s premier has said that Reykjavik is to set up a wealth fund ahead of a potential offshore oil boom to protect the country’s revenues. President Olafur R. Grimsson’s comments came during an interview in London in which he told the media, “Since we look at this resource as a national wealth, there will be a national wealth fund that would be established, but this is more of a general policy at this time,” Bloomberg reports.

This is similar to what many resource-rich countries have done.  In the local area, Norway currently runs a rather impressive fund from oil-related activities, and Greenland was hoping to do the same as it continues to explore offshore.

Opinion

This news is not going to come lightly to many.  The protests in response to the construction of the Kárahnjúkar Hydropower Plant were widespread, albeit for the implementation of one of the least CO2 intensive energy producing technologies available.  With that, I would assume that the construction of the offshore oil servicing industry will beckon much more.

The advantage for one of the most ably independent and clean countries on earth will be their ‘opportunity’ to eventually become independent of foreign oil sources.  Over 99% of the electricity generated in Iceland in 2011 was Hydroelectric or Geothermal in origin.  (Note that electricity generation does not originate from 100% renewable sources as some sources claim, but Iceland is quite close.  The amount of fuel used, in fact according to Orkustofnun, in electricity generation has been declining steadily over the last 30 years and amounted to only 2 GWh in 2011.)  According to the IEA, the country in 2009 imported 157,000 tonnes of motor gasoline (used for transportation), 114,000 tonnes of jet kerosene, 357,000 tonnes of gas/diesel (for industry, transportation, and fishing), and 96,000 tonnes of fuel oil (for industry, transportation, and fishing).  The thing to note is that all of this must be imported, meaning regular risks of spills into coastal ecosystems upon each import.  What is more, is that the quantities imported each year in both petroleum products, and natural gas are increasing year over year.

From the above, it is clear that risks both exist and are quite frequently ignored.  The issue shares components with that of the Icelandic aluminium smelting industry.  Smelting in Iceland will result in a lesser global CO2 footprint due to the hydro component than would have otherwise been realized had said smelting occurred in a coal-intensive region.  Similarly, oil that is produced and refined (in the future) in Iceland could face greater negative externalities that could have otherwise been realized had said production and refining occurred in a region with an easier-to-access reserve, for example.  It may thus come down to a desire for independence or a desire for economic growth and development, rather than for global efficiency in determining the next stages.  Will Iceland want energy independence not only in terms of electricity, but in gasoline, kerosine, diesel etc.., as well?  They may alternatively take the less strenuous route and simply sell their crude, and continue to import products as needed as they have been.

Sources

• Orkustofnun. Generation of Electricity in Iceland. [ONLINE] Available at: http://www.nea.is/the-national-energy-authority/energy-statistics/generation-of-electricity/. [Last Accessed 13 Jan 2013]
• Orkustofnun. Iceland issues the first licenses for exploration and production of hydrocarbons in the Dreki Area. [ONLINE] Available at: http://www.nea.is/the-national-energy-authority/news/nr/1311. [Last Accessed 12 Jan 2013]
• IceNews. Iceland president: government to set up wealth fund for oil revenue. [ONLINE] Available at: http://www.icenews.is/2012/12/20/iceland-president-government-to-set-up-wealth-fund-for-oil-revenue/. [Last Accessed 13 Jan 2013]
• United Nations. Conciliation Commission on the Continental Shelf area between Iceland and Jan Mayen: Report and recommendations to the governments of Iceland and Norway, decision of June 1981. [ONLINE] Available at: http://untreaty.un.org/cod/riaa/cases/vol_XXVII/1-34.pdf. [Last Accessed 13 Jan 2013]
• Dreki Area. Booklet. [ONLINE] Available at: http://drekiarea.is/servicing_the_arctic/. [Last Accessed 13 Jan 2013]
• Statistics Iceland. Imports in goods. [ONLINE[ Available at: http://www.statice.is/Statistics/External-trade/Imports [Last Accessed 13 Jan 2013]

Statoil and Rosneft show progress in Sea of Okhotsk

Rosneft was awarded the (shown above) Kashevarovskiy, Lisyanskiy, Magadan-1, Magadan-2, and Magadan-3 licensing blocks (5 участков в Охотском море – Кашеваровского, Лисянского, и Магадан-1, Магадан-2, и Магадан-3) in December, of 2011.  As mentioned in a post from a year back, A Potential Magadan Oil and Gas Play, Rosneft had shown interest in the area, and the government of the Russian Federation was able to award the firm with the 5 blocks without auction as these were deemed “Blocks of Federal Significance”.

Statoil and Rosneft Cooperate to Explore 3 Licenses in Sea of Okhotsk

This year has shown sizeable cooperation between Statoil and Rosneft.  Several steps have been taken toward the eventual joint implementation and exploration of the Kashevarovskiy, Lisyanskiy, and Magadan-1 licensing blocks of the Sea of Okhotsk along with the Perseevskiy block of the Barents Sea (this article focuses on the Okhotsk licenses).

• 5th of May, 2012 – Signed a cooperation agreement allowing for the joint exploration of the 3 Sea of Okhotsk licensing blocks (along with the Barents Sea block).  Stipulations concerning Rosneft’s opportunities to participate in Norwegian continental shelf operations.
• June, 2012 – Both companies signed onto joint bidding for Norwegian continental shelf exploration licenses.
• 30th of August, 2012 – Shareholder and operating agreements to establish joint ventures for the 3 Sea of Okhotsk licensing blocks (also for the Barents Sea block).

According to the agreement, as it pertains to the control of the individual Russian licensing blocks, Rosneft controls 66.67% and Statoil controls 33.33%.  Statoil is required to fund 100% of the exploration phase which includes the exploration wells expected to be drilled for Magadan-1 by 2016, Lisyanskiy by 2017, and Kashevarovskiy by 2019.

