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October 17, 2013

Working on Top of the World: The Arctic Opens Up

A couple of years ago, Andrew E. Kramer wrote a story in the New York Times about an "an ice-free passage" across the stretch of Arctic Ocean that borders Russia's northern border. ["Warming Revives Dream of Sea Route in Russian Arctic," 17 October 2011] Kramer reported that a decade earlier "an ice-free passage, even at the peak of summer, was exceptionally rare." He goes on to report that, as a result of the shrinking Arctic ice pack, "companies in Russia and other countries around the Arctic Ocean are mining that dark cloud's silver lining by finding new opportunities for commerce and trade." Kramer quotes Vladimir V. Putin, who declared, "The Arctic is the shortcut between the largest markets of Europe and the Asia-Pacific region. It is an excellent opportunity to optimize costs."

Arctic Ocean 03China would certainly like to take advantage of the Arctic passage which is called the Northeast Passage if you head east across Canada and the Northwest Passage if you head west across Russia. Tom Mitchell and Richard Milne report that "the journey via the Bering Strait could shave as much as 15 days off the traditional route through the Suez Canal and Mediterranean Sea." ["Chinese cargo ship sets sail for Arctic short-cut," Financial Times, 11 August 2013] They reported, "The Yong Sheng, a 19,000-tonne vessel operated by state-owned Cosco Group, set sail on August 8 from Dalian, a port in northeastern China, bound for Rotterdam." The ship arrived in The Netherlands on 10 September. In a later article about the Yong Sheng's voyage, Mitchell and Milne reported, "Another benefit of regular shipping services through the Northeast Passage was dramatically illustrated halfway through the Yong Sheng's voyage. As she sailed across the East Siberian Sea on August 31, one of her sister vessels, the Cosco Asia, was attacked in the Suez Canal." ["First Chinese cargo ship nears end of Northeast Passage transit," Financial Times, 6 September 2013] Despite Putin's endorsement of the route, Mitchell and Milne report that not everyone is as sanguine about the passage's future as he is. They explain:

"Despite the passage's allure, most shipping executives and analysts remain sceptical about the dream of an industry transformed by regular summer services across the top of Russia. While the number of 'polar transit permissions' granted by Russian authorities has grown dramatically since 2010 – to more than 370 this year – only about 20 per cent of them were for full transits of the 5,400km route."

The latest news concerning the passage involves a Danish ship, the bulk carrier Nordic Orion, which was "the first commercial bulk carrier to traverse the route since the SS Manhattan broke through in 1969." ["Danish firm seeks to be first to bring bulk carrier through Northwest Passage," by Wendy Stueck, The Globe and Mail, 19 September 2013] Stueck reports that the "Nordic Orion was loaded with coal at a Vancouver terminal. From there, it headed to Finland" where it pulled into port in early October. The staff at The Maritime Executive reports:

"The North West Passage across the Arctic is shorter than the traditional route through the Panama Canal and thereby has the potential to generate important saving in both time, fuel and CO2 emissions. Christian Bonfils, [Managing director in Nordic Bulk Carriers A/S], explains. 'The North West Passage shortens the distance with 1.000 nautical miles. This results in a reduction in fuel consumption and transportation time – and it also means lower CO2 emissions. The fuel savings alone add up to approximately USD 80,000.' In addition this new route allows full utilisation of the ships capacity and thereby carries 25% more cargo than through the Panama Canal. It takes more than an average ship to sail the North West Passage. The trip across the Arctic is a challenging task that requires great experience, navigational skills and modern world class ships. In fact, there are only a few vessels which can handle the task." ["Historic Sea Route Opens Through Canadian Arctic Waters," 25 September 2013]

Per-Ola Karlsson and Laurence C. Smith report that it is not only shipping companies that are planning to take advantage of the shrinking Arctic icecap. "As the ice recedes in the Arctic," they write, "talk of industry entering the region to take advantage of its economic opportunities is on the rise. The territories contain significant natural resources, including conventional hydrocarbons (natural gas, condensate, and oil), metals, fish, high-value minerals such as diamonds and rare earths, and fresh water." ["Is the Arctic the Next Emerging Market?" Strategy + Business, 27 August 2013] They continue:

"But many of those who wish to develop the region overlook the primary truth about it: It is an emerging market. To be sure, as one of the last of the true wildernesses remaining in our world, the Arctic is a uniquely challenging environment. But it is not empty. It is home to some 4 million people comprising a broad range of cultures — and an economy worth about US$230 billion annually. The land is inhabited by more than 40 ethnic groups, such as the Sámi of northern Scandinavia, the Evenki of Russia, and the Inuit of Canada. In Canada, Greenland, and the United States, in particular, local control by aboriginal communities and regional business corporations can be substantial. Most of the Arctic region is governed under existing national structures and international frameworks similar to those in other areas of the world. It’s not the northernmost equivalent of the next frontier, waiting to be conquered by big business or governments desperate for resources. Adding to the complexity, the interested parties don't yet possess the technology or know-how to access the Arctic’s resources in a sustainable way. "

If you want to read more about the resources in the Arctic and who's going after them, read my posts Search for Resources at the Top of the World and Attention to the Cold Arctic Heats Up. Karlsson and Smith conclude, "The Arctic region will require novel, cooperative solutions to overcome these challenges to sustainable economic development. The time to act is now: The resources locked in the Arctic could shift the balance of energy supply and demand in the world in important ways." I certainly won't argue with that conclusion.

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