The possible shipping potential in the Arctic: why the Arctic is so attractive?

The decrease of the Arctic sea ice is likely to open up new possible routes and regions for maritime activities; both trans- and intra-Arctic dimensions involve notable potential. Trans-Arctic shipping refers

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mainly to the possibility of sailing along the northern coast of either North America or Russia instead of using traditional routes via Suez or Panama Canal. By choosing an Arctic transit route major savings in travel distance and time can be gained, at least in principle. Intra-Arctic or destination shipping (that is, shipping to and/or from an Arctic destination), in turn, consists of petroleum and mineral extraction related marine activities, fishery, local community re-supply, and tourism. (AMSA 2009.)

4.2.1. Trans-Arctic passages

Despite of the comparatively evident advantages the new routes seem to entail, some questions of con-siderable importance request further attention. Distance savings, when comparing trans-Arctic and tradi-tional routes, can be up to 50 % (see Fig. 12) (Ragner 2000). For example, the distance between Rotter-dam and Yokohama is about 11 200 nautical miles using the route via Suez Canal, compared to the 6 500 nautical mile route across the top of the world (AMSA 2009). As the distance traveled becomes shorter, fuel consumption and thus emissions decrease in proportion. Hence, there is significant poten-tial for cost savings, arising from both direct (reduced fuel cost and lower inventory-holding costs) and indirect factors (the cost of emissions due to environmental protection taxes) (DNV 2010).

However, a saving of certain percentage in distance does not entail a corresponding saving in time, since the short cut option may involve notable challenges and obstacles that hinder the journey. The occurrence of sea ice, for example, is likely to cause decrease in travel speed, even though it would not pose immediate danger to the vessel. Likewise, the reduction in fuel consumption is not necessarily proportional to the saving in distance, as higher output power is needed in heavy ice conditions (that is, when the vessel has to break sea ice and/or push it away). (DNV 2010.)

The different projections concerning the future development of various trans-Arctic passages are further assessed in section 4.4.

4.2.2. Oil and gas

The role of the Arctic as a relevant natural resource repository depends in part on the development of sea ice cover. Improving access to remote reserves of oil and natural gas in the Arctic may lead to nota-ble revisions of strategies concerning petroleum activities, since the Arctic is estimated to contain as much one-fifth of world’s undiscovered oil and natural gas (AMSA 2009). The more exact numbers are 90 billion barrels of oil, 1 669 trillion cubic feet (47 trillion cubic meters) of natural gas, and 44 billion barrels of natural gas liquids (USGS 2008).

Fig. 12. The potential Arctic short cut routes the Northwestern Passage (NWP) and the Northern Sea Route (NSR; sometimes the Northeastern Passage, NEP). Source: AMAP 2011b.

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There are notable differences in the geographical distribution of the Arctic oil and gas. For gas, Arctic Russia dominates clearly with about 70 % of total arctic resources; for oil, the situation is more balanced, even though Arctic Russia still has the largest share (41 %) (Lindholt & Glomsrød 2011). Fig.

13 illustrates the regional distribution of undiscovered oil and gas in detail. While the dominance of Russia in this regard is rather clear, the shares concerning undiscovered petroleum resources still differ notably from those concerning proved reserves: Russia’s share of proved oil and gas reserves in the Arctic are overwhelming 90.2 % and 98.6 %, respectively (Østreng et al. 2013).

Although the presence of relatively large resources does not itself tell much about the possibilities and the schedules of either discovery or utilization³, some conclusions based on the location of the re-serves can be drawn. Apart from the forthcoming changes in petroleum related transit routes, the retreat of sea ice has additional relevance, as it is estimated that approximately 84 percent of the undiscovered

3 The reasons for such uncertainty have above all financial basis, since the utilization of Arctic resources has thus far remained fairly expensive compared to the level of costs in more favorable environments. For example, it has been estimated that the cost of drilling an onshore well is approximately 540 % higher in the Arctic than in the US as a whole. With regard to offshore wells, the expenses may be up to 760 % higher. (Østreng et al. 2013.)

Fig. 13. The regional distribution of undiscovered oil and gas in the Arctic. Source: Lindholt & Glomsrød 2011.

Fig. 14. Projections of Arctic oil production with different world market oil prices. Data sources: Lindholt &

Glomsrød 2011 and Peters et al. 2011.

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oil and gas occurs offshore (USGS 2008), and the resources located in either free or seasonal ice-free areas require modifications of technology only instead of totally new solutions (Lindholt &

Glomsrød 2011).

The estimates of forthcoming intra-Arctic oil and gas production rates vary considerably. These es-timations rely on global scale models concerning overall oil and gas production, and the actual share the Arctic is likely to have (Peters et al. 2011). One such modeling tool is Framework of International Stra-tegic Behaviour in Energy and Environment (FRISBEE), which “describes future supply and demand of oil and gas through elaborate modeling of oil and gas investments and production” (Peters et al. 2010).

The emphasis of the model is on petroleum markets, but also the global market for coal and regional markets for electricity are modelled, although in less detail (Lindholt & Glomsrød 2011).

Even though based on the same modeling tool (FRISBEE), different analyses have led to differing results. It must be noted that the world market price of oil is exogenous in the model, as there are power-ful actors (such as OPEC) in the oil production scene that for their part define the price level (Lindholt

& Glomsrød 2011). Thus the different oil world market price levels as model inputs produce various outcomes, but this does not seem to explain the variation entirely. Such is the case, for example, when comparing outcomes of Peters et al. (2011) and Lindholt & Glomsrød (2011), of which both use FRISBEE.