The June of 2012 signing marked the beginning of Rosneft’s pre-qualification process for Norwegian shelf operations.  While Statoil operates across a diverse international platform, Rosneft has come across as more so local to Russia and needs to build on and maintain its international image.  The initiative just announced on the 23rd of November, 2012 between Rosneft and Statoil was a declaration on Russian Arctic Environmental Protection and should help the international community see Rosneft as one that reflects Statoil’s values.  Both Rosneft and Statoil seem to be taking appropriate steps in laying the groundwork for broad future cooperation.

Sources

• Независимая. Компании Statoil и “Роснефть” будут совместно осваивать четыре арктических месторождения. [ONLINE] Available at: http://www.ng.ru/economics/2012-08-31/4_soglashenie.html. [Last Accessed 26 Nov 2012]
• Statoil. Statoil signs cooperation agreement with Rosneft. [ONLINE] Available at: http://www.statoil.com/en/NewsAndMedia/News/2012/Pages/StatoilRosneftMay2012.aspx. [Last Accessed 26 Nov 2012]
• Statoil. Statoil and Rosneft move to implement strategic cooperation agreement. [ONLINE] Available at: http://www.statoil.com/en/NewsAndMedia/News/2012/Pages/21Jun_Rosneft_agreement.aspx?WT .rss_f=Statoil%20-%20All%20News&WT.rss_a=Statoil%20and%20-Rosneft%20move%20to%20implement%20strategic%20cooperation%20agreement&WT.rss_ev=a. [Last Accessed 26 Nov 2012]
• Statoil. Statoil and Rosneft sign agreements for Russian offshore exploration. [ONLINE] Available at: http://www.statoil.com/en/NewsAndMedia/News/2012/Pages/30aug_Rosneft.aspx?WT.rss_f=Statoil%20-%20All%20News&WT .rss_a=Statoil%20and%20Rosneft%20sign%20agreements%20for%20Russian%20offshore%20exploration& WT.rss_ev=a. [Last Accessed 26 Nov 2012]
• Statoil. Rosneft and Statoil Sign Declaration on Russian Arctic Environmental Protection. [ONLINE] Available at: http://www.statoil.com/en/NewsAndMedia/News/2012/Pages/23Nov_Arctic.aspx?WT.rss_f=Statoil%20-%20All%20News&WT .rss_a=Rosneft%20and%20Statoil%20Sign%20Declaration%20on%20Russian%20Arctic%20Environmental %20Protection%20&WT .rss_ev=a. [Last Accessed 26 Nov 2012]

The Northern Sea Route as a Viable Development – Russia’s Fleet of Atomic Icebreakers

The Northern Sea Route (NSR), also known as the Northeast Passage, is the shipping lane that connects the Atlantic and Pacific Oceans.  It can thus be recognized as a potential expedited transit corridor for Europe and Asia.  Vessels transitting from ports in Europe to those in Asia via the Northern Sea Route en lieu of the Suez Canal Route are able to halve transit times, reduce fuel consumption and CO2 emissions, and finally reduce the risk of piracy through the avoidance of regions prone to piracy such as those about the Horn of Africa.  The Northern Sea Route is currently overseen by the Russian authorities through the Northern Sea Route Administration (NSRA) under the Ministry of Transportation.

For a broader picture of the Arctic world and it’s navigability, read, ‘A Future of Arctic Transit – Arctic Sea Ice Record Low Extent‘.

According to Russian law, as of 2013, the Northern Sea Route will begin from the eastern coast of Novaya Zemlya (Kara Gate), and extend through to the latitude of Cape Dezhnev (the easternmost point of the Russian mainland).  Within the law, insurance requirements, shipping fees, and icebreaker assistance fees have been, to some degree, standardized.  Finally, NSR use is limited to those vessels that are of the 1A-ice class.  Many firms that would gain from NSR access do not have this requirement and new A1 class ships are being purchased as a result.

To Yield a Viable Northern Sea Route is to Outsmart the Ice

The future viability of the Northern Sea Route will be a function of several things, most important of which will be the unpredictable, unforgiving, and frozen nature of the Russian Arctic.  Russia’s ability to perform infrastructure development and maintenance within the route, and plan icebreaking operations efficiently and effectively will be correlated with the predictability of and final changes in Arctic sea ice conditions.  With the minimum yearly extent of the Arctic sea ice in yearly recession, even hitting an historic record low on Sept 16 of 2012 (according to the National Snow and Ice Data Center), the NSRA should be and has been able to make significant progress.

Much responsibility will fall upon Russia insofar as the establishment and maintenance of the communication networks, cartographic/hydrographic information databases, and emergency preparedness measures that will be necessary for efficient, and responsible leadership in Arctic conditions.  Much money has been budgeted for these purposes, and activities are already being carried out.

• By 2015-2016, Russia plans to have sorted out all navigational blank spots, and upgraded all navigation maps with route depth data.  (Клюев. В, 2012)
• €23.4 million is to be invested in 10 emergency / rescue centers are to open along the Northern Sea Route by 2015.  Main centers include Murmansk (2013), Naryan-Mar (in construction, operational in 2013), Dudinka (2012), and Andyr.  Other subdivisions will be built in Arkhangelsk, Vorkuta, Nadym, , and Tiksi.  (Barents Observer, 2012)
• Russia has been deploying extra aircraft (10 helicopters, and 8 aircraft) to stations in Murmansk, Novaya Zemlya, Dikson, and Mys Shmidta. (Barents, Observer, 2012)

As Russia intends to protect it’s northern geopolitical interests, it maintains and has been maintaining a strong presence along the NSR through research work, and the pilotage of transit vessels through the use of the Russian national icebreaking fleet under the direction of Rosatomflot.

Russia’s Atomic Icebreaker Fleet

Russia’s atomic icebreaker fleet, under the direction of Rosatomflot, has the mission to;

support the intensification of Arctic [transit] as a key factor [in the] rise and development of the Russian North. (Rosatomflot, 2012)

From this, the fleet of 7 icebreakers are used to patrol the NSR, pilot (break ice for and guide) other transit ships under contract through required route segments, and assist with scientific expeditions.  1 of the 7 icebreakers (Sevmorput) is a container vessel.

