Greenland is something of a rarity within the European energy industry, boasting both a strong regulatory structure and impressive mineral reserves, which have drawn the attention of miners and oil and gas leaders for years. The Kvanefjeld rare earths project, a vast facility with over one hundred million tonnes of reserves, has emerged as the standard-bearer for the extractive industries in Greenland. 

Moreover, with a 2008 report from the US Geological Survey finding that the country’s waters could hold up to 52 billion barrels of oil equivalent, there has been growing optimism about the future of oil and gas operations in Greenland.

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However, this hope has been all but squashed by a ban on new oil and gas licences put into place by the leading Inuit Ataqatigiit party in July this year. The left-of-centre party came to power in April’s election, and many of its ideas and policies, including a potential referendum on the future of Kvanefjeld and even independence from Danish rule, are a challenge to the status quo that has made Greenland such an attractive investment destination in recent years.

With undeniable potential, but years of stalled developments and an uncertain investment framework for the future, what lessons can be learned from Greenland’s oil and gas past, and how will its future look?

1989-1996: the KANUMAS project and Disko Island oil

Despite the relative mineral wealth of Greenland, extraction has only been a recent phenomenon due to the practical challenges of constructing large-scale oil rigs near a country where the average daily temperature only exceeds freezing for two months of the year. 

However, the Danish Government took the first step towards building an extractive industry in 1989 through the Kalaallit Nunaat Marine Seismic (KANUMAS) Project, where it granted a number of exploration and prospecting licences off the Greenland coast to overseas oil firms.

The companies, led by industry leaders ExxonMobil, BP, and Texaco, collected data from more than 7,000 square kilometres between 1990 and 1996, and were granted preferential bidding rights on future exploration licences in the area. The group ultimately took up the offer for licence areas off the east coast of the country, in the Greenland Sea, and these projects formed the basis of the first involvement of the oil and gas industry in Greenland.

A further milestone was reached in 1992, when oil seeps were recorded on Disko Island to the west of Greenland for the first time, raising the potential of land-based oil extraction on Greenland soil. In response, Greenland was able to sell exploration licences to companies eager to search for oil off its west coast for the first time. 

This year also saw Nunaoil, Greenland’s national oil company, move its offices from Denmark to Greenland, a show of confidence in the unproven but highly enticing Greenland oil and gas industry.

2000s: first licencing rounds

Following these early developments, Greenland began to expand its oil and gas exploration in the noughties, awarding a total of 23 offshore licences over five rounds spread over the next 13 years. One of the main early beneficiaries was Shell, which, alongside GDF Suez, Nunaoil, and Statoil, now operating as Equinor, owns two licences off the northwest coast of Greenland. 

In 2000, Shell also drilled the Quelleg-1 well, the first industrial development in Greenland’s oil and gas nascent industry.

The remainder of the decade was characterised by an increasingly open approach to licencing from the Danish Government, which saw seven licences awarded for the Disko West area in 2006/07. The government also used an “open door” approach to licencing in the Jameson Land and south-west Greenland regions in 2002 and 2008, which enabled companies to apply for and be awarded exploration permits on a first-come, first-served basis.

Many of these licences were granted to consortia and collections of foreign companies, such as the partners involved in Shell’s projects. These actors include the Norwegian oil major Statoil and British firm BP, giving much of the these early projects an international and collaborative angle, and US giant Chevron ultimately led consortiums investing in two exploration licences off the north-east coast.

2010-14: Cairn Energy leads development

The next decade brought the first large-scale investments into exploration in the region, with Edinburgh-based company Cairn Energy investing more than $1bn into the drilling of exploration wells between 2010 and 2014. By 2011, the company had drilled eight separate wells in Greenland waters, and claimed to have found “reservoir-quality sands” in some of the wells.

This commitment from Cairn seemed to confirm the hopes of many in the sector that Greenland could support commercial-scale oil and gas operations, and triggered a new wave of international investment in the sector. 

In 2012, Equinor purchased a 30.6% stake in the Pitu block in Baffin Bay. The following year, Greenland awarded four new exploration licences, and even members of the KANUMAS Group exercised their rights to gain access to permit areas they first surveyed in the 1990s.

However, much of this optimism was undermined by the challenges of operating in Greenland, with many of the companies involved in exploration conceding that commercial-scale oil production would still be a way off. Nunaoil, which held an interest in all 23 of the licences granted in Greenland, said it would be at least a decade before such production, while Shell claimed that production would not take place for another 20 years.

This caution culminated in the announcement that two of the region’s most invested companies might consider withdrawing from Greenland. Statoil has suggested that it might look to sell its licences on the west coast of the country due to the high costs and risks associated with developing the assets, and in 2014, Cairn declared that it would look to prioritise its work in Africa over its nascent projects in Greenland.

2014-18: a new oil and mineral strategy

As hope for the future of the oil and gas sector waned, the Greenland Government looked to encourage new investment. In 2014, the government announced a new four-year national strategy to create “new income and employment opportunities in the area of mineral resources activities”. 

The framework sets out a range of new rules for permitting and exploration by offering more regular licencing rounds, shrinking the size of the blocks on offer, and changing the country’s tax structure to encourage more development.

This last change could have made one of the more significant impacts, with the stake of state-owned Nunaoil in Greenland’s projects halved from 12.5% to 6.25%, raising the potential for greater private benefits to come from exploration work. The majority of the strategy remained unchanged from previous years however, with the Greenland Government still retaining a 52% share of all profits to come from mineral extraction.

Indeed, the new framework placed greater emphasis on social and environmental responsibility, worthy goals in their own right but ones that are often presented as antithetical to generating profit. 

Moves such as the establishment of GeoSurvey Greenland to improve the country’s geological knowledge; the high level of transparency in the permitting system; and revisions to the existing environmental impact assessment process reflect the fact that Greenland is dividing attention and policies between maximising profits on the one hand and ensuring fair and open processes on the other.

2021: Moratorium on new projects

These seemingly conflicting priorities seem to have been resolved this year, with the election of the Inuit Ataqatigiit party to a leading position within Greenland politics. Their interest in environmental protection is well-documented, and with around one-quarter of the world’s rising sea levels attributed to melting ice around Greenland and Antarctica, there is a strong case that minimising large-scale industrial developments in Greenland would be of benefit for both the country itself, and the world at large.

The party is also aware of the practical obstacles associated with establishing an oil and gas industry within Greenland, where the lack of existing infrastructure and environmental conditions make such projects particularly challenging. There is an argument to be made that due to these challenges, and the fact that investors are unlikely to see returns on their investments for decades, not just years, that large-scale oil and gas development is a largely unprofitable enterprise.

The election was also something of a referendum on Greenland’s long standing relationship with Denmark, with the latter responsible for managing much of the former’s policies, and providing economic support to its citizens. With many Greenlanders supporting the Inuit Ataqatigiit party, and by extension its stance on greater autonomy for Greenland, it remains to be seen how other foreign-backed projects in Greenland will be received in the future.