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    Orkustofnun: Low Oil Prices for Two Years Not to Affect Peripheral Areas

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Summary

Low oil prices for 2 years will not hinder projects in peripheral areas still in their infancy, as investors are interested in maintaining a long term approach.

by: Sergio

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Top Stories, News By Country, , Iceland

Orkustofnun: Low Oil Prices for Two Years Not to Affect Peripheral Areas

Low oil prices for a couple of years will not hinder projects in peripheral areas still in their infancy, as investors are interested in maintaining a long term approach to these kind of investments, Kristinn Einarsson, Senior Adviser at Icelandic National Energy Authority (Orkustofnun), told Natural Gas Europe

“Plunging oil prices seem not to influence very much our situation. We issued three licences. In one case, the project stopped because the evaluation of data indicated too thick lava layers in the area. In the other two licences, the companies are proceeding. I think that they are looking at their interest in Iceland as long term investments, so that falling prices for one, two or three years don’t influence their decisions. Companies have first to consider the existing data. I think that data are coming in the next two years” Einarsson commented, adding that companies will not produced hydrocarbons before 2025-2030.  

The real problems seem to be related to the geography of fledging projects. According to Einarsson, shipment costs are a key driver of the investment decisions of the involved companies. In this sense, Icelandic operations might pay the price of the island’s position. 

“We don’t have the same concerns as in the Barents Sea. We don’t have the ice problem. There is no sea ice in our area. There has not been sea ice since the 60s. The only thing that is worse in our area than in the Barents Sea has to do with the fact that we are so far off from the land. The Barents Sea area is closer to the North coast of Norway” Einarsson explained on the phone.  

The distance from the land decreases the odds of gas production in Iceland in the next decades. The main focus of the operations remains on oil production.  

“It would be difficult to ship gas from this area. It is so far off that, at the moment, there would only be oil production and not gas production. The gas would be tapped down again.” 

WHAT’S NEXT? NORWAY, AND RESULTS OF ACTIVITIES ON TWO LICENCES

Despite the current difficulties, new push for exploration in the area might come from Norway. Oslo’s decisions could help Iceland to lure international investors.  

“Our licences are in the Dreki area. We share the riches with Norway. They did not open that area yet, but if and when they will open it, we will work in such a way that there will be no differences in requirements” Icelandic National Energy Authority’s Senior Adviser added. 

Apart from its cooperation with Norway, the results of the data analysis on the two active licences will shed some light on the prospects of the Icelandic continental shelf.  

The operators of the two exploration and production licences might come up with some more information in the next two years. This would give other investors additional insights into the Dreki Area.  

“They will be called to take some decisions on their operations in two or three years. At that point, there will be even more information about Iceland’s oil and gas.”

WHICH ARE THE PLAYERS?

Iceland launched two licensing rounds in the Dreki Area. As a result, the Icelandic National Energy Authority (NEA) has a awarded a total of three licenses. 

Faroe Petroleum, Iceland Petroleum and Petoro relinquished one licence in 2014, while the other two are currently under evaluation.  

Canada’s Ithaca Energy (56.25% stake), Icelandic Kolvetni (18.75%) and Norway’s Petoro (25%) still control the licence no. 2013/02 offered during the second round, while China’s CNOOC (60%), Iceland’s Eykon Energy (15%) and Petoro (25%) hold the licence no. 2014/01. No company has yet drilled deep wells on the Icelandic continental shelf.

Sergio Matalucci 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci