The struggle for Greenland’s oil

Downtown Nuuk on a rainy evening in July has the air of a town wanting to be somewhere else. Cars wait patiently at the town’s two traffic lights while teenagers on BMX bikes ride aimlessly round the shopping precinct. The temperature hovers around 10C, the leaden skies touched by the faint hue of the midnight sun. It is high summer in the capital of Greenland, 150 miles south of the Arctic Circle.

On the streets, Inuit traders display their wares in cardboard boxes, selling anything from cut-price DVDs to fur hats. Large Soviet-style apartment blocks loom up behind – reminders of a misguided attempt in the 1950s and 1960s to urbanise the country’s population. Towards the old harbour and the rocky fringes of the grassy shoreline, wooden, two-storey houses painted blue, red and yellow are dots of colour in the grey.

All this could be about to change. About 750km north-west of Nuuk, out to sea, a Scottish company is drilling for oil. Greenland, the world’s largest island, with its tiny population of 56,000, is standing on the brink of an oil rush. The potential wealth that lies off its shores is turning the country – an empty wilderness three times the size of Texas – into a battleground. The global oil industry, striving to feed the world’s hunger for energy, is engaged in a struggle against environmental groups who believe that this delicate Arctic landscape should remain untouched.

Makeshift market stalls in Nuuk

A spill in such cold waters, they warn, would be calamitous, not least for fishing, currently Greenland’s main source of domestic income. But that fear must compete with the hope, shared by some of the biggest players in the energy industry, that the sea floor around Greenland holds one of the world’s largest remaining undiscovered oil finds.

In 2008, a study of the basins of the Arctic by the US Geological Survey estimated that three provinces off the coast of Greenland combined could yield up to 52 billion barrels of oil equivalent (which includes natural gas) – as much as has been drilled out of the North Sea in the past 40 years. This caught the attention of companies including ExxonMobil and Royal Dutch Shell, and it is why Scotland’s Cairn Energy is now prospecting there.

The numbers also stuck in the mind of Kuupik Kleist, Greenland’s prime minister and leader of the country’s Inuit Ataqatigiit party. Kleist sees oil as a possible way finally to achieve Greenland’s economic independence. Although self-governing since 2009, the country remains a dependency of Denmark.

Each year the island receives an annual subsidy of about DKK3.2bn (£375m) from Denmark, which helps fund social services. The export of fish brings in revenues of about DKK2bn (£235m). Everything else is imported.

Kuupik Kleist, prime minister of Greenland

The irony of Greenland becoming a major producer of hydrocarbons, and contributing to the climate change that is helping to melt its own glaciers, is not lost on Kleist. But the root of the problem, he says, is in the failure of the rest of the world to curb its appetite for energy. “The western press is focusing on whether Greenland should or should not exploit its natural resources,” he says. “They don’t focus on the consumption of energy.”

The country’s potential hydrocarbon wealth “holds a very big economic potential,” says Kleist. He is sitting at an elegant glass table in his office in the centre of Nuuk. Dressed in an unprepossessing blue T-shirt and jumper – he is about to go on his summer holiday (“hunting and fishing”) – Kleist does not give the impression of a man burdened by what critics describe as a Faustian pact with the oil industry. For him, the argument is clear: the government wants to diversify the economy, and oil and gas present an enormous opportunity.

Kleist also rejects opinions from abroad about what he regards as Greenland’s sovereign prerogative to exploit its resources. “We claim our right to economic development,” he says, “and we claim our right to be independent from former colonial powers.”

Although oil has not yet been found in commercial quantities, Greenland’s government has set up a sovereign wealth fund similar to Norway’s. It would hold revenues in trust for the nation. Denmark, Kleist explains, has no claim to any oil revenues. He says he is well aware that rapid wealth can bring risks, especially to a society that has been provided for from the outside for what he describes as “a very long time and for too long a time”.

If his vision is clear, the future does not appear quite as straightforward to the country’s mostly Inuit inhabitants. Inuits make up some 85 per cent of the population of Greenland – the rest are Danes – and while there appears to be broad local support for the oil industry, particularly its revenues, many are wary of moving too quickly.

