Breaking the Ice: The Northern Sea Route
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“Every government has as much of a duty to avoid war as a ship's captain has to avoid a shipwreck.”
Guy de Maupassant
In our highly unstable world there are but a few places which can be deemed close to being tranquil. In the preceding post Casing Point outlined that the Arctic is amongst such areas. Still, it is not utterly free from certain caveats. In particularly, the allure of Arctic’s natural wealth may become too temping – even though acquiring it cannot be achieved by a lone state in the foreseeable future. In addition, external events could undermine already frail relationships and doom cooperation in this region. In essence, to overcome these caveats political predilections need to be broken with real political willingness. In all, these are the issues discussed in the earlier post, whereas here we go beyond diplomatic ice by focusing on breaking down physical obstacles, which up to recently sealed the world’s shortest route between Europe and Asia.
In this follow-up post to the ‘The Arctic Frontier – Armed with Cooperation’, we look at shipping via the Northern Sea Route, whilst dwelling into the details of the world’s only nuclear icebreaking fleet, explore a new breed of Arctic ice breaking cargo ships and ponder over the critical question of any venture – does this route make economic sense as a genuine addition to international sea commerce?
As with the earlier post, I will be drawing from the points made by the participants of the RIAC conference and from a bit of extra research. I would also urge watching the following three documentaries to get a real 'mega' perspective of the global sea trade; although I will refer to them throughout. Lastly, please do have a look at the extensive material offered by RIAC.
* Ice Breakers – National Geographic
* Mega Ship – National Geographic
* China's Ultimate Port – National Geographic
* Full Event’s Material.
* Full Program – As here speakers' long official positions are excluded for readability.
* RIAC's Arctic Stats Map
Northmost Shortcut – There & Back in No Time:
The Northern Sea Route (NSR) is the shortest passage between northern Europe and the Asia-Pacific. The entire passage lies in Arctic waters and parts of it are free of ice for only a few months per year. But, aside from occasional blips, there has been a fall in temperatures and accrual of unsafe heavy ice over the last few decades. As a result, in the recent years the NSR has attracted increasing interest as possible time savings it offers can be enormous. If one goes via the Egyptian Suez Canal from the European biggest Port of Rotterdam in the Netherlands to the busy Port of Ningbo in China, an average trip takes 31.2 days. In addition, as my older blog post outlined trips via the Suez and similar routes are riddled with dangers be it from piracy, severe congestion, instability in the Middle East and even possible geopolitical escalations among major powers (see: A Hazardous Game – the Strait of Malacca). In contrast, the NSR is free from such problems and mere 24.7 days for the same trip make it a tempting option. Moreover, trips from Russia’s Murmansk to the Japanese Port of Kobe are even more noteworthy as times are slashed by 19 days from the Suez’s 37.1. As the Ambassador-at-Large of the Russian Federation Anton Vasilyev stresses, these drastic time cuts are ramping up the volume of traffic with now a steady upward trend over the last five years. In 2011 34 shipped passed via the route, this increased to 46 in 2012 and 71 in 2013 (~3rd quarter). Also, to a positive note an increasingly diverse number of users is being attracted, thus the route is not solely dependent on one type of user; albeit China does hold certain records. In 2013 Yong Sheng became the first container-transporting vessel to transit along the NSR, following a successful trip by Xue Long icebreaker in 2012 (Barents Observer, 2013). That said, the NSR offered transit to vessels bearing the flags of Singapore, South Korea, Thailand, Netherlands, Greece, etc.
