Arctic Shipping Routes & Economic Prospects

Arctic Shipping Routes & Economic Prospects

Recent Russian request to China for collaboration in building Arctic shipping routes has once again brought the economic significance of the region in focus of the key world economic managers. In an interview with Chinese daily, Russian ambassador Andrey Denisov said that Russia wanted to team up with China to build an Arctic shipping route, promising long-term gas supplies in return. Moscow recently set out an ambitious programme to build new ports and other infrastructure facilities to increase cargo shipments across the Arctic, also known as the Northern Sea Route.

The Arctic is brimming with economic potential. Though the population will continue to be a small fraction of the global population, the region has significant natural resources and potential as a maritime trade route. With an annual economy presently exceeding $450 billion, it is likely that the region will experience further growth as the Arctic becomes increasingly accessible. Yet Arctic states must carefully regulate this growth in order to ensure protection of the environment, indigenous peoples, and their own strategic interests. This will further require significant cooperation amongst the nations of the High North – and those with interests in the region – in order to ensure the development and adherence to protocols and regulations that guide economic development.

Therefore, the Arctic is expected to become more important in the coming decades as climate change makes natural resources and transport routes more accessible. Satellite data shows that both the thickness of the ice in the Arctic and range of sea ice decreased substantially, especially during the summer months. In addition to facilitating natural resource exploration US Geological Survey estimated some eleven years back that 13 percent of the world’s undiscovered oil and 30 percent of undiscovered natural gas reserves were located in the Arctic Circle the retreating and thinning of the ice opens up new trade routes.

Europe has a vested interest in alternative shipping routes to Asia becoming more economically viable, since such routes would enable trade to circumvent numerous bottlenecks such as the Suez Canal and increase access to Asia’s growing consumer markets. China has also shown particular interest in the Arctic; sailing along the Northern Sea Route rather than through the Mediterranean Sea and Suez Canal significantly reduces the trip between Rotterdam and Shanghai (the Northern Sea Route is around 20 percent shorter). This translates into significant savings in terms of fuel and crew costs. But despite the advantages gained by the melting ice, the difficulty of navigation, seasonal constraints on use, high insurance costs and weak infrastructure along the route will continue to limit the economic viability of the Arctic routes.

Actually, the Arctic is a polar region located at the northernmost part of Earth’ it Arctic consists of the Arctic Ocean, adjacent seas, and parts of Alaska United States, Finland, Greenland, Denmark, Iceland, Northern Canada, Norway, Russia and Sweden. . Land within the Arctic region has seasonally varying snow and ice cover, with predominantly treeless, permafrost (permanently frozen underground ice)-containing tundra. Arctic seas contain seasonal sea ice in many places.

The Arctic region is a unique area among Earth’s ecosystems. For example, the cultures in the region and the Arctic indigenous peoples have adapted to its cold and extreme conditions. Life in the Arctic includes organisms living in the ice, zooplankton and phytoplankton 35

fish and marine mammals, birds, land, animals, plants and human societies. Arctic land is bordered by the sub artic.

The Arctic is particularly enticing given the extensive hydrocarbon deposits already discovered, as well as the vast expanses yet to be explored. The first major energy discoveries in the region, namely the Tazovskoye field in Siberia and Prudhoe Bay in Alaska, were made in the 1960s.

Circum-Arctic Resource Appraisal, conducted by the US Geological Survey (USGS), estimated that nearly one-quarter of the earth’s undiscovered recoverable petroleum resources lay in the region: 13 percent of its oil, 30 percent of its natural gas, and 20 percent of its liquefied natural gas. More than 80 percent of these resources are thought to be offshore.

The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on earth. Energy analysts say that investment in the Arctic will hinge on profitability, which in turn depends on a number of factors, including global commodity prices, exploration and production technologies, geographic access and infrastructure, legal and political climates, and environmental concerns. Half the Arctic’s basins are unexplored. But this is now changing, with oil firms increasingly heading north, nudged by high oil prices, better technology, a dearth of easier opportunities, and melting ice.

