Peter Hitchens: Scottish firm's investment could bring huge returns

IT IS widely accepted that the world is starting to run out of cheap oil and needs to find a new source of deposits to stop the oil price from going through the roof.

Technology has now moved on to the stage where this is possible, whereas previously, companies were restricted to other areas. The oil companies are looking at going into remote environments to find the oil we need and Cairn Energy could really do its bit here. Cairn is ahead of the game, in that it is the first oil company to start exploration in this area, and although it is taking a risk here, if it works, it could really be to its advantage.

I also dismiss the idea that wherever a company drills for oil, there is going to be a major environmental disaster - that is not the case. Since previous spills have happened, companies are trying to do all they can to prevent anything like that happening and there are very few incidents. This is especially true of the more remote locations - the more remote you go, the more precautions you take.

Going into a place like the Niger Delta, you are not taking such a risk, but when a company like Cairn decides to move into an extreme environment with a huge amount of potential environmental impact, they have to triple check everything to make sure there are no problems.

Cairn is acutely aware of this situation, and, from its own point of view, it has invested a lot in Greenland and to be very careful what they do there - there isn't too much else in their portfolio.

In the Arctic, Cairn has invested in sixth generation drill ships - they are only around six to nine months old - there is no doubt that they are not cutting costs here by buying cheap equipment.

The world is going to need oil. There is a move towards renewable energy technologies - and that is a good thing - but that cannot happen overnight.

This could also be a major bonus for Scotland. The prospects Cairn has in Greenland are huge. They have 15 prospects, each of an average size of a billion barrels. It has got to help to build up jobs in Scotland as well as areas of Greenland, where it will undoubtedly help to grow the economy.

Greenland has a population of 50,000 people - that is nowhere near enough to service the business Cairn will have if it is successful in finding oil.

There is bound to be an element of Scottish technology being taken to Greenland. Also, Greenland is not used to having an oil industry so Cairn will have to look elsewhere for its infrastructure and the obvious place for them to look would be Scotland.

Greenland is an area that is starting to attract other major companies, but Cairn has been the pioneer.

• Peter Hitchins is an oil analyst at Panmure Gordon.