How Eight Arctic Nations Handle Their Energy Needs
The development of oil and gas in the Arctic has been a hot topic for some time, but the reality is that oil produced in Alaska has always primarily come from the North Slope, solidly within the Arctic Circle. However, the majority of oil and gas production in the United States is not within the Arctic, as Alaska is currently the fifth largest oil producing state, following Texas, North Dakota, New Mexico, and Colorado.
Even though the state doesn’t lead US production (which is the current largest producer of oil in the world), Alaska’s location is what includes the United States as one of eight countries with territory in the far north. The others are Canada, Denmark (via Greenland), Finland, Iceland, Norway, Sweden, and Russia. Oil and gas operations in the eight Arctic countries are incredibly varied, ranging from national policies that discourage oil and gas to country-wide efforts to ramp up production. Below are broad overviews of the eight Arctic nation’s relationship with the oil industry.
Finland does not produce any oil or gas, instead importing crude oil and methane primarily from Russia—for now. According to Bank of Finland and Statistics Finland data, oil imports accounted for 22 percent and gas imports accounted for 5 percent of Finland’s total energy consumption in 2019, but in late April officials announced a $924 million investment with the intended purpose of cutting petroleum ties with Russia.
Finland’s Minister of Economic Affairs Mika Lintilä explained that Finland will partner with Estonia to rent a floating LNG terminal, which he said will provide enough capacity for Finland to operate independent of Russian oil and gas.
As of early April, Finland had replaced 85 percent of its oil supply with crude from other countries and indicated it will not sign any new contracts with Russia, though some are still in place that will expire by the end of this year. According to the Finnish Energy Industry Association, Russian gas imports can be replaced by the fall of 2023.
Crude oil that is imported to Finland is refined by Neste Oyj, the country’s sole oil refiner. Once imported, oil is transported by truck, train, or ship, as the country has no oil pipelines. LNG is also generally transported by truck or ship, though natural gas is generally delivered to end consumers by pipelines, the majority of which are buried underground.
Finland’s cold climate, long distances between communities, and industries with high energy consumption have led to the country having one of the highest per capita energy consumption rates in the European Union.
Greenland also does not produce any oil within its borders, though until last year it had intentions to do so. The US Geological Survey estimated in a 2007 report that there is up to 31.4 billion barrels of oil equivalent in northeast Greenland, and a more recent study estimated there are 18 billion barrels of oil on Greenland’s west coast. Since the ‘70s Shell, Chevron, ExxonMobil, and Eni have all participated in oil exploration activities there.
Exploration for oil and gas peaked in Greenland between 2002 and 2014, with upwards of twenty offshore licenses being granted.
In July 2021, Greenland announced it would end its strategy to find oil and would stop granting exploration leases. At the time of the announcement, four active exploration leases remained, which will expire in 2027 and 2028.
In mid-2021 Greenland’s Minister of Natural Resources Naaja Nathanielsen explained that, in part, environmental concerns influenced the decision to move away from oil exploration, stating “the environmental consequences of oil exploration and extraction are too great.”
Another factor in the decision was an economic analysis that showed development would likely deliver low profits or operate at a loss. “It is a decision where climate considerations, environmental considerations, and economic common sense go hand in hand,” Nathanielsen said.
Eighty percent of Greenland’s oil imports come from Sweden, though it also sources oil from Iceland, Netherlands, Denmark, and Belgium to meet its petroleum needs; in 2020 it imported nearly $80 million in refined petroleum. Its gas imports are negligible, as most of Greenland’s energy needs are met by renewable resources, primarily hydropower.
Iceland is another Arctic nation without any domestic oil production, though there are areas with potential and systems in place to allow exploration activities. Oil and gas exploration in Iceland is regulated by Orkustofnun, its National Energy Authority, which grants licenses for prospecting, exploration, and production. Experts believe that the Icelandic Continental Shelf has two areas with the potential for commercial accumulations of oil and gas: Dreki and Gammur.
According to the Orkustofnun, Dreki has potential for hydrocarbon accumulations “because of its geological similarity to hydrocarbon basins which were its next door neighbours [sic] prior to the opening of the northeast Atlantic ocean basin.” At Gammur, according to Orkustofnun, “indications have been found of gas escaping the sediments; however, the type of gas has not been demonstrated.”
There was exploration in Iceland as recently as 2017, though Chinese company CNOOC and Norwegian Petoro pulled out of exploration in Icelandic waters in early 2018. The two companies were working in partnership with Icelandic Eykon Energy to explore the Dreki region. While Eykon Energy was eager to continue exploration without its partners, Orkustofnun cancelled its permit stating the company lacked the financial and technical capacity to conduct exploration on its own.
According to the Orkustofnun at the time, CNOOC and Petoro pulled out of the project based on an assessment of the cost of drilling and extraction, as well as the risks involved, as the economics of the project changed significantly in four years: CNOOC and Petoro initially joined the project in 2013, when oil prices averaged more than $90 a barrel.
Iceland’s current oil imports are negligible, as 70 percent of its energy is supplied by hydroelectric and 30 percent by geothermal. Less than 0.2 percent of electricity generated in Iceland comes from fuel oil, according to the Orkustofnun data.
While historically there has been oil production in Sweden, today it has no commercial oil or gas operations.
In June 2006, a specially appointed commission in Sweden published the report Making Sweden an Oil-Free Society, which cited four reasons for Sweden to reduce oil dependence: the impact of oil prices on economic growth; the link between oil, peace, and security throughout the world; the potential to use Sweden’s renewable energy sources instead of oil; and the threat of climate change.
