Greenlanders would like to have a successful resource industry to help them on their path to independence from Denmark. So how could large scale foreign investment be a bad thing?
The early 2000’s were a boom time for resources, in Greenland as everywhere. Investors were throwing money into resources to the extent that exploration companies barely knew how to spend it. That is, until the financial crisis of 2008. But the oil market struggled on after the initial crash. With huge assets behind them, petroleum companies tend to invest for the long haul. So companies with exploration licences in Greenland – Conoco Phillips, Cairn, Maersk, Shell – hung in there. And Greenlanders held their collective breath, waiting for the news that they would all become millionaires on the back of oil discoveries, as was their expectation. But drilling offshore west Greenland came up dry. And finally, in late 2014, the dream died. Oil prices plummeted into a long, deep hole. And there the market has languished.
In the wake of this crisis, there has been a steady exodus of petroleum exploration companies from Greenland, so that now only a handful of licences remain. But this is not just a disappointment, given Greenland’s desire for financial independence. It also has more worrying economic implications.
Greenland’s economy is dependent on an annual block grant from Denmark of about 614 million dollars – about 25% of Greenland’s GDP. Enshrined in this block grant system is a means for Greenland to be supported by Denmark as it works toward independence. If Greenland brings in foreign income greater than around 12,3 million dollars in a year, half of that amount will be permanently deducted from the block grant for subsequent years. Should that happen again, the block grant will be further reduced, on and on until the grant reaches zero. Then Greenland is on its own.
Here’s the catch. Petroleum exploration companies are relinquishing their exploration licences early. But to do so, they are required to pay out their financial commitments for the remaining term of their licences, which can be in the order of millions of dollars. These fees count as income to Greenland, despite being one-time payments. So the mass withdrawal of petroleum companies from Greenland now threatens sending Greenland’s economy backward, not forward.
Investment in petroleum exploration was seen as a path to independence, but instead it threatens to push it further away.