A few notes related to specific vessels;

• Taimyr (Таймыр) – Shallow drift – Designed for shallow water operations such as those in the Kara Sea and the Yenisei River.  (Icebreaking along Norilsk Nickel’s transportation routes)
• Vaigach (Вайгач) – Shallow drift / Sister ship of Taimyr – Also designed for shallow water operations and maintains Yenisei River during the colder months.
• Sevmorput (Севморпуть) – Russia’s only nuclear powered container vessel has a deadweight tonnage of 33,900 and is designed to carry up to 74 lighters, or 1328 twenty-foot containers (or the 40 foot container equivalent).  Equipped with cranes that allow for the independent loading and unloading of lighters and some container types.

50 let Pobedy – Russia’s Newest Nuclear Icebreaker (Severnash.ru)

The Atomic nature of the fleet allows for months of independent navigation which is beneficial in an area of the world that rarely sees ‘outside civilization’.  Inopportune ships that find themselves stuck in thick ice are often rescued by Rosatomflot’s icebreakers.  Atomic fleet vessels have tremendous horsepower and the ability to attach to other vessels, through the use of thick metal cables, to tow them free.  When contracted out, Atomic vessels lead and break ice for paying ships through the entire NSR for a journey that may last weeks.  These vessels are staffed with a variety of professionals allowing them to also serve as lifelines for remote communities or even other ships that may require urgent medical attention.  This is the type of operation that can, under correct policy, provide resonant positive externalities.

Transit in Numbers

On the subject of the development of the Northern Sea Route, the Russian Minister of Transportation, Maxim Sokolov (Максим Соколов), estimates that in the near future there could be from ‘3 to 5 million tons of cargo […] transported using the [Northern Sea] Route.’  The route, Sokolov says, is something that ‘can be used by all states and all companies’, but ‘Japan, Korea, and Singapore [would see the greatest benefits as these are] countries that have a large amount of cargo shipped by sea.  ‘These countries would see transit times of 23 days instead of 46.’  (Sokolov. M, 2012)  Transit numbers have already increased exponentially from 2010.  The following trends can be observed;

• 2010 – 4 vessels with 111,000 tons
• 2011 – (29 June – 18 Nov) 34 vessels with 820,000 tons
• 2012 – (late June – current) 749,706 tons as of Sept 12, 2012

Nordic Bulk Carriers A/S – A Pioneer in Arctic Transit

In 2010, the first ever bulk carrier of a foreign flag, operated by the Danish firm Nordic Bulk Carriers A/S, transited the official Northern Sea Route with 41,000 tons of iron ore headed for China.  The MV Nordic Barents, owned by ‘Investerings Gruppen Denkark’ was escorted by two of Rosatomflot’s icebreakers.  Fuel savings amounted to roughly USD 180,000 (avoiding the Suez Canal Route).  This was an important step in the development of the Northern Sea Route as a commercially viable trade route.

In 2011, the Japanese owned MV Sanko Odyssey, under the operation of Nordic Bulk Carriers A/S, transited the Northern Sea Route with 70,000 tons of iron ore destined for China.  MV Sanko Odyssey is the largest ice class bulk carrier in the world.  Fuel savings amounted to approximately 750 tons.

In August of 2011, the SCF Group (Sovcomflot) transited the NSR with over 120,000 tonnes of gas condensate from Murmansk to Map Ta Phut, Thailand.  Vladimir Tikhonov, a 160,000 tonnes deadweight tanker, was the first of it’s size to transit the NSR, setting a speed record to boot, showing yet again that the Route is both navigable and economical.  Escorting was done by 50 Let Pobedy and Yamal.

2012 has seen the following along the NSR (starting in late June);

• Murmansk Shipping Company – ‘Indiga’ and ‘Varzuga’ – Diesel to NSR settlements
• Nordic Bulk Carriers A/S – ‘Nordic Odyssey’ and ‘Nordic Orion’ – Iron ore concentrate to China
• Novatek – ‘Marilee’ and ‘Palva’ – Gas condensate to South Korea
• ‘Stena Poseidon’ – Kerosene from South Korea to Finland
• ‘Vengeri’ – Tugboat
• Chinese Icebreaker ‘Xuelong’ – Arctic expedition

Concluding Remarks

The incentive to serve as a northern lifeline is both large and commensurate with Rosatomflot’s, and thus Russia’s stated mission.  The intensification of the Northern Sea Route transit will depend on Russia’s ability to portray an image of Arctic dominance.  This is meant in the sense of trust and punctuality, as opposed to that of military strength.  This has, for the most part, been satisfied.  The United States, for example, has only 2 icebreakers that will often be insufficient in accommodating the search and rescue needs of the Alaskan north.  Canada has a fleet of icebreakers, 2 of which are rated as heavy icebreakers, but none of which would be able to reliably and independently perform the type of Arctic rescue operation that may be required.  With such stark contrasts, plans to construct yet more powerful nuclear icebreakers, and ambitious development plans for NSR emergency / rescue centers Russia will, at least into the foreseeable future, continue to discover and advance the Arctic world.

