Greenland pulls plug on new oil and gas exploration

Greenland, an autonomous territory of Denmark, announced plans to stop issuing new licenses for oil and gas exploration.

The government's statement on 15 July puts a halt to planned licensing bid rounds later this year and in 2022.

The announcement didn't mention any impact to four existing hydrocarbon exploration and production licenses awarded in 2013 to consortiums of BP, Statoil, Shell, Chevon and others, as the government did not announce an end date for existing licenses.

IHS Markit's Senior Legal Analyst Philip Ortiz-Bukowski does not see the ban posing any problem for the existing licenses or near-term issuances. "By way of contrast, in other countries, e.g. Italy, implementing moratoria or bans has been messy, countries open themselves up to arbitration/litigation under investment treaties," he said. "As this is a new government putting forwards a new legislative agenda, I imagine it will take some time to be implemented in law, but that doesn't stop the government, in an executive capacity, from not issuing new licences from now on."

Greenland's ban follows Denmark's 2020 multi-party agreement to end approvals for oil and gas licensing immediately, and to stop production from existing wells by 2050. At the time, Denmark was the EU's largest oil producer, though experiencing declining reserves since 2005.

While Greenland is semi-autonomous, it has had full control over petroleum exploration and production activities in its territory since 2009, and as of 2020 it was promoting exploration, according to IHS Markit analysts.

Greenland's government will likely start a consultation and a draft bill to enact the measure, following the pattern of a uranium exploration ban bill published for consultation on 2 July, said IHS Markit analysts. That prior bill would ban preliminary investigation, exploration, and extraction from new uranium mines.

In February, a group of 141 nongovernmental organizations (NGOs) called for a ban on oil and gas extraction in Greenland. They warned that "exploitation of Greenland's vast oil and gas reserves will contribute significantly to global warming and go against the objectives of the Paris Agreement."

The NGOs worried about the pollution impacts from a rare-earths and uranium mine at Kuannersuit as well as from 70 active large-scale exploration and exploitation licenses in Greenland.

International opposition to oil drilling in Greenland has intensified since test drilling by British independent Cairn Energy suggested the presence of natural gas reserves in 2010, potentially attracting more producers. That same year, Greenland awarded its first license to explore for uranium.

In May, the coalition that makes up Greenland's newly installed government said it was not in favor of uranium mining after the issue proved unpopular during a snap election in April 2021. In the election, the ruling Siumut party was ousted by the left-green party Inuit Ataqatigiit, which opposed uranium mining, and later formed a coalition with pro-independence, populist party Naleraq.

Oil production has been mooted to make Greenland independent of Denmark, from which it receives about US$541 million every year.

"The new government says it favors independence, but that will be a much heavier lift without the revenues that oil and gas production might have provided -- emphasis on might; while the potential is there, E&P in Greenland is technically challenging for climate and other reasons," said Kevin Whited, IHS Markit research and analysis director.

"If the economy struggles as a result of this policy decision, the current government could be turned out. However, it's not clear that a future E&P-friendly government would be able to convince investors that Greenland was a good play, given the policy volatility and evolving global E&P investment environment," Whited said.

In addition, local calls for greater ocean environmental protection and a desire not to be caught off-guard by future bid round cancellations are likely to quell future exploration investor interest, experts said. This could change if there is a major discovery of reserves in Greenland.

Greenland's government estimated that there is $2.85 billion (DKK 18 billion) worth of oil reserves on the west coast of Greenland.

In 2013, Greenland awarded four licenses to three consortiums of NUNAOIL, Greenland's state oil company. Each consortium paired the company with international energy companies like Statoil, Chevron, ConocoPhillips, Eni, and BP.

One consortium featured Dong, the Danish state-owned energy company which in 2017 sold its oil and gas assets to Ineos Group in order to complete its transition into wind-power giant Ørsted.

Two consortiums include Greenland Petroleum Exploration Company Limited, a company affiliated with Japanese state mining agency JOGMEC.

Greenland's ban on new licensing follows similar legislation by EU members France and Ireland. France was an early mover, banning new oil and gas production in 2017, and setting a 2040 end date for existing production. In May, Spain passed a law banning new permits for fossil fuel exploration.

Greenland's government cited the financial costs of oil extraction to its existing fishing and tourism industries as a reason for the ban. It also emphasized its intention to attract more investments in hydropower, in which Government-owned energy company Nukissiorfiit is an active player. "It is the position of the Greenlandic government that our country is better off focusing on sustainable development, such as the potential for renewable energy," said Minister for Housing, Infrastructure, Mineral Resources and Gender Equality, Naaja Nathanielsen.

While Greenland relies on fossil fuels for 75% of energy demand, the government targeted 100% renewable energy for its overall electricity mix and the energy production of its publicly owned energy company by 2030.

A 2018 government paper found that Greenland had a "huge" potential for supplying hydropower energy for greening to large industrial enterprises. It said renewable energy should replace privately-owned oil-fired installations that supply heat in towns.

Posted 27 July 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability