Lately it seems that people are getting more and more concerned about the dropping price of oil. This is perhaps less obvious to those of us buying petrol in Iceland, but some Icelanders are questioning whether the search for oil in Drekasvæðið (the ‘Dreka’ or ‘Dragon’ region to the northeast of Iceland) should continue with crude prices down 55% since June. It seems logical that if the price is dropping there is no reason to look for more resources, but as with most things, it is a little more complicated than that.
In December, OPEC met to discuss what should be done about the falling price. OPEC is a cartel representing most of the world’s largest oil producing countries. Simply put, it is their responsibility to control the price of oil by adjusting the amount of production. The idea is if there is less oil available it will become more valuable and the price will rise. The reverse is also true: in 1989 they raised the amount of oil being produced when the price per barrel rose too high after a tanker ran aground.
OPEC leaders, who are some of the most knowledgeable resource economists in the world, decided to leave production as it is, which means they believe that this is a normal fluctuation in the market. As of January 13, Saudi Arabia (currently the world’s biggest oil producer, and arguably OPEC’s most important member) seems to be standing firm with their decision. In short, this is a temporary downturn in the market price. It will rise again, but it’s nice for consumers in the meantime.
So what does this mean for exploration in Drekasvæðið? Gunnlaugur Jónsson of Eykon Energy says falling prices will not keep them from continuing their search. Eykon Energy is one of three companies that were given a license to look for resources in the ocean northeast of Iceland. Gunnlaugur added that production is a long way off and there is no way to predict what the price will be at that point, and also that lower prices could make their search less expensive in the meantime.
Had production already begun, this price drop might warrant further consideration. However, there is no reason to stop the exploration phase unless there is a realistic concern that this downslope indicates that the use of petroleum products (which include many everyday items such as make-up, roads, synthetic fabrics, and plastic, as well as fuel) is lessening.
Although the price of crude has dropped significantly, this is not an indication that resources found in Drekasvæðið will necessarily be any less profitable because production is so far into the future. In Gunnlaugur’s words, “It’s like trying to predict what the weather will be like in ten years”.
Stay tuned for more updates on Drekasvæðið.
Anna holds an MSc in International Relations Theory from the London School of Economics where she focused on Resource Politics.