Blowing bubbles for his baby daughter while waiting for the bus, Uusaqqak Kristensen, a 32-year-old school teacher, says the arrival of the energy industry is “the start of something” for Greenland. Investment in infrastructure is badly needed.

Henrik Leth, general manager of the Employers’ Association of Greenland, agrees, but he also wants to see new work opportunities for local inhabitants. There is already a sharp disparity between the incomes of Greenlanders and those who come from overseas to work in the Arctic for a year or two. Leth worries that the lack of relevant skills among Greenlanders means they could become mere “spectators” amid the oil rush.

The country’s leaders, he says, are seeing “only the money part of it” and should force international energy companies to make a lasting investment in the local workforce. The government insists it is doing this. Cairn Energy, for instance, has signed an “impact benefit agreement”, under which it must invest a certain amount in the local economy. Leth remains cautious: “If we don’t do it right, it’s a failure, no matter what happens.”

. . .

It is a month earlier, late June, and huddled above the engine room of the Esperanza, a Greenpeace vessel floating some 80 miles off the coast of Greenland, 18 activists are about to embark on “Operation Foreigner”.

Greenpeace activists climb on to the Leiv Eiriksson rig, which is currently operated by Cairn Energy, in June this year, in search of the company’s 'spill response plan'. The protest is the largest the organisation has staged at sea

Frank Hewetson, also known as The Colonel, raises a hand for silence. “The swell is significant, so I want you to mentally prepare yourselves for the ladders,” he says. “Just don’t slip.”

Seventeen volunteers beam back at him, alight with nerves. They are the other face of Greenland’s energy rush.

Among the professional eco-types (unkempt facial hair, socks, sandals) are an anthropologist, a sous-chef and a professional bass guitarist. “It’s a lifelong activist’s dream to be on a Greenpeace ship like this,” says Iris Cheng, an environmental policy co-ordinator from Hong Kong.

The group – all dressed in orange, body-hugging dry suits – waddle down the Esperanza’s port side on a rope ladder. Negotiating the rise and fall of the frigid ocean below, they drop into dinghies.

Some 15 minutes later a sleepy voice crackles over the Esperanza’s radio. It is a policeman from Greenland onboard a battleship charged with maintaining a 500m exclusion zone around the Leiv Eiriksson, one of the exploration rigs hired by Cairn Energy for the summer drilling season. He says the activists – who by this point are climbing the rig’s steel legs – are breaking the law. He orders the captain to call them back. Madeleine Habib, the Esperanza’s silver-haired captain, politely dismisses the request. “What do you expect us to do?” she says. “Sit around and sing ‘Kumbaya’?”

Officially, the Greenpeace activists are storming the rig to search for Cairn’s “spill response plan” – a mandatory document that sets out what action an oil company will take in the event of a spill – and which Greenpeace says was initially not being made public by the Greenlandic government.

The protest, or “non-violent direct action” in Greenpeace jargon, is the largest the organisation has staged at sea and part of what it has called “the defining environmental battle of our age”. For international climate-change campaigners, drilling for oil and gas in the Arctic is the final insult. “We are drawing a line in the ice,” says Nick Young, a volunteer and blogger from New Zealand. “If we see the melting of the ice caps as an opportunity to drill for oil, then what hope is there?”

A showdown in Greenland is also a welcome fillip for an organisation, which, for the past 15 years, has struggled with fluctuating membership and accusations that on its journey from the fringe to the mainstream it has lost some of its pioneering spirit. The Arctic’s melting seascape provides the perfect backdrop for a revival: for many Greenpeace is still associated with its campaigns to protect whales and seals in the 1970s and 1980s.

“It’s a return to our roots,” says Ben Ayliffe, a senior campaigner for Greenpeace. “And you have it in an area which tugs on people’s heartstrings. They understand its beauty and the threat companies like Cairn pose. It’s classic David and Goliath.”

Not that, financially speaking, Greenpeace is a puny opponent. The group has an annual budget of €206m, out of which it has been able to rent a helicopter for the use of the media to cover its activities in Greenland, and pay the €16,000-a-day necessary to keep the Esperanza and its sister ship, Arctic Sunrise, out at sea.

