Iceland’s New Era of Offshore Exploration

Iceland Offshore Licensing 2013

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;

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.


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.


  • Orkustofnun. Generation of Electricity in Iceland. [ONLINE] Available at: [Last Accessed 13 Jan 2013]
  • Orkustofnun. Iceland issues the first licenses for exploration and production of hydrocarbons in the Dreki Area. [ONLINE] Available at: [Last Accessed 12 Jan 2013]
  • IceNews. Iceland president: government to set up wealth fund for oil revenue. [ONLINE] Available at: [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: [Last Accessed 13 Jan 2013]
  • Dreki Area. Booklet. [ONLINE] Available at: [Last Accessed 13 Jan 2013]
  • Statistics Iceland. Imports in goods. [ONLINE[ Available at: [Last Accessed 13 Jan 2013]

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

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.

Three Applications for Iceland’s Second Licensing Round

Iceland’s second offshore exploration and production of hydrocarbons licensing round came to a close on the 2nd of April, 2012.  The National Energy Authority ofIceland announced the following results:

  • Eykon (unregistered Icelandic company)
  • Faroe Petroleum (website) and Islenskt kolvetni ehf.
  • Valiant Petroleum (website) and Kolvetni ehf.

Iceland’s National Energy Authority is to have the applications processed by the end of November, 2012.

Some Information About the Applying Firms

The Icelandic magazine publisher, (Iceland Review – Quarterly, Atlantica – 6 issues per year), goes into the shareholder structure of those firms that have applied for blocks within the Dreki Area.

Kolvetni is owned by Jón Helgi Guðmundsson, the majority owner of the hardware chain store Byko, and his business partner Gunnlaugur Jónsson, who hold a combined 50 percent share, the engineering firm Mannvit, which has a 25 percent share, and Norwegian businessman Terje Hagevang, who holds the remaining 25 percent.

Hagevang is CEO of British oil company Valiant and used to run Sagex, a Norwegian company, which made tenders for oil exploration in the Dragon Zone in 2009. Jón Helgi and Gunnlaugur both have shares in Valiant.

Íslenskt kolvetni is owned by the engineering firm Verkís, Icelandic oil company Olís and the company Dreki Holding.

A group of investors are behind Eykon Energy: chairman Heiðar Már Guðjónsson, Ragnar Þórisson, Jón Einar Eyjólfsson and the aforementioned Gunnlaugur Jónsson and Terje Hagevang.

From the Iceland Review, 3rd of April, 2012.


  • Orkustofnun – 2, April, 2012 – The National Energy Authority received three applications in the second licensing round –
  • Iceland Review Online – 3, April, 2012 – Icelanders to Seek Oil in Dragon Zone –

Oil Formations of Iceland’s Dreki Region Confirmed

From our previous January (2012) post, ‘Iceland’s Dreki Region May Show Promise‘, we know that drilling samples from Iceland’s potentially oil-rich northern Dreki region were being analyzed.  Results were to have been released at some time mid-February.  This time has now come, and study results are lending to the existence of oil formations below the Dreki zone.  Iceland’s National Energy Authority says it best;

“The new samples give exciting insight into the petroleum geology of the Jan Mayen Ridge. Diverse sedimentary rocks of Mesozoic age (250 to 65 million years) were recovered. Prior to last summer no rocks older than 50 million years had been drilled or sampled in this area. Advanced geochemical analyses of the recovered sediments suggest active seepage of Jurassic oil and a working hydrocarbon system.”

(Read the full report here)

Potential Issues

Everyone ought to be interested in the search for oil and gas reserves within Iceland’s exclusive economic zones.  This is due to the environmentalist activity that will spur from it.  Iceland is currently under the careful watch of several international environmental firms that wish to erase away the energy intensive aluminium smelting industry.  These protests are mostly related to the construction of hydroelectric dams that need to be built in order to supply aluminium smelters with reliable energy sources.  (Read more – Iceland’s Aluminium Smelting Industry) If clean CO2-free hydroelectric dams are under heavy scrutiny, I would hate to see what kind of attention oil production would yield.

The second issue is that of the likelihood of an oil refinery being built on Icelandic soil if there is to be actual oil production from offshore sources.   According to many sources, there have been plans in the past to build an oil refinery in western Iceland.  It has been argued that due to Iceland’s location relative to oil transit routes, it would be economical to simply refine oil along the way with an Iceland stop-over.  It has also been argued that Icelandic-refined oil would carry far less of a carbon footprint than would the oil refined in other countries.  That being said, Iceland’s total carbon footprint could be reduced if Icelandic ships and cars run on that oil.  (Iceland Review – source below)  The above argument may sound attractive in a vacuum, but Iceland has a history of cartels.  Not only does Iceland have a history of oil cartels among distributing / importing firms, it has a history of, debatably, accepting low energy price contracts on behalf of Icelandic state energy companies, for the aluminium smelting industry.  It would thus be unintuitive to believe that refined oil would be orchestrated to serve solely Icelandic interests.  The main thing to be said here is that pressure to build an oil refinery would be great within a future oil-producing Iceland.


