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REYKJAVIK, Iceland -– Unexplored areas offshore Iceland may hold significant reserves of oil and gas, according to industry and government officials who gathered yesterday and today for a two-day conference on the potential for oil and gas exploration offshore Iceland.
"We have high expectations of finding oil in the Dreki area, since scientific research has indicated that valuable resources may be found there," said Ossur Skarphedinsson, Minister of Industry, Energy, and Tourism for Iceland.
The government is proposing a first round of offshore licensing in the Dreki area, northeast of Iceland on the Jan Mayen Ridge, between Iceland and Jan Mayen Island. Licenses are expected to be offered as early as January 2009.
The Iceland Exploration Conference 2008 is sponsored by the Ministry of Industry, Energy and Tourism and the National Energy Authority of Iceland.
Speakers focused primarily on the similarities of offshore Iceland to offshore western Norway and eastern Greenland, with emphasis on the Dreki area of the Jan Mayen Ridge, located northeast of Iceland. It is considered the most promising area to be opened for exploration.
"There is well documented correlation of source and reservoir rocks between Norway, Greenland, and the Jan Mayen Ridge," said Lenmart Andersson, of Sagex Petroleum, a Norwegian exploration company.
The Jan Mayen Ridge is described as a piece of continental crust stranded in the middle of the northeast Atlantic by tectonic plate movement. It is also referred to as a micro-continent.
"The Atlantic margin and the Jan Mayen Ridge are world class exploration provinces," Andersson said. "There aren't that many places left where you can do elephant hunting," he said. "This is one of them."
About 90% of all housing in Iceland is heated with geothermal energy and 80% of the country's electricity is generated by hydropower with the rest from geothermal power. Iceland is the least dependent on oil of all nations, said Skarphedinsson. However, he said, the price of oil and the technology to explore for it offshore Iceland is now favorable, and as geopolitical strategy, it is prudent to establish Iceland's ownership of its offshore areas.
Although the technology exists and is improving to deal with the water depths and harsh environment, one of the major challenges to exploration and production offshore Iceland will be the distance to shore and the lack of infrastructure in the area, said Jan-Egil Arneberg, of Bayerngas Norge. The areas of most interest are in depths of 1,000 to 2,000 m.
Hydrocarbon accumulations offshore Iceland are owned by the Icelandic State and a license from the National Energy Authority (Orkustofnun, NEA) is required for prospecting, exploration and production of hydrocarbons. The Hydrocarbon Act has provisions for two types of license: a prospecting license and an exploration and production license. Prospecting licenses are issued on the basis of Rules adopted on July 18, 2001. They are granted for a maximum period of three years at a time.
Exploration licenses can be granted for a period of up to 12 years and extended for up to two years at a time to a maximum total duration of 16 years. Once the holder of an exploration license has fulfilled conditions specified in the license, he will have priority for an extension of the license for production for up to 30 years.
Rules for the granting of exploration and production licenses have not yet been adopted and no such licenses have been awarded. However, the Minister of Industry put forward a proposal for a plan on offering exploration and production licenses in the Dreki Area on the Icelandic part of the Jan Mayen Ridge in the near future, as well as an associated draft strategic environmental assessment (SEA) in March 2007. The final plan and SEA will be published as soon as a decision on the next steps has been taken.
To date two prospecting licenses have been awarded in Icelandic waters based on the new legal framework. The Norwegian company InSeis (now Wavefield-InSeis) was awarded a three-year prospecting license on the southern Jan Mayen Ridge in July 2001. TGS-NOPEC was awarded a one-month prospecting license in April 2002 in a partly overlapping region further south on the Jan Mayen Ridge. Both companies acquired seismic reflection data under their licenses and have put seismic data up for sale. Several other companies have also shown interest in prospecting on the Icelandic continental shelf.
In 1985, Iceland extended its continental shelf to cover parts of the Reykjanes Ridge and the Hatton-Rockall area south of Iceland. The extension is based on the provisions of the Convention of the Law of the Sea.
Iceland has defined, and reached an agreement with the neighboring states concerned, on the outer limits of its continental shelf in the so-called Herring Loop Hole (Banana Hole) which is enclosed by the exclusive economic zones of Iceland, Jan Mayen, Norway and the Faroe Islands.
An agreement was reached with Norway in 1981 on an area of cooperation straddling the delimitation line between the economic zones of Iceland and Jan Mayen. Within this area, each country is entitled to a 25% stake in any hydrocarbon discoveries made in the other country's part of the area. The Governments of Norway and Iceland have jointly surveyed the agreement area and put seismic data packages up for sale.