Sweden shares a focus with Iceland on reducing the use of hydrocarbons in favor of other energy options and has committed to being carbon neutral by 2045. In line with that is Sweden’s goal to stop using fossil fuels in vehicles by 2030, instead using biomass resources to produce ethanol, biogas, or biodiesel. In 2013 busses in twelve Swedish cities ran on 100 percent biomethane, and by 2017 more than 55,000 natural gas vehicles were traveling Swedish roads.
As of 2020, oil accounted for roughly 20 percent of the country’s energy portfolio, with Sweden importing approximately 375,000 barrels of oil per day, and the majority of its energy was produced through nuclear, hydro, wind, solar, and biofuels.
In Sweden residents use more energy per capita than anywhere else in Europe, but because of their focus on low carbon energy sources, its emissions are lower than many other European countries.
Rather than prioritize oil or gas development, Sweden’s priorities in the Arctic include ensuring that the Arctic remains an area of low political tension and strengthening the Arctic Council.
Alaska’s eastern neighbor has the third largest oil reserve in the world and is the largest supplier of oil to the United States, exporting more than 3.7 million barrels of oil per day to the United States in 2019. Less than 1 percent of Canada’s oil is exported to other countries. Canada also exports natural gas to the United States, though natural gas exports to its (mostly) southern neighbor have dropped by 22 percent in the last ten years as the United States has increased its own natural gas production.
Most of Canada’s oil production takes place in Alberta, nearly 80 percent. Alberta, Saskatchewan, and Newfoundland and Labrador combined produce approximately 97 percent of the country’s oil production. According to 2020 data, the largest field by production in Canada is Hebron (located offshore of Newfoundland and Labrador in the Jeanne d’Arc Basin), which produces approximately 140,900 barrels of oil per day, followed by Hibernia (117,600 barrels per day) and Pembina (40,900 barrels per day).
In recent oil news, the Canadian government approved a $12 billion offshore oil project, Bay du Nord, proposed by energy companies Equinor (Norway) and Canadian Cenovus. According to the Journal of Petroleum Technology, the project comprises several oil discoveries in the Flemish Pass Basin; oil was first discovered in 2013, with additional finds in 2015, 2016, and 2020. The project is expected to generate $2.8 billion in government revenues and has an estimated recoverable resource of approximately 300 million barrels of oil equivalent. The estimated life of the Bay du Nord project is thirty years; now that the project has regulatory approval, the partners still need to make a final investment decision.
Norway is one of the world’s largest producers of oil, to the tune of 1.5 billion barrels of oil in 2021, which is about 13 percent lower than the country’s record year of production in 2004, according to Norwegian Petroleum, a website run in cooperation by the Ministry of Petroleum and Energy and the Norwegian Petroleum Directorate. At the end of 2021, Norway had 90 oil producing fields, but projections anticipate that figure could raise to 130 within the next few years.
Norway is actively supporting its oil and gas industry, in part because of the pandemic. During the first months of COVID-19, Norway provided oil and gas companies tax breaks as part of a relief package, and in the last few years the country has offered a record number of new exploration leases to oil and gas companies.
According to data from Statistisk Sentralbyrå (SSB), a Norwegian national statistics office, oil and gas firms in Norway plan to invest $17.6 billion to take advantage of tax incentives designed to boost activity.
Five fields in Norway started production in 2021: Aerfugl Nord (operator: Aker BP ASA), YME (Repsol Norge AS), Solveig (Lundin Energy Norway AS), Duva (Neptune Energy Norge AS), and Martin Linge (Equinor Energy AS). Of those, one is on the Norwegian Sea and the other four are in the North Sea. Another six fields are currently approved for production, according to Norwegian Petroleum, located in the North Sea, Norwegian Sea, and Barents Sea.
Norway has been producing oil for more than fifty years and estimates that, as of yet, it has only produced half of its available resources.
Russia is second only to the United States in terms of oil production according to 2020 data and has estimated oil reserves of 80 billion barrels. Russia also has the largest reserves and is the largest exporter of natural gas. While other countries are shying away from Arctic development, Russia is leaning in. In 2020 Russian leaders announced $300 billion of incentives for new oil and gas projects north of the Arctic Circle.
Already established Arctic oil fields include the Vankor Field, located in Eastern Siberia, which began producing oil in 2009 and is operated by Russian national oil company Rosneft. The first Russian commercial offshore oil development in the Arctic was the Prirazlomnoye Field, which started operations in 2013. Also located in the Arctic is Yamal LNG on the Yamal Peninsula; in addition to the LNG plant there, the project includes production at the Yuzhno-Tambeyskoye gas field.
The General Scheme for Oil and Gas Development lays out the country’s plan for development until 2035, though it includes the expectation that Russia will “never again reach the high production levels” of oil it saw pre-pandemic: in 2019, Russia produced 560 million tons (approximately 4.2 billion barrels) of oil. Whether or not it reaches pre-pandemic levels, Russia plans to continue production and get whatever value it can out of its petroleum resources. Pavel Zavalny, chairman of the State Duma Committee on Energy, said in mid-May 2021, “Plainly speaking: all that can be extracted must be extracted and sold.”
Of course, Russia’s energy economy has been significantly affected for the long term by its aggression against Ukraine, as countries around the world impose sanctions or search out alternative hydrocarbon sources and private entities reconsider investments and partnerships.
Russia’s dominance in oil and gas markets, combined with unprecedented actions taken against the country due to its war on Ukraine and worldwide efforts to reduce carbon emissions, makes for an incredibly uncertain global energy picture. But while uncertainty can introduce risk, it can also create opportunities for those ready to take them.