Both analyses include scenarios with varying levels of oil price, and they both aim at modeling the rates of oil and gas production in the Arctic as a function of two different variables—that is, the world market price of oil, and time. The results are similar but not identical; Fig. 14 illustrates some central findings. The inconsistencies discovered will not be discussed here in detail, but a significant difference in the role of Greenland is yet noteworthy.

4.2.3. Minerals

In addition to oil and gas, there are other natural resources in the Arctic that will be easier to utilize as the sea ice cover diminishes. From a global perspective, the absolute number of current mining opera-tions in the Arctic is small: out of the approximate 25 000 industrial mines worldwide probably fewer than 50 are located north of the Arctic Circle (Andrew 2014). Nevertheless, the extraction of hard min-erals in the Arctic is of remarkable magnitude, for the largest zinc mine in the world (Red Dog in the Alaska Arctic) and the largest nickel mine (Norilsk in Siberia) are located there; they both are solely dependent on marine transport systems, and the shortening of sea ice duration may improve their exist-ing access significantly (AMSA 2009).

The Mary River iron ore deposits on Baffin Island, Nunavut in the Canadian Arctic represent a highly valuable mineral resource. The development of mining operations has been planned for some time, and the objectives are rather ambitious: approximately 18 million tons of ore per year will be shipped to European markets, with the operations spanning at least 25 years. In Greenland, the Kvanefjeld Project represents a multi-element deposit containing rare elements, uranium and sodium fluoride. Other potentially world class and multi-commodity ore deposits exist in coastal Greenland.

The exploration and development of these mines depends largely on Arctic marine transport systems, as shipping comprises the only sensible way to carry these scarce commodities to global markets. (AMSA 2009.)

4.2.4. Fishery

In a global scale, Arctic fisheries comprise an area of moderate importance (Østreng et al. 2013). From the perspective of Arctic shipping, fishing vessel operations constitute a significant portion of all vessel activity (AMSA 2009). Four marine ecosystems dominate the fishery scene, namely the Northeast At-lantic (the Barents and Norwegian Seas), the Central North AtAt-lantic (the waters around Iceland, the Faroe Islands and East Greenland), the waters off North-eastern Canada (Newfoundland and the Labra-dor area), and the Bering Sea (Østreng et al. 2013). Fishing vessel activity, however, takes mainly place in a few major locations, including the Bering and Barents seas, the west coast of Greenland, and the surroundings of Iceland and the Faroe Islands (AMSA 2009).

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Since fishing is possible in areas that are either completely or seasonally ice-free (that is, in areas that have at most low ice concentration), the development of the Arctic sea ice extent has considerable significance regarding the future of Arctic fishery (AMSA 2009). In addition, due to the warming of the climate some fish stocks with notable economic bearing, such as cod and herring, may become more plentiful in the Arctic waters in the future (Østreng et al. 2013). Higher temperatures and reduced ice cover may improve conditions for these particular fish stocks and thus lead to increase in productivity, but the consequences of the climate change for fishery are not merely positive, as some other species lose their natural habitat (Østreng et al. 2013).

4.2.5. Local community re-supply

In the Arctic, there is a notable amount of communities with very limited access to essential supplies, and appropriate re-supply must be arranged. “Re-supply activities provide a lifeline to many communi-ties that have no or very limited road access and no or limited capacity to handle heavy aircraft; most communities serviced are ice-locked for parts of the year and rely heavily on marine transportation dur-ing the summer months for their dry foods, fuel, builddur-ing materials and other commodities” (AMSA 2009, 75). Such communities are thus very dependent on external services, which are commonly pro-vided by assistance of shipping.

As community re-supply in the Arctic is expected to expand due both to population increases and increasing development in the region, more weight is added also to the execution of functional and ap-propriate maritime activities. Along the improving access via ice-free sea routes, the increasing demand for goods and construction materials may be more effectively fulfilled in the future. (AMSA 2009.)

However, as sea ice cover is decreasing and permafrost on land areas is thawing, possibilities for traveling over sea ice and over land get worse. Changing maritime conditions can make the traveling by boat more dangerous or even impossible in some coastal areas, whereas the vanishing of ice roads and roads built on permafrost can hinder land-based transportation, possibly leading to isolation of certain areas (see Fig. 15). Some of the lost connections may be replaced by new shipping routes, but not all. In any case, the dependence on externally provided maritime transportation is likely to increase, reducing the level of self-sufficiency of remote communities. (AMAP 2011b.)

4.2.6. Tourism

Tourism comprises the most of all Arctic passenger vessel activities, and marine-based tourism is the largest segment of the Arctic tourism industry. The size and the type of passenger vessels used vary according to the primary function of the vessel and the primary area of operation. However, nearly all passenger vessel activity in the Arctic takes place in ice-free waters and in the summer season. Fig. 16 illustrates the geographical distribution of passenger vessel journeys in 2004. (AMSA 2009.)

Arctic tourism is predicted to grow along the disappearance of major barriers, such as physical in-accessibility, lack of infrastructure, poor regulations, high costs, and large travel distance (Andrew 2014). Cruise ship traffic in the Arctic region has already increased significantly, also in the short run:

Fig. 15. Projected change in maritime and land-based accessibility in the Arctic area by mid-century. Green cates newly formed maritime access to light icebreaker vessels (white indicates areas still inaccessible). Red indi-cates lost winter road potential for 2,000 kg ground vehicles. Source: Stephenson et al. 2011.

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to operate in Arctic conditions, which in conjunction with the undersized emergency response capabili-ties of local communicapabili-ties pose a remarkable risk of humanitarian disaster (AMSA 2009).

4.3. Questions of governance—regional sovereignty and global power