Sources

• Arctic Info. Minister of Transportation: Use of the Northern Sea Route is our Specialty.  [ONLINE] Available at:  http://www.arctic-info.com/News/Page/minister-of-transportation–use-of-the-northern-sea-route-is-our-speciality. [Last Accessed 28 Sept 12]
• Barents Observer.  Northern Sea Route without Murmansk.  [ONLINE] Available at: http://barentsobserver.com/en/arctic/northern-sea-route-without-murmansk-06-07. [Last Accessed 28 Sept 12]
• Barents Observer.  К Новому Рекорду на Севморпути.  [ONLINE] Available at: http://barentsobserver.com/ru/arktika/k-novomu-rekordu-na-sevmorputi-11-09.  [Last Accessed 28 Sept 12]
• Barents Observer.  Arctic emergency center opens in Murmansk in 2013.  [ONLINE] Available at: http://barentsobserver.com/en/arctic/arctic-emergency-center-opens-murmansk-2013.  %5BLast Accessed 28 Sept 12]
• Barents Observer.  Russia deploys 18 emergency aircraft to the Arctic.  [ONLINE] Available at:  http://barentsobserver.com/en/arctic/russia-deploys-18-emergency-aircraft-arctic.  [Last Accessed 28 Sept 12]
• Canadian Coast Guard.  Icebreaking Program.  [ONLINE] Available at: http://www.ccg-gcc.gc.ca/eng/CCG/Ice_Fleet. [Last Accessed 28 Sept 12]
• Единая Государственная Система Информации об Обстановке в Мировом Океане.  Морской Транспортный Флот, Зарегистрированный в Российском Международном Реестре Судов.  [ONLINE] Available at: http://www.morinfocenter.ru/sostav.asp.  %5BLast Accessed 28 Sept 12]
• National Ice Center.  Daily Ice Analysis Products.  [ONLINE] Available at:  http://www.natice.noaa.gov/products/daily_products.html.  [Last Accessed 29 Sept 12]
• Nordic Bulk Carriers A/S.  NRS PROJECT.  [ONLINE] Available at:  http://www.nordicbulkcarriers.com/nsr-project. [Last Accessed 28 Sept 12]
• RZD-Partner.  Slow Start on the Northern Sea Route.  [ONLINE] Available at:  http://www.rzd-partner.com/press/2012/08/28/380488.html. [Last Accessed 29 Sept 12]
• Rosatomflot.  [ONLINE] Available at: http://www.rosatomflot.ru/index.php?menuid=25&lang=en [Last Accessed 28 Sept 12]
• Russian Maritime Register of Shipping.  Symbols and Abbreviations Used in the Register of Ships.  [ONLINE] Available at: http://www.rs-head.spb.ru/en/regbook/read_me.pdf. [Last Accessed 28 Sept 12]
• РиаНовости.  Ледоколы Росатомфлота начинают новый цикл работ в Арктике.  [ONLINE] Available at:  http://www.ria.ru/atomtec_news/20120424/633538742.html. [Last Accessed 29 Sept 12]
• РиаНовости.  “Белые пятна” с гидрографических карт Севморпути исчезнут к 2016 году.  [ONLINE] Available at: http://ria.ru/arctic_news/20120328/608200096.html. %5BLast Accessed 28 Sept 12]
• Север-Наш.  Атомоход “50 лет Победы” пробудет в Финском заливе до ухода льда.  [ONLINE] Available at: http://severnash.ru/economics/transport/4799-atomohod-50-let-pobedy-probudet-v-finskom-zalive-do-uhoda-lda.html. %5BLast Accessed 29 Sept 12]
• The Maritime Executive.  Tanker Vladimir Tikhonov Completes Successful Northern Sea Route Transit in a Week.  [ONLINE] Available at:  http://maritime-executive.com/article/tanker-vladimir-tikhonov-completes-successful-northern-sea-route-transit-in-a-week. [Last Accessed 28 Sept 12]

 

A Future of Arctic Transit – Arctic Sea Ice Record Low Extent

*Click on the map above to see full extent*

Arctic Sea Ice

On Sept, 16, 2012, according to the National Snow & Ice Data Center in Boulder, Colorado, the Arctic sea ice extent broke through it’s previous record minimum from Sept, of 2007.  Satellites began to track the Arctic sea ice in the late 1970s, and have found the ‘six lowest seasonal minimum ice extents to have occurred within the last 6 years (2007 – 2012).’  (National Snow and Ice Data Center, 2012)  The data used in the map above is from the previous year’s minimum ice extent (Sept, 11, 2011).  This can be compared with the median minimum ice extent calculated from 1979 through to 2000.

• The Arctic sea ice extent typically reaches it’s yearly minimum in the month of September.

What a Melting Arctic Means for Transit

Under historical conditions, icebreakers would have been required to break Arctic Sea Ice ahead of most transit vessels.  Due to melting, unassisted transit is now possible through several of the summer months.  Major Arctic routes are present in the above map.  These have been color coded and are interpretable by means of the legend.

Read ArcticEcon’s, ‘The Northern Sea Route as a Viable Development – Russia’s Fleet of Atomic Icebreakers‘ for a comprehensive analysis of the development of the Northern Sea Route,

• The Northern Sea Route (NRS), also known as the Northeast Passage, is the shipping lane that connects the Atlantic and Pacific Oceans.  It can thus be recognized as a potential expedited transit corridor for Europe and Asia.  Vessels transitting from ports in Europe to those in Asia via the Northern Sea Route en lieu of the Suez Canal Route are able to halve transit times, reduce fuel consumption and CO2 emissions, and finally reduce the risk of piracy through the avoidance of regions prone to piracy such as those about the Horn of Africa.  The Northern Sea Route is currently overseen by the Russian authorities through the Northern Sea Route Administration (NSRA) under the Ministry of Transportation.

• Northwest Passage – Connecting the Atlantic and Pacific Oceans via the Canadian Arctic Archipelago, the Northwest Passage stands to serve as a potential alternative to the Panama Canal Route.  The passage falls under the definition of an international strait by some countries.  Canada, on the other hand, views the route as internal.
• Norwegian and Greenland Traffic Routes – Heavily used general transit routes.

More information and data to come shortly…

Sources

• National Snow & Ice Data Center. Sea Ice Index. [ONLINE] Available at: http://nsidc.org/data/seaice_index/. [Last Accessed 21 Sept 2012]
• Норильский Никель. Заполярный Филиал. [ONLINE] Available at: http://www.nornik.ru/our_products/polar_divisions/. [Last Accessed 21 Sept 2012]

Greenland Maritime Boundary / Oil and Gas Licenses 2012 Update

Since my previous post in Dec, of 2011, Greenland Exclusive Economic Zone / Oil and Gas Licenses, not much has been seen in terms of eventful exploration results.  In spite of this, Greenland is in continuance with it’s plans to open up Greenland Sea licensing blocks to applications.

