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New Possibilities For The Northeast Passage

The melting of polar ice, technological advances, and the recent delineation agreement between Norway and Russia over the Barents Sea are providing great impetus to the possibility for increased maritime traffic through the Northeast Passage. A new report by Norwegian independent research institution Ocean Futures has for the first time documented a holistic look at the commercial possibilities for these Arctic routes.

The maritime industry has long been eyeing the possibilities of sailing through the Northeast Passage as a shorter route from Europe to Asia. The first vessel to make a commercial voyage was the Finnish-flag tanker Uikku in the summer of 1997.

Since then, others, such as German shipping company Beluga, have followed suit. Even a Norwegian sailing expedition by polar explorer Børge Ousland is making a daring journey this year through both the Northeast and Northwest passages during the same season in a trimaran.

The obvious benefit for the shipping industry is the time and cost savings. The route from Kirkenes, Norway to China for example would take on average 26 days, i.e. eight days shorter than via the Suez Canal, according to Tschudi Shipping Company. To Korea it would be 11 days shorter and to Japan 13 days less.

Now a new study by Ocean Futures has documented the commercial feasibility of the three transportation corridors: the Northeast, Northwest and Trans Polar passages. The 339-page report, Shipping in Arctic Waters, is the first of its kind in that it compares the sailing conditions of the various routes for geopolitics, military affairs, global warming, sea ice melting, international economic trends, resources, competing modes of transportation, environmental challenges, logistics, infrastructure, ocean laws, corporate governance, jurisdictional matters and rights of indigenous peoples.

The Northeast Passage is by far the most attractive of the three passages when it comes to offering spaces of manoeuvrable ice, according to a newly completed study by Ocean Futures.
© Ocean Futures

Melting Seas

Researchers at Ocean Futures have been studying the possibilities of the Arctic routes for decades. In 1993-1997, under their own initiative they undertook a large international cooperative project, INSROP, with the Japanese and Russians. In 2008, Ocean Futures decided to undertake a 18-month study – co-financed by Norwegian shipping company Tschudi, the Centre for High North Logistics, and Innovation Norway – to compare the different routes in light of the prospects for longer ice-free season and more ship traffic.

“We wanted to have a fresh look given climate changes and technological changes,” said Jan Magne Markussen, Ocean Futures managing director.

The reason why this has become of more interest lately is the increased hope for oil and gas resources in the Arctic, according to Arnfinn Jørgensen-Dahl, one of the six researchers in the Ocean Futures study. The US Geological Survey issued an estimate in 2008 that up to 22% of the world’s undiscovered petroleum resources could be in the Arctic region, mostly as gas offshore Russia.

Jørgensen-Dahl believes the Northeast Passage will be of great interest for Norwegian companies that want to ship gas to the huge growing market in China, the world’s second largest economy. Currently China relies on coal for 80% of its energy needs and imports oil from Russia via rail. China could diversify its energy mix with LNG delivered through the Northeast Passage.

MV Nordic Barents started a historic journey in September by becoming the first bulk carrier with a non-Russian flag to use the Northern Sea Route as a transit trade lane when transporting iron ore from the northern Norway to China via Arctic and Russian waters. © Rosatomflot

Historic Passage to China

The route could also prove useful for the iron ore industry in northern Norway.
In September, Norwegian shipowner Tschudi Shipping Company started a historic journey by transporting 41,000 tonnes of iron ore via bulk carrier MV Nordic Barents from Kirkenes through the Northeast Passage to China. The voyage marks the first time a bulk carrier with non-Russian flag utilises the Northern Sea Route as a transit trade lane from northern Norway to China via Arctic and Russian waters.

The route will shorten the sailing distance by one-third compared to the Suez Canal alternative. This will save up to USD 180,000 in fuel costs, as well as provide environmental benefits through reduced carbon dioxide emissions, according to Christian Bonfils, managing director of Nordic Bulk, which operates the vessel. It also circumvents the piracy threat that has grown off the coast of Somalia.

“Research through the years has shown that the Northern Sea Route is the most commercially interesting of the Arctic routes,” said Felix Tschudi, chairman of Tschudi Shipping Company, which is chartering the vessel. “If the Russians open up for the Northern Sea Route opening up for commercial traffic so that is a predictable alternative for the shipping industry parts of the year, that will give new commercial and development opportunities for the northern areas.”

Challenges Ahead
However, there are still many challenges. Karl Magnus Eger, Ocean Futures research fellow, highlighted logistics and poor harbour infrastructure as the key hurdles going forward. There are more than 50 ports along the Northeast Passage, of which 41 are open for ship traffic but as many as 40% of which are non-functional. When comparing the two passages, the infrastructure is much more developed in the Northeast than it is along the Northwest Passage through Canadian waters, which lacks sufficient deepwater ports for international shipping, said Eger.

Another problem with the Northern Sea Route is that there is no significant market pattern for the insurance companies. Because of this, shipping companies are subject to varying insurance rates on a case-to-case basis. Also, claims on the NSR tend to be higher. Wreck removal, pollution, salvage and towage, cargo and crew claims are of particular concern to insurers. As a result, premiums can be high.

“This is a pre-study to be used as the basis for a full study,” said Markussen. “The hope is to have Japan, China, Korea, and the Russians on board. The first topic to be studies is logistics, harbours and insurance. These will be the key elements as to whether this will be commercially available.”

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