A source from Sinopec Group, Asia's top refiner, confirmed to China Daily on Monday that the company is holding preliminary talks on oil exploration with the government of Iceland.

The talks involve Sinopec Star Petroleum Co Ltd, a clean energy subsidiary wholly-owned by the group, the source said. In April 2012, Fu Chengyu, chairman of Sinopec, signed a framework cooperation agreement with Orka Energy Holding.

CNOOC Ltd, the biggest offshore oil producer in China, was the first Chinese oil company to gain a foothold in the Arctic regions after partnering with Iceland-based Eykon Energy to bid for an exploration license.

However, experts said the exploration costs in Iceland and the absolute need for advanced technology will remain major obstacles to any exploration off Iceland's northeast coast.

Andy Brogan, an oil analyst with Ernst&Yong, told China Daily on Monday that the Iceland government will be sensitive about environmental protection, but understands the economic benefits.