Bloomberg - 24 Sep 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 14 Jan 10)

Arctic Oil Tempts Norway to Seek Drilling at 'Gates of Hell'

By Marianne Stigset
September 24, 2009

Sept. 25 (Bloomberg) -- Norway started a push to explore for oil and natural gas in more remote regions like its Arctic volcanic island of Jan Mayen, as the country seeks to reverse almost a decade of dwindling North Sea output.

"We've explored an increasingly large part of the Norwegian shelf," Oil Minister Terje Riis-Johansen said in an interview on a trip to the barren outpost on Sept. 23. "If we now wish to develop Norway as an oil and gas nation, it will have to be in other areas."

Diminishing access to traditional reserves is prompting countries to turn to unconventional sources such as oil sands and shale-rock formations to meet demand. Russia, Canada, the U.S. and Iceland are vying for a stake of the Arctic, which may hold as much as 50 percent of the world's undiscovered oil, according to BP Plc.

Crude output from Norway, the world's fifth-biggest oil exporter, peaked between 2000 and 2001 and may fall 9.7 percent this year, according to the Petroleum Directorate. Norway gets almost a 25 percent of its economic output from oil and gas, which has made it the world's second-richest nation and financed its cradle-to-grave welfare system.

The minister held a seminar and trip for unions, business groups and environmentalists on the potential for exploration off the glacier-clad island north of Iceland, dominated by the world's most northerly active volcano, Beerenberg.

Gates of Hell

Jan Mayen is reputed to have been discovered by the Irish monk Brendan in the 6th century, who sailed past it during volcanic activity and thought he had found the "gates of hell," according to a hand-out by the oil ministry.

"This is extreme exploration," Bente Nyland, head of the Norwegian Petroleum Directorate, said in an interview on the island on Sept. 23. "You're in an area where you have very little control, so you need to have a lot more knowledge before you can start any activity."

BP, Europe's second-largest oil company, estimates the Arctic Ocean may hold around 200 billion barrels of oil equivalent, or 25 percent to 50 percent of the world’s undiscovered hydrocarbons. The U.S. Geological Survey last year estimated the area to hold 90 billion barrels of oil.

"For 15 years we have indeed made many discoveries, but almost without exception small discoveries," Per Terje Vold, head of the Norwegian Oil Industry Association, said. "Hence, the industry's desire for new areas to explore."

Island Annexed

Norway and Iceland last year signed an agreement clarifying an accord from 1981 on exploring for oil and gas between Iceland and Jan Mayen, which was annexed by Norway in 1926. Iceland has a head start and started offering licenses this year in the southern part of the so-called Jan Mayen Ridge, for which only two companies applied. Results will be announced in October.

Iceland offered about 100 licenses covering an area of about 40,000 square kilometers at depths of as much as 1,800 meters. Iceland has no estimates of the potential reserves in the area under licensing. Norway and Iceland conducted joint seismic surveys in 1985 and 1988 and Wavefield Inseis ASA, a Norwegian oilfield surveyor, made independent seismic surveys in 2006 and in 2008, according to Iceland's Energy Authority.

"We have very little data coverage, so it's not possible to give an estimate for any petroleum resources, but we can't discard the potential," Nyland said at a seminar on Sept. 21. "Some people have spoken of finds the size of Troll."

Troll is Norway's largest field with about 60 percent of Norway's natural-gas reserves.

Government Planning

The directorate wants to drill a shallow well outside of Jan Mayen to assess geological structures of the so-called microcontinent. Nyland said she doesn’t anticipate drilling in the area until 2020, should petroleum reserves be proven. Riis- Johansen said he hoped to present a plan for the area to parliament during the current session, which ends in 2013.

The cost entailed due to the technological challenges caused by Jan Mayen's distance to mainland Norway would require a significant find for any exploration activity to be initiated, the minister said. The island is 900 kilometers (560 miles) west of Norway and 550 kilometers north of Iceland.

"The find would probably have to bigger than anything we've seen in the past 10 years, should exploration be considered, otherwise the costs involved in operating so far out would be too high," the minister said.

Terje Hagevang, the chief executive officer of Oslo-based Sagex Petroleum ASA, one of two bidders for Iceland's licenses, said he's convinced the area has potential and technological hurdles can be overcome.

Floating Unit

"We have indications that there can be oil and gas here," Hagevang said on the phone from Oslo Sept. 22, adding that a floating production unit can be used. "It may be a problem if we find lots of gas because it's more difficult to bring to a floater, but work is being done on that."

Environmentalists are skeptical about how nature will fare should oil and gas be found. "The dollar signs light up in the eyes of the politicians, and then it gets to be really hard to be a seabird on Jan Mayen," said Ingeborg Gjaerum, head of the environmentalist group Natur og Ungdom, at the Sept. 21 seminar.

The last major eruption of the island's 2,277-meter (7,470 feet) volcano was in 1970, followed by a lesser one in 1985, and earthquakes shake the island regularly, including on Sept. 21. Fog and heavy winds can make landing on the island impossible for as long as a week, while reefs limit access by sea.

"I think these people should come spend a year here before they decide to do anything," said Ingar Stenslet, an engineer on Jan Mayen. He's one of 18 people stationed on the island for six months to a year at a time, who work for the Norwegian Armed Forces and the meteorological institute.