A new route through the ice
Climate change is contributing to the opening of the so-called Northeast Passage, the Arctic sea route that provides access to huge hydrocarbon reserves (22 percent of global reserve) and is reawakening the interest of several countries, particularly Russia, in this area's energy potential

Looking at a world map, or even better, a world globe, we notice that almost half the land area above sea level bordering the North Pole is Russian. And it is precisely due to the need to manage its huge territories, 20 percent of which are situated beyond the Arctic Circle, with a population of just two million, that Russia has historically used the Northern Sea Route. Covered by ice almost year-round, with shipping restricted to just two or three months of the year, the route began to be more or less regularly accessible with the development of the fleet of nuclear-powered icebreakers in the 1950s. In 1986, while still under the Soviet Union, some 6.46 million tons of cargo were transported along this route. Then, with the dissolution of the USSR, transit cargo declined significantly, dropping to 1.8 million tons in 1996. It is only in recent years that cargo levels have finally surpassed those of the Soviet era, reaching 7.27 million tons in 2016, and are constantly growing. Experts are in no doubt that cargo transport volumes along this route could reach as much as 50 million tons, especially from international transit passages.

"The Arctic will ensure the future of Russia"

Answering questions from the Russian public during the annual ‘Direct Line’ television program held on June 15, 2017, Russian President Vladimir Putin stated: “The Arctic is an extremely important region, which will ensure the future of Russia. I can say with confidence that Russia’s power and capabilities will expand as we develop the Arctic region. By 2050 about 30 percent of all hydrocarbons will be produced in the Arctic area. Some of our major projects are already being implemented there, with NOVATEK building a plant, a company town, an airfield, and a port in the Arctic zone. Production has already begun in the Arctic. Therefore, from an economic point of view, this is critically important. Especially so if the climate is going to change. [...] the global warming trend will continue, meaning that the navigation period in the Arctic zone will get longer. The navigation period will go from the current one or two months to four and even five months.” So, while some will suffer from climate change, others stand to gain from it in view of the trading opportunities offered by this route.

A competitor to Suez?

During the era of the USSR, the Northeast Passage was virtually closed to international traffic and it was not until 1991, after the collapse of the Soviet empire, that that the shipping route was opened to shipping. It still took a further fifteen years, with the beginning of the melting of the Arctic ice, for this route to start attracting international players. Thus, in 2009, two commercial ships sailed from Europe to Asia via Russia’s northern waters, while two years later, in 2011, as many as 34 ships followed this route. The sailing distance from Europe to Japan or China via the Northern Sea Route is 30 to 50 percent shorter than via the Suez Canal. To give an example, the distance from the port of Murmansk (Russia) to the port of Yokohama (Japan) via the Suez Canal is 12,840 nautical miles, compared to just 5,770 nautical miles via the Northern Sea Route, which is less than half! Not to mention the fact that there is no risk of piracy in the North Sea Route, and there are no traffic congestion problems (or transit fees) as there are in the Suez Canal. The fact that, despite this, the ice route is still little used is due to the disadvantages of a navigation season that only lasts a few months of the year and a passage that almost invariably requires icebreakers or special ships, like the Christophe de Margerie. In August 2017, this USD 300 million LNG carrier, managed to sail through ice fields 1.2 meters thick (but designed to break through ice as thick as 2.1 meters), traveling without icebreaker from Hammerfest, in Norway, to Boryeong, in South Korea in a record-breaking 19 days. The ship is named after the CEO of Total who died in a plane crash near Moscow’s Vnukovo airport.  Fourteen similar ships, especially designed to carry LNG in difficult Arctic conditions, are currently under construction as part of the Yamal LNG project.

Hydrocarbon-rich, but costs are high

Alongside Novatek the project participants are Total and China’s CNPC and the Silk Road Fund.  The company extracts natural gas in the Yamal peninsula, liquefies it on site, and ships it to Asian and European markets. There is also another vast natural gas field, the Shtokman field located in the Barents Sea, also discovered by the Russians in 1981 but not developed until the early 2000s. This large scale project was interesting when oil prices were above USD 100 a barrel, but with oil prices at around USD 50 per barrel it is far less appealing and profitable. As a result, the project, operated by Gazprom with Total and Statoil, has been indefinitely postponed. The initial plan was to construct a plant for the production of LNG destined for North American markets but, with the development of shale gas, the U.S. is aiming to export gas to Europe and ‘shift’ Russian dominance in this region. The Arctic landscape is also marked by a further development, Rosneft’s discovery of yet another oil field along the coast of the Hara-Tumus peninsula, in the bay of the Laptev Sea.  The company announced that during the drilling of the Olginskaya-1 well, in the bay of the Laptev Sea, three core samples were taken from depths of 2,305 to 2,363 meters, and these showed high oil saturation. “On the basis of primary studies - Rosneft concluded - a new oil field has been discovered.” All this shows that the Arctic is full of hydrocarbons but extraction is certainly not an easy process. At this stage, the Northern Sea Route will be used primarily to deliver the extracted hydrocarbons to Asian markets. The volumes currently transported via this route are quite low and it is hard to for it compete with the Suez Canal, with some 18,000 ships per year transiting through it.  But as the climate gets warmer, in ten or twenty years’ time, shipping traffic will increase significantly along the Northern route - an alternative that the Chinese giant is watching with a great deal of interest.