In all fairness, the preceding praise still ought to be taken with a pinch of salt. As the NSR is unlikely to challenge on a serious global scale as trade is heavily concentrated in the established routes of the Suez Canal, Panama Canal, Malacca Strait and alike. At the current rates and even with projected exponential growth these 'hourly' traffic figures do not even skim the mature routes due to their sheer volume and established credibility. Moreover, as 70% of the NSR traffic carries hydrocarbons with vessels of 50K DWT and above (i.e. Panamax Size), it makes this route reliant on shipping large hulls of natural resources in fewer vessels; hence the route rests greatly on the energy markets of both the Arctic and wider world, which are naturally volatile. In addition, historic successes of USSR leave a bitter after taste. As Vladimir Mikhailichenko of a Non-Profit Partnership points out, the recent jump is a mere hop in contrast to the volumes achieved in the peak years. In the historic peak of 1987 a total of 6.5 million tons of cargo was transported via the NSR by the USSR, which then fell to a historic low just shy of 1.5 million in the dusk of 1998’s new Russia. In 2012 we have reached a sound figure of 3.752 million tons, but this is still only an equivalent set in the early 1970’s by the Soviet Union, or ~60% of the historic peak. Still, if Sovcomflot Mikhail Suslin’s predictions prove true, whereby at the current levels without any dire events we should see tonnage grow to 70 million in the foreseeable future, then such figures will dwarf any set records. In all, a lot will depend on the type of new vessels coming into play, regional structural development, and if the Arctic environment continues to be favourable as the current transport window of July to November is relatively good, but the ice must continue to be thin with persistently protracted summers.
The Nuclear Gambit – Russian Icebreaking Fleet:
As the RIAC conference was taking place the Russian icebreaking fleet was about to celebrate its 54 birthday, which we can all agree is quite a noteworthy landmark for the world’s only nuclear fleet with a total of 5 active nuclear powered vessels and 35 diesel ships. The active icebreakers are three ‘Arktika Type’ and two ‘Taimyr Type’ vessels; with 4 more in reserve. The newest vessel is the 2007 ‘Arktika Type’ under the name of 50 Let Pobedy. If anyone is wondering whether there is any difference between nuclear and diesel models, in fact, they only differ due to their power source as the former sport 160 tons reactors, which are encased in steel, high density concrete and are submerged in water for cooling. These nuclear carvers always cruise in cold water as it serves as a natural mechanism for keeping the reactors from overheating. Hence, with near infinite fuel allowance and power these ships can easily tackle ice formations of 1.8-2 meters thick when escorting oil tankers, LNG carriers or container ships. To add more kudos, one can arrange a champagne reception at the worlds end or give a lift to the Sochi Olympic Flame to the North Pole (for great pictures see: Huffington Post, 2013). Aside from these added bonuses, all icebreakers have super tough hull and a wedged structure to separate various components of the ship in the near impossible chance that one section of the ship is pierced. Most also have shielded propellers both in the stern/bow and follow the principle idea that the enforced bow is pushed onto the ice so effectively the front of the ship lays upon the edge of the ice with a specially designed wedge, sheer brute weight and momentum.
As a clear downside, nuclear icebreakers are limited to the Arctic for their operational scope. For instance, hypothetically they would not have been able to rescue the up to just recently icebound Russian Akademic Shokalskiy and Chinese MV Xue Long (aka the Snow Dragon) from Antarctica (RT, 2014), as that would involve crossing warm waters that cannot cool their reactors on the way to the cold southern hemisphere. An additional snag is that all the global icebreakers are narrow at ~30 meters in width; in contrast, the ever growing sizes of vessels like the Propontis oil tanker typically span 44 meters. As Suslin outlines this Greek tanker had to be led with two icebreakers via the NSR to avoid risk, but this is typical for most journeys as most tankers that go via the route are equally big as mentioned. In all, there are not many downsides, but even so the older models are being replaced with even more innovative designs that will aid the international maritime sector, research and additionally the military reach of the Russian Federation (RF). To add to the last point, icebreakers have a proven record of escorting navy ships like the Flagship of the Northern Fleet Petr Velikiy, as vessels designed for combat do not have icebreaking capacity, so unsurprisingly when it came to the Cold War submarines were the main pieces in the great game.
