Future of Resources and Shipping in the Arctic

(by Arnfinn Jørgensen-Dahl)

The world economic recession has hit all countries. It is not just a blip that will quickly fade away in a year or two. Among the Arctic countries, the US is experiencing rates of unemployment of 10 per cent and even more when under-employment is taken into account. The situation in many parts of Europe and the EU is not much better. Russia has been hit hardest because of a much reduced demand for Russian oil and gas on which she is very dependent. At the same time proven reserves of gas in particular has increased substantially elsewhere, especially in the biggest consumer of all – the United States. This in turn has augmented the rather bleak outlook for Russian gas exports in particular caused by the economic recession. An immediate result has been the temporary shelving of gas investment projects in Arctic Russia. The Arctic parts of North America have not suffered the same consequences, in the case of Alaska because it is not dependent on export of oil and gas to other countries, and Arctic Canada simply because it does not as yet produce significant amounts of oil and gas.

The Northeast Passage

Of all Arctic sea routes, the NEP and the NSR are much the most promising from a shipping point of view but are also the more vulnerable to changing global and national economic conditions than alternative shipping routes in the Arctic and in other parts of the world. The hope that the exploitation of Arctic gas resources in particular would prove a boon to Arctic shipping is less strong today than in the recent past. Planned projects like Shtokman have been put on hold because of world economic conditions. New sources of supply of gas are developed in those parts of the world that have the highest consumption. Should new Arctic natural gas provinces be developed the question still remains of which mode of transport will be chosen, maritime transport or pipeline. The pipeline network is continuously being expanded to such an extent that at the moment it may have considerable idle capacity. 

Intra- and destination Arctic shipping along the NSR is likely to continue in the near future at about the same level as now and in the recent past, especially taking into account the de-population of the parts of the Russian Arctic we now are witnessing. Whether this will continue is very much a function of how economic conditions in the rest of Russia will fare in the years ahead. To supply the Arctic is also not only a question of shipping but also of rail, road and river transport as well.

The use of the NSR as a transit route between the Atlantic and the Pacific and vice versa appears now more promising than it has been in a long time. The Beluga shipments set an example that other shippers and ship owners might like to try to repeat and perhaps emulate. Cargoes have to be transported and should the NSR prove competitive so much the better. Beluga Shipping of Germany, Sovcomflot of Russia and Tschudi Shipping have announced the start of pilot shipments along the NSR in the summer of 2010.

The Northwest Passage

The maritime traffic in the North American parts of the Arctic is likely to continue at the same modest level it has in the past. The increase in the amount of Arctic cargo foreseen by Transport Canada over the next ten years will not change this picture. The only development on the horizon substantial enough to do so would be the commissioning of the Mary River iron project that may generate perhaps 60 ship loads a year of iron ore each of some 200 000 tons. But according to current plans this will not happen before after 2020. Alaska does not generate any cargo needing to use the NWP.

The Trans Polar Passage

The study carried out by Det Norske Veritas on the feasibility of using the TPP as shipping routes offers little hope for shippers and ship owners alike in the near future. Along these routes there simply exist no Arctic resources and no cargo. In a 15 to 30 years perspective ice conditions may have eased sufficiently to make these routes viable alternatives. But being more or less direct trans-ocean routes, they do not have a cargo base of natural resources that need to be shipped in or out of the Arctic. Their main utility will rest on their ability to be useful and profitable transit routes between the Atlantic and Pacific oceans and vice versa.

The Passages in Comparison

Of the three alternative sea routes in the Arctic, the NEP and the NSR stand out as a first choice from a shipping point of view. Trying to use the NWP and TPP would entail facing natural obstacles of a much more severe kind for a considerably longer time of the year than those found along the NSR. The shipping infrastructure (harbor facilities, icebreakers, etc) is almost nonexistent along the NWP and totally absent along the TPP in addition to which both routes have little access to cargoes of any significant kind. This, of course, is a function of the lack of resources (as in the case of the TPP) or a lack of exploitation of existing resources (as in the case of the NWP).

There are three factors which points to the NSR as the sea route that will be favored in the foreseeable future. Great stretches of the route goes along or through parts of the Arctic where great amounts of resources are found or likely to be found both onshore and offshore. The extraction of resources produces cargoes. The second factor that favors the NEP is the already established and continuously developing infrastructure along the route. And the third factor is the less challenging ice conditions and the longer sailing season during summer.

Arnfinn Jørgensen-Dahl, 2010, Future of Resources and Shipping in the Arctic, CHNL.©