Greenland Sea Licensing Rounds – 2012/2013

• Pre-qualification Round – Paying KANUMAS Group members (see below) will have the opportunity to apply for 11 special licensing blocks (view pre-qualification blocks on above map) ahead of non-members.  Applications for pre-qualification as operators were due in March, of 2012.  Those for exploration and exploitation are due in Dec, of 2012.
• Regular Round – Regular applications for the 8 remaining blocks, along with those not acquired in the pre-qualification round, will open in June, of 2013.  Applications for pre-qualification as operators will be due in July, of 2013.  Those for exploration and exploitation will be due in Oct, of 2013.

KANUMAS members were among those that partook in preliminary seismic studies for the regions of northwestern and northeastern Greenland starting in late 1989.  Members included Exxon, Statoil, BP, Japan National Oil Corporation (JNOC), Texaco, Shell, and NUNAOIL A/S (Greenland’s state oil company).  Project members were granted preferential position in any future licensing rounds comprising the northeastern region of Greenland.  Today, paying members include ExxonMobil, Statoil, BP, Japan Oil, Gas and Metals National Corporation (JOGMEC), Chevron, Shell, and NUNAOIL A/S.

Exploration Progress and Results

• NUNAOIL – Greenland’s state oil company, NUNAOIL, currently holds a 12.5% minority stake in all but one of Greenland’s offshore hydrocarbon license operations.  NUNAOIL holds an 8% minority stake in the southern Salliit license block.
• Cairn – Cairn has since completed it’s first phase of exploration for offshore Greenland.  8 exploration wells, seismic surveys, and other data were collected in 2011/2012.  As of yet, only indications of oil seeps have been discovered in both western (Pitu) and southern Greenland license blocks.  Despite $1.2 billion in losses from 2011 Greenland operations, chairman Sir Bill Gammell seems poised to press onward.  Shareholders voted down Gammell’s share options package valued at £2.5 million as a result.
• Statoil – Since having received a 30% farm-out stake in Cairn’s Pitu license block in Jan, of 2012, (read Cairn spreads out the risk – Farms out shares to Statoil) seismic studies have been completed.
• Korean KORES – Sept, 10, 2012 – Although unrelated to offshore hydrocarbons, State Korean company has been looking at joint mineral operation opportunities in Greenland.

Sources

• Government of Greenland, Bureau of Minerals and Petroleum. Licensing Rounds in the Greenland Sea Area. [ONLINE] Available at: http://www.minesonline.com/sites/minesonlinecom/assets/public/Greenland/BMP_Invitation_letter_North_East_Greenland.pdf. [Last Accessed 15 Sept 2012].
• Government of Greenland, Bureau of Minerals and Petroleum. List of mineral and petroleum licences in Greenland. [ONLINE] Available at: http://www.bmp.gl/images/stories/minerals/list_of_licences/list_of_licences.pdf. [Last Accessed 15 Sept 2012]
• Bloomberg, Cairn’s $600 Million Greenland Oil Campaign Ends in Failure. [ONLINE] Available at:http://www.bloomberg.com/news/2011-11-30/cairn-s-600-million-greenland-oil-exploration-campaign-ends-in-failure.html. [Last Accessed 15 Sept 2012].
• Cairn Energy. Half-yearly Results. [ONLINE] Available at: http://www.cairnenergy.com/assets/files/cms/Interim_Results_Presentation_August_2012(1).pdf. [Last Accessed 15 Sept 2012].

An Icelandic Time-lapse – An Incentive to Recycle your Aluminium

Having visited Iceland in 2011, I would have argued that the available promotional material was insufficient in doing the country justice…. until now.  I would thus recommend the following 13 minute time-lapse film to anyone that is weighing the pros/cons of an Icelandic visit, or has a particular affinity for scenery.

Film from http://www.evosiastudios.com/

The film connects with economics as it brings more information to the individual pertaining to the cost/benefit analyses made prior to our recycling decisions.

Aluminium – Brief Economics of Recycling

I have published various materials relating to the energy-intensive Aluminium smelting operations that exist in Iceland.  If the information below falls insufficient, read “Aluminium Smelting in Iceland – Alcoa, Rio Tinto Alcan, & Century Aluminum Corp.”

In short, the energy requirements for the smelting process lead multinational firms to places like Iceland that offer low electricity prices and untapped hydroelectric dam potential.  I am unsure about the exact figure (I will attempt to locate a credible study), but it is estimated that the energy requirements to recycle (smelt) used aluminium products make up roughly 10% of the energy requirements for the traditional source smelting of alumina for the production of aluminium products.

If aluminium demand reaches the level sufficient to strain existing production capacity related to, specifically, energy availability, there will be that much more of an incentive to build out the world’s remaining hydroelectric capacity in places like Iceland.

With that said, large-scale increases in aluminium recycling can strongly reduce the propensity to build additional energy-generating structures in areas that would have otherwise not required them.

The Fiercely Contested Russian NGO Bill – Russia

On the 13th of July, 2012 a Russian draft law, setting out to label all politically affiliated NGOs with activities funded from abroad as ‘foreign agents’, passed through the State Duma with barely any opposition.  Russian activists are now in strong opposition along with foreign governments.  Said NGOs would have to register as foreign agents and include this label on all publications and web-portals.  Apart from being labelled ‘foreign agents’, NGOs would be subject to frequent audits and spot checks.

Many human rights proponents insist that such a bill would work to suppress opposition to the current Russian state of affairs.  The bill now needs to be passed through the Federation Council, and then onto the Russian president’s desk for Putin’s signature.