  • Iceland Review – Oil Refinery to be Built in Iceland’s Westfjords? –
  • Orkustofnun (NEA) – New seabed samples reveal active Jurassic oil seeps and Mesozoic sedimentary sequences on the Jan Mayen Ridge –

Aluminium Smelting in Iceland – Alcoa, Rio Tinto Alcan, & Century Aluminum Corp.

We’ve all heard about Alcoa’s aluminium smelter in Iceland along with it’s environmental implications.  We have not, however, heard all of the facts along with some of the beneficial reasons for having such smelters in Iceland.

Refining & Smelting – From Bauxite to Aluminium

Aluminium itself (Al) is not exactly a naturally occurring element.  It is most commonly derived from Bauxite which consists of gibbsite Al(OH)3, boehmite γ-AlO(OH), and diaspore α-AlO(OH).  World bauxite reserves are given in the chart to the right.  (Data from a 2012 USGS report)  What we see is that Guinea, Australia and Brazil together have over 50% of the world bauxite reserves.

Bauxite must first be refined into alumina Al2O3 by means of the Bayer process.  This mainly requires sodium hydroxide NaOH and the energy required to heat intermediate products as inputs.  ‘Red mud’ waste with a pH of 10 – 13 is produced as a byproduct and stored in holding ponds.  On average, 2 units of red mud are produced for every 1 unit of alumina.

Alumina Al2O3 is then smelted into aluminium (Al) through the Hall-Héroult process.  Although somewhat complicated, the alumina is disolved into a mixture of molten cryolite, and then electrolysed to end up with pure aluminium.  These reactions take place in cells which are set up in series in a plant.  Given the nature of aluminium smelting, the rate of Al production is proportional to the very powerful electric current that must pass through each cell.  Electric current must be supplied continually and reliably.  Hydrogen fluoride (HF) and CO2 are both given off as fumes.  HF, if untreated, is toxic and corrosive.  Other cyanide-forming materials are also produced as byproducts.  There are methods that are used to treat these products.  (Read more about the Hall-Hérault process here)

For the Hall-Hérault process to function, an electric current of low voltage but from 200,000 to 500,000 amperes must pass continuously through each cell.  On average it takes about 15.7 kWh of electricity to produce 1 kg of aluminium.   This is what makes aluminium smelting such an energy intensive process.

Due to the nature of the process, power outages have the potential to cause damage to production cells as the molten liquids could solidify in absence of adequate current.  For this reason, production facilities need to be near secure and reliable sources of energy.

Aluminium Smelting in Iceland

Why Iceland?  From what we know about the energy requirements for smelting aluminium, countries such as iceland that have untapped hydroelectric dam potential stand to be perfect contenders in the search for low cost electricity.  When profit is your bottom line, lower input costs are what you seek.

There are currently 3 operating aluminium smelters in Iceland.  As much of the world’s bauxite is refined into alumina in other countries, Iceland smelts solely the alumina into aluminium rectifying the problem of red mud waste on Icelandic ground.  (Iceland would not have the comparative advantage in refining, as refining is not energy intensive as is smelting)  In 2010, Iceland only contributed about 2% of the world’s aluminium smelting production (780 thousand metric tons).  The chart on the right shows this information.

The following table summarizes all three Icelandic aluminium smelters. What is notable is that the aluminium industry’s total power usage amounted to roughly 73% of Iceland’s total power consumption in 2010. Employment is sizeable, yet it still attracts a sizeable amount of foreign labour.  It has been criticized by many sources that a large enough percentage of labour used for the construction of these projects was not sourced in Iceland.  What is more, is that high profits in years of particularly high aluminum spot prices have fled the country to it’s foreign owners.  Years of low aluminum prices, however, would result in subsidies from these foreign firms in keeping company operations afloat.

Alcoa’s Fjarðaál Smelter

Alcoa’s Fjarðaál smelter located in eastern Iceland has received a lot of attention.  This is due to the fact that the state owned energy company Landsvirkjun built the 630 MW Kárahnjukar hydropower station along with it’s associated dams in order to accomodate Alcoa’s smelter and thus caused the flooding of a sizeable area that contained various natural wild and plant life.  (Dam reservoirs are shown in red) Water from the hydroelectric dams is diverted through underground tunnels to the underground Kárahnjukar power station.  Water flow comes from the slow melting of the nearby Vatnajokull glacier.  Power is then sent through high voltage transmission lines to the Fjarðaál smelter.

Rio Tinto Alcan and Century Aluminum Corp’s Aluminium Smelters

Less commonly discussed are the Grundartangi and Straumsvik smelters of western Iceland.  Power source data was not available, but it likely comes from the hydroelectric dams that hold up the water reservoirs that are show in red on the above map.