A lack of infrastructure in the region, particularly in the North American Arctic, is perhaps the biggest obstacle to energy investment. Alaska has only the Trans-Alaska Pipeline and a few southern shipping routes for energy transport. In general, the most attractive energy plays are those that are closest to market, and the shale-oil-and-gas revolution has reduced the appeal of remote Arctic fossil fuels over the last few years.

A report by UK-based insurer Lloyd’s of London says that oil and gas investment in the Arctic will account for a relatively small but strategically significant portion of the energy industry’s global investment over the next two decades. Sustaining current and projected rates of Arctic oil and gas could transform local economies and global energy dynamics.

Few countries have been as keen to invest in the Arctic as Russia, whose economy and federal budget rely heavily on hydrocarbons. Of the nearly sixty large oil and natural-gas fields discovered in the Arctic, there are forty-three in Russia, eleven in Canada, six in Alaska, and one in Norway, according to a 2009 U.S. Department of Energy report. Development of energy in the Russian Arctic has been dominated by state-backed firms, but industry analysts expect Western petroleum companies to provide needed technology and management expertise, as demonstrated by the partnership of ExxonMobil and Rosneft. Meanwhile, Royal Dutch Shell, ConocoPhillips, and Statoil have drilling leases in the U.S. waters off the coast of Alaska, which are projected to hold the largest undiscovered oil deposits in the Arctic (roughly thirty billion barrels). Shell may resume exploratory drilling in the Chukchi Sea in the future, though since suffering major operational setbacks in 2012, it has not conducted operations in the US Arctic.

As Arctic sea ice retreats, shipping lanes are opening that many trading nations hope could compete with or complement conventional routes during summer months. The Northeast Passage—a roughly three-thousand-mile shipping lane across the top of Eurasia connecting the Atlantic to the Pacific—first became ice-free for a short period in the summer of 2007, and gained international attention as a seasonal shipping route between the two oceans. Russia’s Northern Sea Route (NSR), which runs from the Kara Gate to the Bering Strait, was also open for the same period.

For instance, a voyage from Shanghai to Hamburg via the NSR shaves roughly 30 percent of the distance off a similar trip via the Suez Canal and avoids the heavily pirated Strait of Malacca and waters off the Horn of Africa. Operators can either arrive at their destinations earlier or use the extra time for super-slow sailing, reducing fuel costs and emissions. Most NSR journeys are destinational (carrying natural resources out of the Arctic to global markets) and point-to-point (cabotage) trips in the Russian Arctic, but trans-Arctic shipping is slowly growing. However, these distance savings on Arctic voyages are only possible if there is minimal or no sea ice.

Only five cargo vessels transited the route in 2009, but this number jumped to seventy-one in 2013. That is tiny traffic compared to the seventeen thousand ships that pass through the Suez Canal annually, but with countries like Russia investing tens of billions of dollars in their northern infrastructure, including the construction of new ports of call and nuclear-powered icebreakers, some planners hope the region will emerge as a “Suez of the north.”

But industry executives and analysts cite a number of challenges for shipping along the NSR. Even during the summer, unpredictable weather and ice floes make navigation difficult. Ships often require an icebreaker escort, which can cost some $400,000, and additional insurance that offsets some of the route’s potential savings. Moreover, Moscow’s control of the NSR and the attendant icebreaking fleet is troubling for some shipping executives, who fear the Kremlin could abruptly hike fees. Finally, while the NSR may provide a viable alternative for shipping bulk cargo such as oil, coal, and ore in the near future, it may be of limited value for container shipping, which operates on a tight delivery schedule. Many analysts say it will take at least another ten years of warming before shipping along the NSR is practical.

There is also modest anticipation for an uptick in shipping along the Northwest Passage, the legendary sea route atop North America that runs some nine hundred miles from Alaska through the Canadian Arctic Archipelago. The pathway can cut several days off a traditional voyage through the Panama Canal if there is minimal or no sea ice present.

Writer is Staff Reporter Mélange for Europe & Coordinator Center of Pakistan and International Relations (COPAIR)

Newsletter SignUp

About Grate 15 Articles
Writer is Staff Reporter Mélange for Europe & Coordinator Center of Pakistan and International Relations (COPAIR).