Those in Favor of the Bill

Putin’s party, United Russia or Единая Россия,  finds the bill to be inline with democratic standards as it forces NGOs to be open about their sources and funding.  The party advocates that such openness will be in the best interest of citizens.  Those that favor the bill also recognize the current social-network and NGO movements as forces that often override the opinions of Russian citizens.  It is quite true that much of the social-network publicity concerning the December elections has been strongly opposed to the current Russian state of affairs.  These views were also often projected as the views of the overwhelming majority whether or not that was actually true.  Coincidentally, this mechanism does not work in Putin’s favor.  It is worth adding that last year, Putin accused foreigners of funding those NGOs in Russia that were in opposition to his party.

Many in Opposition to the Bill

The General Secretary of the Council of Europe, Thorbjørn Jagland, former prime minister of Norway, found the NGO bill to be reminiscent of the Stalin era.  Jagland elaborated on the term ‘foreign agent’ and it’s historical use in defining those that were executed during the [Joseph] Stalin era.  He found the term to be ‘unfair [and] inappropriate [in that there is no use for such a term] in modern lawmaking [and that] it belongs to the past and does not belong [in] a democratic society.’  He went on to say that the term is also ‘often used in other authoritarian regimes against everybody that has different views.’  (Jagland)

From a U.S. Department of State press briefing, spokesman Patrick Ventrell spoke on the topic of the Russian NGO legislation.

[T]he United States is deeply concerned by the Russian Duma’s consideration of legislation that would potentially limit the activities of Russian nongovernmental organizations receiving foreign financing. The legislation would require NGOs engaged in civil society activities broadly defined as political to register as foreign agents. It differs from U.S. foreign agent – it differs from the U.S. Foreign Agents Registration Act, because registration would be required regardless of whether an NGO works directly on behalf of a foreign entity or not.  Unlike under US legislation, where [some US personnel] are actively working on behalf of a certain government register as foreign agents, which means that they disclose their funding source, NGOs that may be nonpartisan and receive funding from all sorts of different sources and are working in a transparent and nonpartisan manner are being asked to register all as foreign agents. … [The United States simply wants] NGOs to be allowed to ‘work in a nonpartisan fashion and work with members across the political spectrum in a number of different countries’. (Ventrell)

Opinion

In an objective sense, it is true that the youth can be impressionable, if not more-so than can be the older age groups.  The youth tend to have the strongest influence over social-media.  More so, many advocate-web-portals contain purposefully subjective views with a lack of balance in terms of subject material (in either direction).  A democratic society strives to encompass the views of all age groups, but the spill-over of Russian social-media into other countries presents the world with an image that could potentially only be representative of the younger generations.  This effect then has the ability to feed-back into Russia with the support of foreign youth.  Older groups in opposition may not find this process to be economical for them, and may require alternative mechanisms (data that I do not have would be required to verify this).  The same issue is, naturally, present within other countries including the United States, for example as social media has at times been, collectively, in opposition to the views of the majority.  With this said, one can still be suspicious of any law put into place by a party that the law then serves to benefit.  This could be akin to the American ‘Super PAC’ regulations that may coincidentally benefit the party that worked to put them (said regulations) in place.

On the note of NGO funding, some Canadians could be sympathetic to Putin’s approach due to the way in which the Canadian NGOs in opposition to Canadian oil sands activities were being funded by foreign sources.  Funding was supported by those that were in opposition, but was found to be undemocratic by those that were in favor of the oil activities.

Arctic Economics does not set out to be a proponent of any particular stance, but has the intention to analyze on an objective level.

 Sources

• Ventrell, P. (2012, July) Concern over Consideration of NGO Legislation.  Press conference speech presented at the State Department, Washington, DC.
• Thomas Nilsen (2012). Jagland compares Russia’s NGO bill to Stalin era. [ONLINE] Available at: http://barentsobserver.com/en/politics/jagland-compares-russias-ngo-bill-stalin-era-13-07. [Last Accessed 15 July 2012].
• Marc Bennetts (2012). Council of Europe Compares Russia NGO Bill to Stalin Terror. [ONLINE] Available at: http://en.rian.ru/russia/20120712/174570350.html. [Last Accessed 15 July 2012].

The Nord Stream Pipeline – Bringing Russian Natural Gas to Europe

Nord Stream Route Map – From Nord Stream AG (http://www.nord-stream.com/)

Built and operated by Nord Stream AG, the Nord Stream subsea offshore natural gas pipeline system runs 1224 kilometres from Vyborg, Russia, to Lubmin, Germany.  The twin pipeline system aims to maintain one of Russia’s long-standing objectives, which is to supply Europe with a secure and reliable source of natural gas.  On the Russian side, the Nord Stream is connected to Gazprom’s Gryazovets-Vyborg pipeline, while on the German side, the Nord Stream is connected to the OPAL and NEL pipelines.

• The first of two parallel lines was put into operation in November, of 2011 with an annual transport capacity of 27.5 bcm of natural gas.  The second line was completed on the 28th of June, 2012, and will enter operation in Q4 of 2012.  The ‘twin pipelines will have the capacity to transport a combined total of 55 billion cubic metres (bcm) of gas a year to businesses and households in the EU for at least 50 years’ (“The Pipeline”).
• ‘The Nord Stream route crosses the Exclusive Economic Zones (EEZ) of Russia, Finland, Sweden, Denmark and Germany, as well as the territorial waters of Russia, Denmark, and Germany’ (“The Pipeline”).  International law affects EEZ’s and territorial waters differently (see the “International Law” section below).
• The Nord Stream Pipeline will be remotely monitored and controlled from the Nord Stream headquarters in Zug, Switzerland.
• The Nord Stream consortium is owned by OAO Gazprom (51%), Wintershall Holding GmbH (15.5%), E.ON Ruhrgas AG (15.5%), N.V. Nederlandse Gasunie (9%), and GDF SUEZ (9%).

Price Economics

The western-European market is willing to pay a price that is much higher than that of the substantially subsidized natural gas that is sold to Russians on the Russian market.  In a very basic sense, to have Russian natural gas production in excess of what is currently exportable to ‘high-paying’ countries is to have a decrease in the potential revenue for Gazprom, among other firms.  The incentive is there for Russia to ensure maximum Nord Stream pipeline capacity utilization, and to build upon the Nord Stream system in the future to allow for greater capacity.