As Vladimir Nazarov from the Security Council of Russia and Stanislav Glovinskiy of Atomflot emphasize in 2017 we anticipate a new breed of 'universal icebreakers' or altering-depths atomic models. Firstly, the new models have a much longer work span of 175,000-200,000 hours in contrast to about 100,000 hours or 25 years of the earlier generation. An increase of such lifespan should appeal to the environmentally mindful readers as nuclear waste remains a concern at the end, even if during the icebreakers working cycle pollution is avoided from not burning diesel. In addition, the two-depth mechanism is intuitive as it allows icebreakers to heighten or lower their bow/depths with special ballast, which allows them to work both at sea and in rivers – as a result the operational scope will widen a lot. The active icebreakers can already come close and even dock in the Russian Arctic ports, but the new designs allows them to easily escort directly from ports, hence increasing safety. For instance, Russia is now in the process of setting up the Yamal LNG facility with construction of the nearby Port of Sabetta in full-swing as speakers at the conference report, with such fixed growth of natural resource production and new ships the use of NSR will be extended without a doubt (Barents Observer, 2013). As early as 2012 the future biggest Arctic Port of Sabetta, whilst still under construction, already welcomed first vessels (Sdelanounas, 2013). Moreover, in 2019 two 60 MW icebreakers are set to be finished as RF pushes on to modernize and improve its icebreaking fleet for the NSR just as the oil and gas industry is set to kick in.
Icebreakers + Cargo Ships = Eureka!
It is surprising that such a package of innovation did not come earlier, nevertheless, in 2006 the global metallurgy giant Norilsk Nickel (MCX:GMKN) ordered a new breed of cargo ships that had the Ice Class Arc 7 standard, which unlike anything before not only had the knack to break through heavy ice as thick as 1.5 metres at 1-2 knots, but also carry enormous amounts of cargo at the same time. Aker Yard from Finland took on to build the first diesel-electric ship of this Arctic-Class and then four more were launched in Germany (Telegraph, 2012). Norilsk Nickel’s first ship of this new Aker ACS 650 Type was 'rather originally' called Norilskiy Nickel, so no prizes there, but it did clinch certain achievements, aside from sporting three 56 tons diesel engines that each produced 6,000 k/w of power (an equivalent of 20 average American households fully switched on for one month in a single operating hour of the ship), it was the first ship to have an Azi-Pod Propulsion System in the RF. In essence, the huge propulsion mechanism with four blades of more than 5.5 meters in diameter are positioned not as traditionally from inside of the hull, but on a 360° pivot outside of the main body of the ship. As a result, the ship’s turning circle is just 300 meters when standing still vs. more than 500 meters for typical cargo vessels, and likewise it takes about twice as long for other cargo vessels to stop that for ACS. In addition, it maximises the ships capacity inside for cargo, as propulsion is fitted outside in the same fashion as in the world’s top cruise liners like the Independence of the Seas. Moreover, it is deemed a revolutionary ship for Arctic travel as it has a Double-Acting Ship Concept (DAS), which allows it not only to break ice, but to also carry heavy cargo. Also, the patented DAS allows such vessels not only to travel bow first as most ships in the world, but in heavy ice conditions the cargo ship goes into 'ice-breaking mode' by sailing stern first to break through especially heavy ice (e.g. ~1.5 meters). In effect, as makers argue it does not need to be accompanied by a traditional icebreaker which saves millions of dollars for cargo shippers.
