Greenland seeks $2 billion bonds from oil companies to cover spills

Greenland is requiring companies that drill in its waters to pay for a $2 billion bond upfront – before drilling even begins – in order to cover the cost of cleaning up any oil spills that might occur. Already, Greenland had some of the “strictest [requirements] made to date to any oil company,” according to the largely autonomous territory’s Natural Resources Minister Ove Karl Berthelsen [1]. Oil companies are required to drill a relief well when they drill in Greenland’s waters, and also have to dig an exploratory well and produce three years of research and mapping before beginning true drilling activities.

All of these precautions, including the proposed $2 billion bond requirement, come in light of the fact that drilling in the deep, icy waters of Greenland is riskier than drilling in more placid conditions like the Gulf of Mexico. A new report from the Pew Environment Group, “Oil Spill: Prevention and Response in the U.S. Ocean,” details the dangers associated with oil activities off the coast of Alaska, which has somewhat similar conditions to those in Greenland. The report states that “Arctic conditions—sea ice, low visibility, high winds, rough seas and cold temperatures — would complicate all aspects of a spill response, from stopping a well blowout to predicting or tracking the movement of an oil spill trapped in sea ice” (p. 74). Even bacteria from sediments in the Arctic would have a harder time breaking down the hydrocarbons in the oil due to their lower metabolic rates in cold waters.

Twelve oil companies have applied for permits to drill in the seventeen blocks in Baffin Bay, off of Greenland’s west coast. The Greenland Government will likely announce which blocks have gone to which companies by the end of the month. While the winners of the permits were supposed to have been made public in August, arguments over the proposed $2 billion bond have delayed the selection process. Shell, Cairn, Statoil, and Dong and Maesrk Oil from Denmark, are among some of the companies believed to have applied (the actual applications are kept secret) in the “largest licensing round in years,” according to the Guardian. BP withdrew from consideration after the fallout from the Deepwater Horizon disaster, believing that it would be unlikely that the company would be awarded any contracts.

More licensing rounds are expected in 2012 and 2013. If the $2 billion bond requirement goes into effect, it will likely be Big Oil that bids for the licenses rather than smaller companies unable to afford the costs of drilling in Greenland.

News Links

[1] “Focus on offshore drilling supports safety demands,” Sermitsiaq

“Greenland wants $2bn bond from oil firms keen to drill in its Arctic waters,” The Guardian