One problem that may surface stems from the domestic Russian natural gas market.  Gazprom has been pushing, for a while now, to increase prices due to the fact that the current average, per unit costs of production tower over the per unit prices that are seen domestically.  Russian exports are the sole profit-makers here.   Since the government has actually granted Gazprom the right to increase the price point by a certain percentage annually, Gazprom stands to slowly lose the incentive to prefer exports over imports assuming, naturally, that domestic prices rise at a higher rate than those in Europe.  As more natural gas is extracted from increasingly northern, Arctic-marine areas, the average costs of production are going to be on the rise as well.  These could all impact Russia’s future willingness to supply Europe with natural gas down the road.

The Nord Stream Route is Important for European Confidence

Much of the current European uneasiness toward Russian natural gas imports stems from the ongoing conflict that exists between Russia, and the pipeline-transit states of Belarus and Ukraine.  It is important to recognize that Ukraine has blocked the transit of Russian gas to Europe in the past.  The Nord Stream system thus stands to become an alternative delivery method that can be relied upon to deliver natural gas to Europe.

Gazprom CEO Aleksei Miller said it best when addressing both the Nord Stream and South Stream pipelines at the European Business Congress (EBC) in Portorož, Slovenia;

These pipelines would eliminate the dangerous dependence on transit monopoly by
Ukraine, which in 2006 and 2009 respectively blocked access to the export gas en
route from Russia to European markets. After the new pipelines come into
operation our exports will gain more reliable delivery routes and, no less important,
additional flexibility. This will enable to significantly increase the security of
supply of natural gas to European consumers, to which our company attaches
the greatest importance. Once and for all Gazprom will be relinquished of
arbitrarily imposed responsibility for the consequences of others’ decisions, which
resulted in blocking exports of our gas. (Miller, A. 2012)

The flexibility that Miller speaks of may come in the form of pipeline extensions.  The current line touches Germany where a future branch might touch both Scandinavia and Britain who have already expressed interest.

International Law

The following is a non-exhaustive list of the main articles and provisions of international law that apply to the construction, maintenance, and use of the Nord Stream pipeline system.

Pipelines within a state’s territorial waters

• Article 76 of the United Nations Convention on the Law of the Sea (UNCLOS) defines the ‘continental shelf of a coastal State [as] the sea-bed and subsoil of the submarine areas that extend beyond its territorial sea’ (UN 1982).
• Article 2 of the UNCLOS dictates that ‘[t]he sovereignty of a coastal State extends, beyond its land territory and internal waters and, in the case of an archipelagic State, its archipelagic waters, to an adjacent belt of sea, described as the territorial sea’ (UN 1982).

From these articles, one can see that a state has sovereignty over it’s territorial sea.  Nord Stream AG therefore requires a different legal process in dealing with Russia, Denmark, and Germany than it does in dealing with Finland, and Sweden.  As can be seen from the map above, it is very fortunate that there happens to be a space between the territorial seas of Finland and Estonia.  This will have saved Nord Stream AG a great deal of time and money.

Pipelines within a state’s EEZ

• Article 79 of the UNCLOS grants all states the right ‘to lay submarine pipelines … on the continental shel[ves] [of other states].’  An affected (transit) ‘coastal State may not impede the laying or maintenance of … pipelines’, but is reserved the right to consent to ‘the delineation of [transit] pipeline[s]’ and to ‘take reasonable measures [for the] prevention, reduction and control of pollution from pipelines’ (UN 1982).

Service stations built within a state’s EEZ

• Article 60 of the UNCLOS grants the coastal state ‘the exclusive right to construct and to authorize and regulate the construction and operation and use of … installations and structures’ and ‘exclusive jurisdiction over such … installations and structures’ (UN 1982).

Initially, there was to be built an intermediate service station platform within the EEZ of Sweden.  Due to Article 60 of the United Nations Convention of the Law of the Sea (UNCLOS), Sweden would have had exclusive jurisdiction over the station, along with the right to construct and operate it.  In 2008, attempting to minimize bureaucratic and legal issues, Nord Stream confirmed that specially-designed inspection tools were available that would have been able to inspect the entire pipeline span without a need for the service platform.  The intermediate service station was thus no longer needed and Article 60 needed not apply.

Environmental impact assessments

• The Convention on Environmental Impact Assessment in a Transboundary Context dictates the requirement of an Environmental Impact Assessment (EIA) for proposed activities ‘that [are] likely to cause a significant adverse transboundary impact’ (UN 1991)

Sources 

• Nord Stream AG. The Pipeline. [ONLINE] Available at: https://www.nord-stream.com/pipeline/operations/. [Last Accessed 12 July 12].
• Nord Stream AG. Operation of the Nord Stream Pipeline System. [ONLINE] Available at: https://www.nord-stream.com/pipeline/operations/. [Last Accessed 13 July 12].
• Nord Stream AG (2011). Nord Stream Route (with legend). [MAP] Available at: http://www.nord-stream.com/press-info/images/nord-stream-route-with-legend-2888/?category=115&sub_category=148. [Last Accessed 12 July 2012].
• John C.K. Daly (2012). Nord Stream: Russia’s Natural Gas Link to the West. [ONLINE] Available at: http://oilprice.com/Energy/Natural-Gas/Nord-Stream-Russias-Natural-Gas-Link-to-the-West.html. [Last Accessed 12 July 2012].
• Miller, A. (2012, May) Energy Security and New Vistas for Natural Gas. Speech presented at the European Business Congress (EBC) in Portorož, Slovenia.
• United Nations (1982). United Nations Convention on the Law of the Seas. [ONLINE] Available at: http://www.un.org/Depts/los/convention_agreements/texts/unclos/unclos_e.pdf. [Last Accessed 12 July 12].
• United Nations (1991). Convention on Environmental Impact Assessment in a Transboundary Context. [ONLINE] Available at: http://www.unece.org/fileadmin/DAM/env/eia/documents/legaltexts/conventiontextenglish.pdf [Last Accessed 12 July 12].