To give a bit of technical detail the ACS 650 takes just 11 months to build and it can carry 650 tonnes of metallurgical goods as it measures 169 metres in length and 23.1 metres in width. At $120 million per ship it is not cheap, but Norilsk Nickel received a special guarantee to refund their purchase if the ships did not perform as promised. It was a confident promise as each ship requires enough steel to build an Eiffel Tower, enough paint for 12 Golden Gate Bridges and 4.5 million man hours. As a side note, I should not have technically used 'man', as Aker Ship Yards prefer that their 600 ton lifting cranes are operated by women, as they are deemed more calm and focused in a stressful situation – so there, we can now end the age old argument who is the better crane driver. In addition to Norilsk Nickel, Aker technologies in 2007 were bought by the Russian shipping giant Sovcomflot. As a result, a new line of super tankers were instigated with similar characteristics of Arc 7, double hull concept, capacity to force through 2 meters of ice and incorporated the 45 MGW Azi-Pod propulsion systems that equated to 61,000 horsepower. Furthermore, Sovcomflot took it a step further as its fleet was built in Russia. The first super tanker Mikhail Ulyanov, measured at 263 meters in length, 34 meters in width, 30,000 tons in weight or 70,000 in deadweight. In 2009 the second arctic tanker Kirill Lavrov hit the water (see: RuTube, 2009). As these two ships proved, Russia not only has the capacity to buy top foreign vessels, but to build them at home, at the St Petersburg’s Admiral Ship Yards (Arms Expo, 2009). In 2010 Norilsk Nickel also launched an oil tanker called Enisey of the Arc 7 type, but it was built in Germany. These tankers will serve the Prirazlomnoye Field in the Arctic, which has the first Arctic-class ice-resistant oil platform in the world, and other emerging projects. Most people can recall this Prirazlomnoye Platform, as it has generated a lot of furore when Greenpeace at risk to their own lives and the response team attempted to climb atop of the structure (BBC, 2013).
Suslin of Sovcomflot warned at the conference that even with these revolutionary new technologies, like double-hull plating and icebreaking capacity, the Arc 7 vessels may still need to be escorted by traditional icebreakers as they face difficulties in medium ice conditions not to mention heavily iced regions. Mikhailichenko of the Non-Profit Partnership concurs that the media and political will to push for shipping without the support of icebreakers is dangerous as not only an accident is waiting to happen, but small accumulative damage will be sustained by non-specialised ships. As some may have recalled a tanker has already sustained some damage in the region, but it was not heavily recorded, so oversight, common sense and solid regulations are crucial. As Timur Mukhametyanov of the Ministry of Transport for the RF said that some ships of small sizes are allowed to pass via the NSR already without icebreakers, but at the moment exceptions exist for oil, chemical and hazardous cargos. In Canada, as John Higginbotham of the Arctic Program outlined, certain vessels have already repeatedly sailed without use of icebreakers, but the country has very rigid regulations and picky insurance firms who cleared these vessels. Hence, at the moment, only time will tell if this could be a new trend and if safety is followed fully.
Oleg Kozlov of the Ministry of Transport of the RF said that in 2013 a meeting was held in London with a bid to develop the Arctic codex of operation as safety remains a paramount issue for the region and all players involved. However, how this will turn out is to be seen. In shipping even small issues need to be addressed and have a right mechanism in place. As Vladimir Mednikov of Sovcomflot highlights even the most niche issues need to be addressed, like how do we extract excess water from the ships decks or how do we regulate ship operations properly in abnormally low temperatures of -50c? Finally, as Former Deputy Secretary of the US Department of Interior David Hayes stressed, the US has offered funding for research, but all types of governments will need to be brought to the table in the US and elsewhere as cooperation will be crucial due to the risk of an accident being too severe. That said, modern ships like ACS 650 go through very vigorous testing prior to being commissioned and typical icebreakers brandish a clean reliability record. The even aged SA-15 class icebreakers following over 25 years in service had no losses at sea even though 19 were built (two remain in service today as the fleet is being modernized, e.g. Kapitan Danilkin).
Money, Money… Honey – Are Costs Justified?
In this last section we will explore the crucial question of any venture - is it economically justifiable? At the end of the day, even a project with strong political backing will not get off the ground if it is a loss making venture beyond all hope. Quite clearly the NSR is a project that has potential, but the question is where does it come in the business sense and how can it improve as a route?
