Introduction

The US Geological Survey (USGS) estimates that 13% of the world's conventional oil resources and 30% of the world's conventional natural gas resources are located in the Arctic region. In addition, significant mineral deposits are found in the region. Although such assessment is always uncertain, the USGS estimates that one-quarter of the world's remaining energy resources is in the Arctic, including Greenland.

From 2002 onwards there has been an increasing interest in the exploration and exploitation of the subsurface in Greenland, which has resulted in a growing number of granted mineral licences, although the global economic downturn led to a small decline in 2013. The retreat of the Arctic ice has opened up new opportunities for oil and gas exploration, as well as for new shipping routes, which may make the extraction of natural resources in Greenland more profitable.

This update summarises the natural resources activity taking place in Greenland at present, as well as prospects for the coming years.

Hydrocarbon and mineral licences

The oil crisis and the resulting high oil prices in the 1970s gave oil companies an incentive to search for oil in previously unexplored areas. This led to an interest in investigating whether there was oil in Greenland. The authorities issued five exploration licences in the waters off West Greenland, but the results were disappointing. Although the Greenlandic authorities invited international oil companies to apply for exploration activities, the authorities did not receive a single application.

However, in the 1990s the National Geographic Investigation for Denmark and Greenland found several oil seeps in the western parts of Greenland and new seismic data indicated that there might also be large amounts of gas in the subsurface. The authorities issued two permits and in 2000 exploratory drilling was performed. However, the result of the drilling was disappointing and the oil companies' interest in Greenland declined once again.

Over the following years, the Greenlandic and Danish authorities, as well as the state-owned company Nunaoil, put great efforts into performing further exploration activities and collecting further seismic data.

After hitting an all-time low in 2002,(1) the Bureau of Minerals and Petroleum designed a marketing strategy that promoted Greenland's mineral potential on a systematic continuous basis, focusing on the two biggest mining countries in the world - Australia and Canada.

The marketing strategy worked and after only a few years, a growing number of mineral companies showed an interest in exploring Greenland for deposits. The number of licences issued also increased.(2)

At present, these include:

• 19 prospecting licences;
• 69 exploration licences;
• four exploitation licences; and
• seven small-scale mining licences.

The possibility of granting a small-scale mining licence was launched in 2009. These licences are awarded to persons that have been living and fully taxable in Greenland for the past five years. Exploration permits are awarded for two calendar years and exploitation permits for 30 years. The licence area must not exceed one square kilometre and the licensee must not hold more than five small-scale mining licence permits. A licence may also be awarded to a joint group of up to five persons.

The bureau has announced the opening of the Greenland Sea Area licensing round, which consists of two successive parts. The first round (a pre-round for Kanumas consortium members) closed in December 2012, by which time the bureau had received applications from three bidding groups. The second round (the ordinary round) has an application deadline of October 15 2013, with 15 blocks available situated offshore Northeast Greenland. The USGS has made a mean estimate of oil and gas in the province, including in the licensing area, calculating a capacity of more than 31 billion barrels of oil equivalents.

The exclusive mineral and hydrocarbon licences are distributed as follows.(3)

Future prospects

Despite the environmental and climatic conditions, the Arctic is expected to have significant business opportunities. It is estimated that $100 billion will be invested in the exploration and extraction of oil and gas in the Arctic, including Greenland, over the next decade.

The retreat of the Arctic ice opens up new opportunities for oil and gas exploration, as well as new shipping routes. Thus, the five Arctic coastal states (Denmark/Greenland, Canada, Norway, Russia and the United States) are negotiating to extend their exclusive economic zone, including organising the control of the new shipping routes, which is central to the mineral resources arena.

Furthermore, negotiations are taking place in the International Maritime Organisation with regards to common global routes, but a consensus has not yet been reached. If this fails, the Danish government will work for the implementation of non-discriminatory regional safety and environmental rules for navigation in the Arctic in consultation with the other Arctic states, taking into account international law, including the provisions of the Law of the Sea Convention on navigation in icy waters.

The Northeast Passage is already passable approximately every seventh summer for four to five months, and in September 2010 a Danish shipping company completed the first commercial voyage through the Northeast Passage to China with 41,000 tons of iron ore. The trip was thus reduced to one-third of the time that it would be taken if it had gone south on the Suez Canal, and the company saved $180,000 in fuel costs.

In 2012 the company conducted 46 voyages through the Northeast Passage and consequently carried out 75% of all trips through the passage. These new shipping routes may help to make the extraction of natural resources in Greenland more profitable.

For further information on this topic please contact Søren Stenderup Jensen or Marlene Hannibal at Plesner by telephone (+45 33 12 11 33), fax (+45 33 12 00 14) or email (ssj@plesner.com or mnh@plesner.com).

This article was originally published in the Energy & Natural ResourcesNewsletter of the International Law Office - www.internationallawoffice.com.

Endnotes

(1) Bureau of Minerals and Petroleum, "Greenland mineral exploration brief in figures - A short overview of statistics in the mineral resource exploration industry in Greenland 2002 to 2011". See alsowww.geologi.dk/oliegas (in Danish).

(2) Bureau of Minerals and Petroleum, "Råstofaktiviteter, Status 2012", p 19.

(3) Bureau of Minerals and Petroleum, www.bmp.gl.