Environmental Concerns

  • Renewable Energy Use – All 3 aluminium smelters rely wholly on hydroelectric and geothermal power.  This carbon footprint from using these power sources is almost nonexistent when compared with the footprints of other smelters that rely on coal-fired power stations in other countries.  Other worldly smelters use nuclear power as well.
  • Some of the main environmental criticisms stem from the flooding of lands following the construction of large hydroelectric dams.
  • Fluoride byproducts, if untreated, can devastate local environments.
  • Most environmental publications start by citing the CO2 and energy consumption emissions per capita of Iceland in comparison with those of other countries.  With a population of under 300,000, it is clear that these statistics will be high.

When you look at Iceland’s scenario with respect to the world as a whole, it can be argued that Iceland is relieving some of the pressure that other smelters in other countries may be facing.  If world production were to be held constant, would it not be better for the world as a whole to have as large of a percent of aluminium smelting as possible fed by non-CO2 emitting energy sources?  If Iceland does not accomodate 2% of world production, will this 2% be moved and thus smelted with the help of dirty third-world coal-fired plants?  China, smelting 41% of the world’s aluminium in 2010 used mainly coal as a power source.  Iceland currently only uses a small percentage of it’s possible hydroelectric capacity.  Would it not be better for the world as a whole to see an even greater percent of world production transferred to a region that would be able to supply this type of energy?  CO2 emissions worldwide would in-fact decrease.  Is this not the goal?  Theoretically, yes it is.

Unfortunately, the reality is that we only have so few locations on the planet that are ecologically pristine.  Iceland is to a large extent one of these locations.  With several new plans currently under development to build new dams and aluminium smelters, there is likely to be much debate ahead related to ecological feasibility.  In 2010 I visited Iceland, and was able to drink arguably some of the best tasting water I had ever had.  Iceland prides itself of the purity of their water, having impressively low traces of heavy metals or contaminates.  It is tough to imagine a future where this would no longer be possible.  Heavy industry is in some ways the fast-track to this future.  For this reason, it is very important that Iceland be strong in evaluating the economic benefits from hosting such an industry.


Iceland’s Dreki Region May Show Promise

Dreki Area and Jan Mayen Agreement Area of Iceland

The Dreki Area is a potentially hydrocarbon rich region that lies within the maritime boundary of Iceland.  You can read more, in general, about Iceland and current oil and gas exploration here.

As of current, Iceland is not engaging in any actual offshore drilling.  The country is simply performing studies on the regions that are outlined on the map to the right.  New news may have the potential to change this, as the Arctic Portal has reported ‘surprising’ and ‘hopeful’ seismic study results from within the Dreki area.  Read the article here.

According to the report, the results have been taken from the Dreki section that is to a certain extent cooperated on by both Norway and Iceland (the Jan Mayan Agreement Area).  Bidding for exploration is most likely to be set for April, 2012.  The seismic study results will be released to the exploration operator, along with any additional findings from that area which will be revealed as we wait.   There is still much seismic data that has yet to be processed.  More information is to be made available by the current research firm in question in a month’s time.

This is exciting news for Iceland, as there has not yet been much headline in the way of new hydrocarbon discoveries since exploratory seismic operations have begun no so long ago.

Iceland’s Exclusive Economic Zone and Licensing Rounds

Iceland Map Maritime Boundaries Licensing Rounds

July, 2012 – Updated map of Iceland showing maritime boundaries, Dreki Area, and Jan Mayen Agreement Area.
  • Dreki Licensing Area – (red gridded area) lies within Iceland’s northeastern maritime boundary.  More information can be found in a 1989 report by Gunnarsson, Sand and Gudlaugsson.
  • Jan Mayen Ridge – thought to have hydrocarbon reserves due to it’s geological similarities with other proven hydrocarbon basins located in the Atlantic northeast.
  • Jan Mayen Agreement area – (green area) represents an agreed upon area, from 1981, between Norway and Iceland.  According to this agreement, either country is entitled to a stake of at least 25% in any hydrocarbon activity taking place in the other country’s agreement section.  The area is defined by the 70º 35′ N, 68º 00′ N, 10º 30′ W, and 6º 30′ W co-ordinates.

Licensing Rounds

  • The first oil and gas licensing round within Icelandic waters took place in 2009. The auction comprised of the northernmost 42,700 sq. km’s of the Dreki area of northeastern Iceland.  The round yielded interest from Aker Exporation, along with a joint bid from Sagex Petroleum and Lindir Exploration.  Two thirds of the bids were for land plots situated within the special Jan Mayen Agreement area (See definition). Unattractive terms later lead the two bidders to retract.
  • The second oil and gas licensing round opened on the 3rd of October, 2011. Applications deadlines were set to the 2nd of April, 2012.  Awards will take place prior to the end of November, 2012.

Further, updated (2012), information related to the Icelandic licensing rounds can be found in this brochure.

  • Orkustofnun – Iceland Offshore Exploration –
  • Orkustofnun – Announcement of the Second Licensing Round on the Icelandic Continental Shelf –
  • United Nations – Delimitation Treaties Infobase – Agreement on the Continental Shelf Between Iceland and Jan Mayen, 22 October 1981 –