Tech Does Not Stand Still:
In any industry technological innovation ushers in new possibilities and opportunities, insofar as the Arctic the situation is no different. In the 20th century just after WW2 container ships revolutionised maritime trade as American Malcom McLean pushed for "containerization", which allowed previously loose cargo to be quickly taken from point A to point B. In his thinking the vital question was how to cut time and instigate the shortest possible transaction. In the 21st century we could see similar thinking in time management, but this time around via an entirely new route and innovative ideas of port and vessel designs (e.g. Sabetta and ACS 650). The Norilsk Nickel ACS 650’s have state-of-the-art navigation equipment and automated safety system that allow for satellite mapping of shortest routes possible as well as those less fuel intensive as the shortest routes may require more torque to break the ice. Also, as they do not need an icebreaker escort costs are slashed by 30% (Telegraph, 2012). Furthermore, as firms’ innovative size of vessels will amplify, this will increase economies of scale per trip. At the moment the record for the biggest ship sailed via the NSR is set by a 160,000 tons crude oil Suezmax (a huge tanker which is the maximum type of ship that can fit through the Suez without being forced to go to the bottom of Africa/Cape Agulhas), which carries the name of Vladimir Tikhonov (see: Maritime Executive, 2011). It was escorted by the two most powerful icebreakers Yamal and 50 Let Pobedy under an all time record of 7.5 days in 2011. At the end of the trip a total of 120,000 tons of gas condensate was shipped for the emerging Russian gas major Novatek (LON:NVTK).
Less Fuel More Boon
If we take a reasonably big container ship (e.g. OOCL Atlanta), it burns 230 to 240 tons of diesel per day from its 7,000 tons tank. In the middle of 2013 'bunker fuel' (i.e. any type of fuel used by ships) traded at ~$600 per ton, which is up by ~297% from 2008 or in monetary terms $4 million for a full fill up for an equivalent of an OOCL Atlanta. As bunker fuel can add up to more than 70% of shippers’ voyage expenses (see: Standards & Poor’s, 2013), then cutting a trip by a matter of weeks can save a lot in costs for them and for end consumers of almost any product worldwide. Hence, using the NSR can save considerable cost, but the use of icebreakers does not come free so it may seem that the ACS 650’s or equivalent are the best options. However, an ACS 650 burns 25,000 litters of diesel per hour (~22 tons of diesel fuel or over 500 tons per day), which means it requires double the fuel. It is quite clearly a basic and indirect analysis, as many issues need to be added like cargo capacity to work out fuel usage per ton transported, but what this shows is that the opportunity cost is substantial and a crucial consideration, especially over a ship’s lifespan.
Where Have Thou Icebreakers Gone – Nowhere
A container ship or any similar size large vessels need a clear path from a point A to a point B with minimal turns as this increases drag, which results in a loss of speed and fuel. An icebreaker can provide such passage through the NSR at a somewhat straight trajectory. Also, nuclear icebreakers do not consume fuel and can escort ships that use less fuel than the hybrids like ACS 650. However, unlike the Suez, the NSR is a very seasonal route which does not function all year around. In most years there is only a short ice-free transport window from July to November, so for the rest of the season breaking power is needed. In addition, in certain years as was the case in September 2013 the two crucial bypasses in the Arctic waters froze over. Moreover, contrary to what some may think, even ice plateaus are not immobile, as they shift naturally so in certain cases unexpected breaking may be needed. As Mikhail Suslin of Sovcomflot outlined more icebreakers in the region will make it more efficient as it will increase the speed of transit and possible options. He does underline that much of the success will rest on whether tariffs set for transit by icebreakers remain the same or decrease to motivate trade. To add a final point here, interestingly, to cut costs icebreakers have been known to 'caravan' other ships so a number of vessels can be escorted via NSR at a spread out cost for all involved. The upcoming universal icebreakers discussed will add real umph and potential for more of this action.
