Oil and new shipping lanes

Oil and new shipping lanes

Sebastiano Fusco (Agenzia Nova)
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Due to climate change and the progressive melting of ice, superpowers are increasingly interested in the North Pole, which will be crossed by future sea motorways. The region holds considerable hydrocarbon reserves

On June 17, 2016, Russia launched at the construction sites of Baltijskj Zavod, in St. Petersburg, the largest and most powerful icebreaker in the world. It was named Artika: A huge steel leviathan measuring 173 meters wide and 34 meters long, with a prow like the snout of a shark. It is propelled by two nuclear engines powerful enough to break up sheets of ice up to four meters thick. Its entry into service in the seas surrounding the North Pole is planned for 2017. It is the first of three similar units, the last of which will be delivered in 2020. The value of the agreement is 85 billion rubles, approximately $1.3 billion. That is roughly one-third the cost of the even larger icebreakers, though that cost has yet to be determined, to be built  by the United States, as announced by President Barack Obama. Each will cost $1 billion. The U.S. already has three nuclear icebreakers, only two of which are operational. These are evidently not enough, as Obama often emphasized during his visit to Alaska in September last year: "Icebreakers are one of those things that cannot be postponed," he said, because they serve "to protect the national interests and the management of natural resources." The Chinese also agree. For some time, the China Shipbuilding Industry Corp., one of the two leading Chinese shipbuilding companies, has said that one of its research centers has obtained government approval and funding to launch the study of nuclear propulsion, with the aim of building a nuclear icebreaker entirely through domestic production. It is obviously the gradual melting of polar ice that draws the interests of the superpowers to the most inhospitable region of the globe. Since the age of specific satellite detection in the late seventies, Arctic ice has lost half of its volume, and the trend does not seem to be lessening. The ice in this region is melting at twice the speed of that in most of the rest of the world, albeit with fluctuations that climatologists are still evaluating, in search of a model that may explain and, above all, predict future melting.

The two routes that cross the Arctic Ocean

In 2007, the European Space Agency (ESA) declared that the so-called "Northwest Passage," the route connecting the Atlantic to the Pacific passing through the Canadian Arctic Archipelago, which historically has been blocked by ice, is now totally passable. The first ship transited in 2008 and, in 2013, the first commercial freighter passed through. It is now a summer destination for tourist cruises.
The situation of the “Northeast Passage" is slightly more complex. This route to the Pacific Ocean starts from the North Sea and continues in the Arctic Ocean along the Siberian coast, then crosses the Bering Strait and Bering Sea to reach the eastern coasts of Asia. It was, until recently, considered a dangerous route due to the presence of ice and icebergs, and was not included in the ordinary trade routes between China and Europe. In the last 50 years however, due to global warming, the temperature in the areas surrounding the North Pole has risen almost four degrees, and  for certain months of the year, ice does not form. From July to November, navigation is now also possible for merchant ships, with great advantages for commercial companies that transport goods from China to Europe. On September 10, 2013, a 19,000-ton Chinese freighter, the Yong Sheng, reached Rotterdam after having left on August 8 from the port of Dalian on the Yellow Sea. Travelling along the northeast route, it took 35 days instead of the 48 required by the usual southern route, which passes through the China Sea, the Straits of Malacca, the Indian Ocean, Suez, the Mediterranean, Gibraltar and along Europe to cross the English Channel. Not only did it save time and fuel, but it also avoided the expensive freight passage fees for crossing the Suez Canal. It is still too early to say whether the northeast route will become the preferred route for Beijing’s goods transported by sea to Europe, but the Chinese freighter was the first to demonstrate its feasibility, with advantages, at least in the summer months, and it is a feasibility set to expand.  According to climatologists, if global warming continues at the current rate, between 2030 and 2050 the Northeast Passage will be navigable in complete safety all year round. Quite a long time ahead, but not so much that the nations bordering the Arctic, which claim their rights on the surrounding seas, will give up defending their interests.

Who do the routes through the ice concern?

For obvious reasons of strategic conflict, the nations most affected are the United States and Russia which, among other things, have their own unique geographical point of contact precisely in the Arctic: the Bering Strait. The two superpowers reveal a different approach, linked to the approaches that, historically, are their vocations in terms of military strategy. Russia is investing in icebreakers and the deployment of permanent bases in the Arctic, while the U.S. is relying on technologically advanced systems, such as nuclear submarines and stealth aircraft. Moscow focuses on icebreakers to create, in the event of conflict, routes in the pack ice that can move faster than their naval units. Washington relies on submarines to counter enemy ships and to serve as platforms to operate in Arctic expanses. For this reason, the new military strategy document approved by the Kremlin emphasizes the need to deny the Atlantic Alliance dominance of "deep waters," from the Mediterranean to the extreme north. Within twenty years, those routes could become the main navigable routes of the globe, avoiding dangerous bottlenecks such as the Strait of Malacca, which is still infested by pirates; politically unstable areas or areas of dispute, such as the China Sea; routes subjected to expensive freight charges, such as the Suez and Panama Canals; and routes with shorter sailing times.
Beyond the effort to control the highway future of the sea, there is another factor that is rapidly making the North Pole one of the most important regions on the planet in terms of geopolitics. According to estimates dating back a decade ago, the Arctic contains 30% of all conventional gas reserves, 13% of which are oil, and large deposits containing a variety of minerals such as uranium, gold and tungsten. Estimates are certainly tentative because there are no precise analyses due to the lack of explorations. In this sense, the country most interested in knowing the true situation is Russia, which already obtains 15% of its GDP from resources located beyond the Arctic Circle. On June 15, the CEO of Rosneft, Igor Sechin, said that the potential of the largest offshore oil field in Western Siberia, in the Kara Sea, is equivalent to that of the whole of Saudi Arabia. "The company is consolidating its position in the Arctic region. Eighteen months ago, we discovered the Pobeda oil and gas field in the Kara Sea, as a result of explorations in the extreme north of the Russian Federation," explained Sechin. The Kara Sea is part of the Arctic Ocean, located between the 60th and 90th meridian east, bordered to the west by the island of Novaja Zemlja, which separates it from the Barents Sea. In this latter sea, at a point located 85 kilometers from the northern coast of Norway, there is someone who is already extracting oil. On March 13, 2016, Eni announced the start of production of the Goliat oil field, in License 229, in an ice-free zone. Goliat, the first oil field to enter into production in the Barents Sea, was developed through the largest and most sophisticated floating production and cylindrical storage unit in the world, which has a capacity of one million barrels of oil and which was constructed with the most advanced technologies to deal with the environmental and technical challenges linked to operations in the Arctic environment. Daily production will reach 100,000 barrels of oil per day (65,000 of which by Eni). According to estimates, the oil field contains reserves of approximately 180 million barrels of oil. Production will take place through an underwater system comprising 22 wells (17 already completed), of which 12 are production wells, seven serve to inject water into the oil field and three inject gas. Goliat also uses advanced technological solutions to minimize environmental impact. It receives electricity from the ground by means of underwater cables, which allows for a 50% reduction in CO2 levels compared with other approaches, while the water and gas produced are re-injected into the oil field. The launching of Goliat is an important milestone in Eni’s growth plan and will significantly contribute to generating cash flow. Eni holds a 65% share in License 229, while Norway’s Statoil owns the remaining 35%. Beyond the financial considerations linked to oil prices, what is important in such an investment is the technological supremacy achieved with the construction of the northernmost mining structure in the world. When the Arctic seas are more accessible and climate conditions are less prohibitive, what will count, more than dollars, will be the experience gained from working in extreme conditions, in the northernmost well that has ever been exploited.