The activists’ ambition is to take the fight to all corners of the high Arctic. “We’re not just bearded blokes in inflatable boats,” says John Sauven, Greenpeace’s executive director in London. He likens the group’s direct action in Greenland to throwing a stone into a pond. “There’s a ripple effect. It makes conversations happen and the risk-factor [for oil companies] climbs dramatically.”

. . .

Many of the risks, of course, have always been there. The Arctic oil rush has been a long time coming. Since 1945, more than 10,500 wells, onshore and offshore, have been drilled within the Arctic Circle, with Russia responsible for most of the exploratory wells.

Greenland granted its first offshore licences as far back as the 1970s. Five wells were drilled, as well as one more in 2000, but none was successful. Interest dried up and the remaining licences were surrendered in 2001. The government came up with a new plan, and the result – a map showing the 20 licences the country has since awarded – is displayed at its Bureau of Minerals and Petroleum in Nuuk.

Jørn Skov Nielsen, the Danish deputy minister at the bureau, explains what changed. In 2001, the government decided to woo the oil and gas industry by holding more regular licensing rounds and using public money to buy seismic data and to commission environmental impact studies.

Licence rounds followed in 2002 and 2004. But the real breakthrough came in 2006-2007, when the government offered licences in Greenland’s northern Disko-Nuussuaq region, attracting the likes of ExxonMobil, Chevron and Canada’s Husky Energy. The lure is now such that last May – as anxiety over the dangers of offshore drilling reached its height during BP’s Gulf of Mexico oil spill – Greenland received more than 17 applications for its Baffin Bay area. The companies included ConocoPhillips, Shell and Cairn.

And what is happening in Greenland is only part of the story. The Arctic is hot. BP’s proposed alliance with Rosneft, the Russian state oil company, that collapsed in May, was about getting the group into the Russian Arctic. Shell is next year hoping to drill exploration wells in Alaska’s Beaufort Sea. Statoil, the Norwegian state-controlled group, already has a project in the Barents Sea. Twelve offshore wells have been drilled in the Arctic since 2010.

The physical challenges are immense. Drilling can only take place in the summer months when the ice has melted. There is little infrastructure and wells are expensive. But today’s rush is supported by oil prices of more than $100 a barrel.

It is no surprise to find Cairn Energy in the race. The company has form: founded by Sir Bill Gammell, a former Scotland rugby international and childhood friend of former US President George W Bush, Cairn struck oil in India at a field where Shell had previously failed to find anything. In 2002, Cairn bought Shell’s 50 per cent share in the concession for a mere $7.25m before hitting the jackpot and becoming a FTSE100 company almost over night.

The three wells Cairn drilled off Greenland last summer failed to find commercial quantities of oil and gas but showed signs of their presence. The programme this summer, which is supported by a fleet of four helicopters, six ice-management vessels to help tow icebergs out of the path of the drilling rigs and two emergency response ships, will cost $600m.

Earlier this month, Cairn announced its fourth well was also dry but said it remains undeterred. The company insists that despite the high costs, drilling off Greenland will be economical even at lower oil prices. A discovery that yields 500 million barrels would turn a profit from prices of $40 a barrel, they say, while anything from 250 million barrels would make money at $60 a barrel.

An onshore holding area for Cairn’s exploration materials, including well casing and piping

It is a huge exercise in logistics. Every 28 days, the company transports dozens of workers and contractors from its base in Edinburgh to Greenland and then on to its two drilling rigs, the Leiv Eiriksson and the Corcovado. As soon as the workers land in Nuuk, they are given a safety briefing in a hangar that belongs to the airport’s fire service. A well-thumbed copy of a thriller, Blowout, about a drilling ship that is sabotaged and then spills millions of gallons of crude oil into the Pacific Ocean, lies on one of the tables.

Experienced oil workers are in demand in Greenland, and their time is precious. After a cup of tea or coffee, they are searched to make sure they are taking nothing illicit offshore – workers must be teetotal during their stay – and then it is into a survival suit before taking a helicopter to the rig.

