The Impact of Opening the Northern Sea Route on Global Shipping .. Future prospects

Northern Sea Route (NSR) is a shipping lane officially defined by Russian legislation from the Kara Sea to the Pacific Ocean specifically running along the Russian Arctic coast from Kara Gates strait between the Barents Sea and the Kara Sea, along Siberia, to the Bering Strait. The entire route lies in Arctic waters and within Russia's Exclusive Economic Zone (EEZ). Parts are free of ice for only two months per year. Before the beginning of the 20th century it was called the Northeast Passage, and is still sometimes referred to by that name.

According to a study by the Netherlands Bureau for Economic Policy Analysis (CPB), approximately two thirds of the world trade that passes through the Suez Canal, which is 8% of the global total, will be rerouted to the Northern Sea Route (NSR). The study outlines the effects of the economic shock that will be associated with the opening of the new trade route.

Aftereffects of the Arctic ice cap melting have an essential role to the Northern Sea merchant trading, which includes key shipping services and routes between North-East Asia and North-Western Europe. These shipping distances will be significantly reduced by one-third in comparison to the currently used routes, which will count serious reduction in the transportation and trade costs between the two major economic regions.

In the CPB study “Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route”  the effects on the economic in a multi-sector model with intermediate linkages are examined. The model shows that there is a possibility of a considerable change in the bilateral trade operations between Europe and Asia, together with the diversion of trade within Europe, the heavy shipping traffic in the Arctic region and a possible substantial drop in the Suez Canal ship traffic.

Impact of NSR in Global Supply chains  - In accordance with the study predictions, these changes in the global merchant trading will impact the real income and prosperity of all involved commerce parties. Beside the economic consequences, the estimated trade redirection will have as well a large-scale influence on the world’s geopolitics, such as the reorganisation of global supply chains in Europe and between Asia and Europe. Additionally it has to be mentioned the highlighted political interest and environmental pressure on the Arctic region.

If in fact the ice melting continues, the use of the sea route across the North Pole will be particularly important for the development of the international shipping industry.

The usage of the Northern Sea Route will represent a reduction of approximately one third of the average shipping distance and days of transportation compared to the currently used on the Southern Sea Route. About 8% of the global trade is transported through the Suez Canal and according to the CPB study, two-thirds of this volume will be re-routed over the shorter Arctic sea route.

Depending on the specific countries involved and because of these trade costs reductions, the study estimates a 10% increase of all trade flows between both regions.

NSR will become one of the busiest global shipping routes, which in turn implies increased economic and geopolitical interests regarding the Arctic and a huge economic pressure on countries currently operating the older Southern Sea Route.

Furthermore, the large volume of trade diversion through the NSR is expected to have negative economic effects on South and East Europe.

Аccording to this study, it becomes clear that there will be a significant movement of labour between the different sectors in some of the countries included in the global shipping industry.

It is estimated that the transport services through the North Sea Route will increase CO2 emissions.

Generally, because of the much shorter shipping distances in the NSR, there will be a reduction of the emissions regarding world's water transportation.

 Some Prerequisites - But to be of interest for commercial shipping NSR needs to provide not only needed safety both predictability and punctuality of cargo transport. Regularity of year-round supply of goods is no less important than the cost of transportation. The current limited seasonal window for trans-Arctic voyages of five months (July-November) will be a limitation to the NSR’s full development and economic viability.

During the remainder of the year the whole Arctic Ocean freezes over with average ice thickness of about 1.6m (five feet) making shipping much more difficult and dangerous. But year-round operation on the NSR will be a prerequisite for the route’s full integration into the world’s transportation system. Another prerequisite for increased growth in transit shipping on the NSR is the availability and regularity of cargo transport from Europe eastwards, and from Asia westwards. Currently limited number of vessels with adequate ice class represents limitation on the utilization of the NSR. And then it is the economy of scale, as NSR is vulnerable to competition from much larger vessels going via Suez and Cape.

