Faced with an economic crisis caused primarily by the high price it must pay for imported energy, Denmark is taking drastic steps to belatedly join the North Sea oil rush.
Risking potentially serious legal and political consequences, Prime Minister Anker Jorgensen's government is abruptly ending a Danish company's exclusive concession to explore for oil and natural gas in Denmark's small sector of the oil-rich North Sea until the year 2012.
Jorgensen's government instead will open the Danish sector to competitive bidding by oil companies for individual offshore exploration blocks, as neighboring Norway and Britain have been doing profitably in the North Sea for years.
Despite threats that the Danish firm will try to block the expropriation in court and the parliamentary opposition might try to bring down his minority left-of-center Social Democratic government over the issue, Jorgensen has decided to introduce expropriation legislation in parliament in January. His energy minister, Poul Nielson, hopes to solicit oil companies' bids for the first offshore exploratory drilling later this year.
Neilsen's fledgling Energy Ministry is convinced by new date that there is enough oil and gas in the narrow slice of the North Sea off Denmark's western coast to cover one-third to one-half of the country's energy needs beginning in the late 1980s. Only a small amount of oil now is being produced by the few offshore wells drilled by the Danish shipping conglomerate A.P. Moeller since it was given a 50-year exclusive concession for Danish offshore oil exploration in 1962.
So Denmark still must import nearly all its oil at an enormous cost that has plunged the rich Scandinavain country deeply into debt since the first steep worldwide oil-price increases in the early 1970s. To avoid financial collapse because of their huge government budget, balance-of-trade deficit and gigantic foreign debt, Danes have been forced to accept government-imposed austerity that is curtailling their generous welfare-state social benefits.
Meanwhile, Denmark has watched Britian and Norway begin to profit from the same high oil prices because they produce and export more oil from the North Sea than they consume. Their governments receive in taxes and royalties roughly 80 percent of the money that oil companies make in their sectors of the North Sea, and oil has created new industries for their economies. This has made Norway, with its relatively small population, rich and virtually recession-proof, and has provided Britain with the only real hope for future recovery of its battered economy.
Denmark largely has missed out on this North Sea oil bonanza so far because of past shortsightedenss. When Northern European countries divided up the North Sea for oil exploration, Denmark bargained away to Norway a thin slice along the border of their offshore zones that later became Norway's profitable Ekofisk oil field. The Danish government also gave the concession for exploring the entire Danish offshore sector to a single firm, A.P. Moeller.
Moeller is a family foundation-owned, Copenhagen-based shipping firm with extensive worldwide trade and subsidiaries in everything from air travel, supermarkets and computers to plastics, pharmaceuticals and diesel engines. A consortium Moeller organized with Gulf, Shell, Mobil and Texaco established the first offshore production well in the North Sea in 1972 and will put a second field into production this year.
But oil drilling has remained only a tiny party of Moeller's overall business, and the Danish government increasingly has doubted that Moeller was moving quickly or vigorously enough to fully exploit Danish reserves in the North Sea. Under the concession agreement, the Danish government also has been able to take only half as much in royalties and taxes from production income as the Norwegian and British governments were collecting from oil companies drilling in their sectors.
So Energy Minister Nielson opened negotiations with Moeller under the concession agreement to try to increase the government's share and to get back from Moeller most of the Danish sector of the North Sea that it had not explored yet, particularly near Norway's rich Elkofisk field.
The negotiations became acrimonious and eventually broke down. In December, Jorgensen's government decided to expropriate everything except areas where Moeller's consortium already has found and intends to produce oil and gas. Moeller's lawyers have threatened to sue, describing the government's intended action as legislated breach of contract.
Despite the potential legal and political implications, Nielson said in a recent interview in Copenhagen that he hopes to move quickly to open the Danish sector to extensive exploration by oil companies through competitive bidding similar to that for the British and Norwegian sectors. He also intends to increase the government's share of taxes and royalties when these new concessions are granted and to ensure wider participation by Danish intersts, possibly including the government-owned Danish national oil company.
"We're about 20 years behind," Nielson said, "because we've been locked in by this old concession. The nation needs a modern system for exploiting its North Sea oil reserves. Out acute balance-of-payments problem demands that we speed it up.
"We also need a more resonable national take, something more comparable to elsewhere in the North Sea," he added. "Our taxation is now less than half of neighboring North Sea countries. We are only seeking what is now the normal practice in the oil industry in the North Sea. It's seen by the opposition here as very radical, but it's only comparable to what other countries are doing."
An A.P. Moeller spokesman, defending its consortium's rate of exploration, warned that the government might be overly optimistic about Danish North Sea reserves and how easily they can be exploited. But Danish economic forecasts are already beginning to count on North Sea oil to help provide "relief in the long term" for Denmark's acute economic problems.