A Cairn employee is scanned for illicit substances before leaving for the rig

Out in the vastness of the Arctic, the only activity is the never-ending rhythm of the rig’s operations. The Greenpeace protest in June was an extremely rare interruption. Simon Thomson, Cairn’s CEO, says that he respects the right of the campaigners to express their opinion, but the company objects when “the way that voicing is expressed potentially compromises safety”.

As a result, Cairn now has an injunction in a Dutch court against Greenpeace, which forbids activists from disrupting its operations and breaking through the exclusion zone surrounding its ships. More broadly, Thomson insists that Cairn is doing nothing wrong. The company works in strict accordance with Greenland’s safety standards, which are modelled on Norway’s. It is employing two rigs. In the event of an accident on the seabed, the second rig is on hand to drill a relief well, which would intersect with the damaged well and pump cement down it. The company also has insurance and sufficient funding to deal with any potential incidents, he claims.

In his Nuuk office, Nielsen, the deputy minister, is equally adamant that Greenland’s safety rules are among the toughest in the world and insists much of Cairn’s oil spill response plan is public. But Greenpeace can claim to be making an impression. In August, Cairn’s plan – whose absence from public view was the official pretext for the protest in June – was published in full by the government. The government said it was able to publish full details after tighter legal restrictions were imposed on how close campaigners can go to the drilling rigs.

Cairn employees in survival suits walk to board a helicopter flight to the rig

The role of Greenpeace in Greenland remains complicated. Mikkel Myrup, the chairman of Avataq, a local environment group, says that his 50 members have a more nuanced attitude towards the oil industry than international pressure groups. Myrup, who works as a curator at Greenland’s National Museum and Archives, says his group is not absolutely opposed to Cairn’s drilling, rather that it has sparked “a different kind of awareness about what this exploration could mean for the environment and marine life”.

Greenpeace, in particular, makes for an unlikely ally. Myrup credits the group with making “some good points” in its campaign against Cairn, but the group is generally disliked in Greenland. Its opposition to the seal trade in the 1980s had a big impact on people’s livelihoods. More important, says Myrup, is “for this young democracy to have a qualified discussion about the issues”.

. . .

The sun has finally broken through the clouds and Nuuk shows its brighter side. The centre is bustling with shoppers. Groups of middle-aged tourists just off a cruise ship and dressed in the latest outdoor gear, wander through the streets taking pictures.

Alfred Jakobsen, managing director of the Organisation of Fishermen and Hunters

But the debate about Greenland’s oil-based future goes on. In his office overlooking the harbour, Alfred Jakobsen, managing director of the country’s Organisation of Fishermen and Hunters, is poring over statistics. The organisation has recently commissioned research to compare its fish prices with those of competitors in Canada. Jakobsen says he is against offshore oil development, because “you cannot control the environmental conditions” and he worries about what a spill would do to his members’ livelihoods. “We don’t know anything,” he says. “They send us lots of documents in English. We have to be given a chance to really listen to what this is all about and then consider.”

Carl Christian Olsen, president of Greenland’s Inuit Circumpolar Council (ICC), the international non-government organisation that represents around 150,000 Inuits of Alaska, Canada, Chukotka (Russia) and Greenland, is more optimistic. He says the government is recognising that it needs to take into account “the view of the public society”. The ICC, he says, has been focused on emphasising “a human dimension” to the debate about drilling in the Arctic, not just the environmental one.

These are the various conflicting demands that Greenland’s new administration must find a way to accommodate. The premier, Kleist, remains pragmatic and he is one of the few who cautions that Greenland’s oil dream remains just that. Executives at the major oil companies, meanwhile, are looking forward to the next licensing round, planned for early 2012, for sites off the island’s north-east coast, now considered the most promising area.

Whatever happens, says Kleist, Greenland will play a very significant role in shaping the politics of the Arctic, which, if nothing else, must put the people of the high north at the centre of their changing world. “Now we are focusing on human beings more strongly,” he says. “We always had to yell, ‘We are people living the Arctic’. Today, I think, the message has been received and understood.”

Sylvia Pfeifer is the FT’s energy editor. Christopher Thompson is an FT UK companies reporter.

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