To make NSR safer and more reliable as a transport route both for Arctic resources as well as more attractive as an alternative trade route between markets in NW Europe and NE Asia, a number of important changes need to take place. This includes strengthening NSR’s overall administration and management, transport services, and last but not least maritime infrastructure. 

Importance of NSR for Russian Energy and Industrial Development

A substantial part of the Arctic hydrocarbon resource potential is located in NW Russia and offshore in the Barents and Kara seas at the western gateway of the NSR. Current and future development of this Russian resource base is the main driver for increased shipping on the NSR in the coming decades.

In 2015 a total of 5.4 million tons of goods and project cargo were transported on the NSR, up from about 4.0 million tons in 2014 and 3.9 million tons in 2013. This includes delivery of cargo for the construction of the Yamal LNG plant and the port of Sebetta on the Yamal Peninsula. Only a small fraction was transit cargo between two ports lying outside the Russian official boundaries of the NSR, or 274,000 tons in 2014 and 40,000 tons in 2015, according to the NSR Administration. The NSR Administration received a total of 715 applications for sailings on the NSR in 2015, thereof 126 from foreign flag ships.

NSR cargo flow is expected to increase considerably with further development of Russian Arctic hydrocarbon projects. Year-round export of LNG from the Sabetta Port should reach 17.6 million tons per year starting with the year 2021; crude oil from the Novoport Oil Field 8.5 million tons per year by 2017 (through loading terminal off Cape Kamenny); and crude oil from the Payakha Oil Field 7.3 million tons per year by 2024; according to information from Rosatomflot.

This is in addition to year-round transport of 1.3 million tons per year of nickel and other nonferrous metals from Norilsk Nickel at the Dudinka Port on the Yenisei River. Other projects in the planning states are Novatek’s Arctic LNG-2 on Yamal and Gydan with estimated 16.5 million tons of LNG produced per year; transport of 5-10 million tons of coal from the Taymyr Peninsula from the port of Dikson as part of the VOSTOKcoal Project; and 45 million tons per year of crude oil as part of the Transneft-Arctic Project with development of an offshore loading terminal for crude oil in the Sabetta Port.

If all these energy projects come through then transport volumes on the NSR could reach 100 million tons per year by 2030. Most of this cargo will be transported on the NSR westwards from the Yamal, Gydan and Taymyr Peninsulas to European markets and onwards through the Suez Canal to Asia. Part of the cargo will be transported eastwards on the NSR to Asian markets, but likely mainly during the five to six months of the summer-fall navigational season when sea-ice conditions are most favorable.

The large Russian rivers which all flow north into the Arctic Ocean can also act as major transport connections from the internal part of Russia to the NSR, but also the other way around as Russian rivers such as Ob, Yenisei and Lena Rivers offer logistical possibilities for transportation of goods and project cargo from the NSR into the inner parts of Russia promoting further industrial development.

In short, NSR is the ideal throughway for Russian Arctic resources and industrial products westwards to European markets and eastward to markets in NE Asian, and for promoting regional industrial development.

The NSR’s Administration and Management - Today in Russia there is no single organization that oversees all NSR’s activities, services and marketing, provides analysis of efficiency and route optimization, traffic coordination, and provides strategies to promote commercial activities. Such an organization should also be the one determining tariff rates; predict future NSR traffic, cargo volumes, and demand for icebreaker assistance and other support services. Subsequently, the NSR Administration’s role needs to be expanded to include these additional services in line with the role the Suez Canal Authority plays for the Suez Canal.

The NSR’s Maritime Infrastructure – We need a detailed study that shows the structural and design characteristics of a new NSR transport and logistics system - a system that we would like to see put in place in the near future, for example by 2040 or 2050, to satisfy our safety, reliability and environmental requirements.

To make NSR safer attractive  and a reliable option as a transport route both for Arctic resources as well as more attractive as an alternative trade route between markets in NW Europe and NE Asia, a number of important changes need to take place. This includes strengthening NSR’s overall administration and management, transport services, and last but not least maritime infrastructure. 

Source  : http://www.maritime-executive.com  /  vesselfinder.com 

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