Russian Government Devotion or A Big Commotion
In early 2000’s China undertook a huge and expensive decision to build the Yangshan Deep-Water Port in the centre of a few islands just of Shanghai as its own well-known port was overburdened and too shallow to allow new super vessels to dock. To link its new port to the mainland it built a 32.5 km record breaking Donghai sea bridge with the final cost for the projects estimated in $10’s of billions. That said China had two crucial factors, the relatively easily accessible terrain and a huge population via which the tax burden for such construction can be shared. For Russia major Arctic projects lack both, as construction on permafrost is far from easy and the constantly dwindling population due to migration or death undermines the internal market. As Shtokman Development Company Andrey Krivorot outlines after the Caucasus, the Arctic is the second region for biggest migration outflows predominantly to the European part of Russia. If the government does not address this issue with proper legislation there can be little talk of serious profitable development. If the government successfully tackles this region and stimulates the progress of the NSR, energy and other industries (e.g. fishing), it may reverse the migration flows with the incentive of jobs that will in turn uphold these industries. It is an interlinked matrix as this blog stressed all over. A the end we do not live in the 20th century whereby people can be told to move to Siberia, cities like Norilsk that have no connections to speak of except by plane or sea need to be made appealing.
If we take the fishing industry as an example, at the moment the internal market is too small as not enough heads can consume the produce in the Arctic region, also it is in fact cheaper to ship fish via the Panama Canal to Europe or even the European part of Russia, than it is to ship from the Arctic – as Vladimir Nazarov from the Security Council of Russia underlines. It is absurd that shipping via South America is cheaper and a lot of potential is lost as the Arctic, Barents Sea and nearby produce 24% of the fish for Russia. In respect to energy, a bigger population will lower the cost of major offshore projects in the Arctic as a growing internal market can take some of the costs as oil majors can anticipate an existing demand, especially key for less mobile gas. It is a worrying sign although as US Ambassador David Balton points out that MINFIN (Ministry of Finance of the RF) has withdrew some of its funding for geological work as unless the government takes on some of the research risks, private firms will not be able to take the risk. With above in mind, the bulk of the work begun about a year ago and the path only emerged about 3-5 years ago, so we cannot expect too much now, but the government’s behaviour is one to watch.
In Essence - Volume Is King
The magnitude of global shipping is huge as our world is profoundly reliant on it with about 3000 container ships carrying over a half of global cargo via the sea. Around 20 million containers are shipped 300 million times across the international seaways at an astonishing tune of ~$5 trillion, or an equivalent of the entire Japanese economy per year. As mentioned above first ever container ship just recently passed via NSR, so we have to be realistic that this route is unlikely to worry the Panamanians, or the Egyptians, but with increasing volumes it could become an additional road in the global maritime highway and assist strategically important sectors like energy. As the IMEMO speaker Andrey Zagorsky pointed out, the ships and icebreakers sailing via the NSR are being subsidies by the government, so it will need to be made into a sustainable self-sufficient industry. At the same time, it will unlikely to ever become a real cash-cow like the Suez or Panama Canals. At the conference, Mikhail Suslin and Vladimir Mednikov of Sovcomflot somewhat disagreed with their colleague Zagorsky, as they outlined that all voyages are now economically set to an acceptable level, but whether this is true or not, what is absolutely certain is that as ships grow in size and new routes within the NSR open - overall costs will naturally fall making the route more economic. Atomflot’s Stanislav Golovinskiy offers perhaps the best example out of all the speakers, as he gives numerical figures by outlining that currently $4 per ton state tariff in the Suez Canal is a lot cheaper than $17 rate via the NSR. As of now we are waiting for this tariff to fall, as Golovinskiy says, to a competitive level of $5. If we account into this the fact that the NSR is less time and fuel intensive, it may well be a real option in a not too distant future for a lot more traffic. As the old cliche goes – Rome was not built in a day – neither will the NSR, but the first few strokes have been made.
Thank You for Reading & I hope You've Enjoyed this Post!
M.A. University of Kent & Higher School of Economics, Oil/Diesel Broker and RIAC Blogger.
Blog: Casing Point