Barents Sea Oil / Gas License Blocks and Fields – Norway – 2012 Map

Above is a map of the Barents Sea, Norway.  Active and inactive production licensing blocks are shown along with the illustrated Norway – Russia maritime delimitation agreement that entered into force on the 7th of July, 2011.

Norwegian Production Licensing Rounds – Currently in Round 22

The next licensing change, with the exclusion of relinquishments and share transfers, will take place in Q1 of 2013 as Norway awards production licenses as part of the 2012 APA (Awards in Predefined Areas), for which the application deadline is the 6th of September, 2012.  The APA round applies to mature sections of the continental shelf that are both understood geologically and situated near developed infrastructure.

The succeeding change will take place in mid-2013 as the Norwegian Government awards new production licenses for the general 22nd licensing round, for which the application deadline is the 4th of December, 2012.

For a licensing round history dating back to 2000, visit ‘Licensing Rounds on the Norwegian Continental Shelf‘ from the Norwegian Ministry of Petroleum and Energy.

Fields – Oil, Gas, and Condensate

Snøhvit – Discovered in 1984 and on stream in August, of 2007, Snøhvit is the only developed field within the Barents Sea, Norway.  The field encompasses seven different production licenses, and is lumped in with two other deposits, the Askeladd and Albatross structures.  Gas from the Snøhvit field is piped through a pipeline (see map) to the Melkøya Island LNG liquefaction plant in Hammerfest, Norway.  The resultant liquid natural gas (LNG) is transported to markets around the world via LNG tankers.

• Under sound production levels, a loaded 150,000 m³ LNG tanker will depart from Hammerfest every 5 to 6 days.
• Separated CO2 is transferred back to the Snøhvit field to be re-injected into a porous sandstone layer called the Tubåen formation located 2.5km below the seabed.  It is worth noting that this carbon capture program is being financed, in part, by the EU as all is carefully being monitored to assess the viability of similar projects for the future.
• As of 31.12.2010, recoverable reserves were estimated to be 149.8 billion sm³ gas, 5.8 million tonnes natural gas liquids (NGL)*, and 16.1 million sm³ gas condensate.
• Ownership – Statoil (36.79% operating share), Petoro (30% share), Total E&P Norge (18.4% share), Gaz de France (12% share), and RWE Dea (2.81% share)

Goliat is currently being developed with production set to begin in Q4 of 2013.

• Recoverable oil reserves are estimated to be 28 million Sm³ (174 million barrels), while recoverable gas reserves are estimated to be 8 billion Sm³.  Field life is estimated to be 15 years.
• Ownership – Eni Norge AS (65% operating share), and Statoil Petroleum AS (35% share)

*Natural Gas Liquids (NGL) are mixtures of liquid hydrocarbons such as butane, condensate, ethane, and propane.  This is not to be confused with Liquid Natural Gas (LNG).

Sources

• Statoil – Snøhvit – http://www.statoil.com/en/OurOperations/ExplorationProd/ncs/snoehvit/Pages/default.aspx
• Norwegian Petroleum Directorate – Snøhvit – 04, July, 2011 – http://www.npd.no/Templates/OD/Article.aspx?id=3779&epslanguage=en
• Ministry of Petroleum and Energy – Licensing Rounds of the Norwegian Continental Shelf – http://www.regjeringen.no/en/dep/oed/Subject/Oil-and-Gas/licensing-rounds-on-the-norwegian-contin.html?id=481292

Map Sources

• Norwegian Petroleum Directorate – Production License Block Information – July, 2012 – http://www.npd.no/

Faroe Islands Maritime Boundary / Oil and Gas Licenses 2012 Update

A lot has changed since my last Faroese post in Dec, of 2011 (read Faroe Islands Exclusive Economic Zone / Oil and Gas Licenses).   Many licenses have been relinquished by several oil & gas firms.  These include the south-eastern L002, L005, L007, L012, L015, and L017 blocks.

Of the firms that are left, Statoil remains dominant with the rights to 100% of L010, and 50% of L006, L008, L009, and L011 (view map above).  Valiant Petroleum holds 100% of L013, and 60% of L014.  ExxonMobil holds 49% of L006, and 50% of L009 and L011.  Atlantic Petroleum, Dong Energy, and OMV are minority players.

Open Door Licensing

The Faroese government has taken on a new strategy with the intent to secure the interest of foreign operators.  The new ‘Open Door’ policy seems to be an attempt to break down one of the current barriers to entry.

From Jarðfeingi, of the Ministry of Industry – The Faroe Islands

Areas which previously have been open for licensing, including relinquished licenses, are included in the area where it is possible to apply for licenses out of round.

The ‘Open Door Area’, now literally up for grabs, follows the current south-eastern maritime boundary contour that circles the mainland  ending at 10 degrees W.  What is unique about the open door policy, is that there need not be competing bids to win a block.  A lower offer ‘could’ take it all.

Any Potential Down the Road?

There has only been one real oil discovery within Faroe waters to date.  This took place in 2001, but was deemed uneconomical.  Drill data from the ‘Marjun” prospect has been re-evaluated, and has been taking on new light.  It would be a far stretch to deem this the  mother lode oil equivalent, but it is certainly a prospect.

Now ten years later the Jarðfeingi people together with foreign experts have looked at the Marjun drill data once again and it has emerged that the reservoir capabilities may not be all that poor as previously thought after all.
This could possibly reinvigorate the only discovery made in Faroe waters to date.

Heri Ziska – Head of Geoscience Dept. at Jarðfeingi – 12 of May, 2012

Sources

• Jarðfeingi – Open Door Licensing – Open Door – http://www.jardfeingi.fo/Default.aspx?pageid=19089
• Oljan.fo – May 12, 2012 – http://oljan.fo/grein/new_surveys_could_reinvigorate_the_marjun_prospect