Break­ing The Ice

Insurance - - CII COLUMN - by David Thom­son

With cli­mate change open­ing up new com­mer­cial ship­ping op­por­tu­ni­ties in the Arc­tic, Ed­ward Mur­ray looks at the prospects for trade through the re­gion and the un­der­writ­ing dif­fi­cul­ties it rep­re­sents

SShip­ping lane

it­ting on top of the world, the Arc­tic sea ice, which has for so long pro­tected the un­der­ly­ing en­ergy as­sets and re­stricted ship­ping routes, is giv­ing way to global warm­ing. With­out its rich re­serves of hy­dro­car­bons, com­mer­cial in­ter­est in the Arc­tic would be lim­ited. How­ever, the en­ergy as­sets the ter­ri­tory con­tains are im­mense and a US ge­o­log­i­cal sur­vey in 2008 es­ti­mated there were more than 412 bil­lion bar­rels of un­tapped oil and oil equiv­a­lent up for grabs. In con­junc­tion with th­ese rich pick­ings, cli­mate change is af­fect­ing how far the Arc­tic sea ice re­cedes each sum­mer, en­cour­ag­ing ex­cite­ment around the pos­si­bil­ity of a sus­tain­able, com­mer­cial, trans-Arc­tic ship­ping lane.

The idea is not a new one – peo­ple have been in­ves­ti­gat­ing it for years. How­ever, the prac­ti­cal­i­ties of it have al­ways been lim­ited and only now, in light of chang­ing tem­per­a­tures, does it look like a vi­able and in­deed re­li­able op­tion for com­mer­cial ship­ping.

Es­sen­tially, the re­ced­ing ice makes it pos­si­ble for ships to sail be­tween the At­lantic and Pa­cific Oceans by voy­ag­ing across the Arc­tic. There are two recog­nised routes: the North­ern Sea Route (NSR) and the North­west Pas­sage. The North­west Pas­sage runs along the Cana­dian and Alaskan seaboard, while the NSR is along Rus­sia’s coast­line from the Kara Gate to the Bering Strait.

For now, it is the NSR that is at­tract­ing most of the at­ten­tion and which looks the most likely cor­ri­dor to be re­li­ably ice free for the long­est pe­riod of time dur­ing the sum­mer months. In­deed, dur­ing the sum­mer of 2011 when the NSR was largely ice free, multi-year ice up to six me­tres thick was still to be found in the North­west Pas­sage.

How­ever, de­spite the fact that the NSR cuts jour­ney dis­tances be­tween north­ern Europe and north-east Asia by up to 40%, there are still sig­nif­i­cant ob­sta­cles to be over­come be­fore it starts paying re­li­able div­i­dends to ship own­ers.

Harsh con­di­tions

The In­ter­na­tional North­ern Sea Route Pro­gramme, a re­search project car­ried out be­tween 1993 and 1999, un­der­took ex­ten­sive re­search into the vi­a­bil­ity of the NSR. At the time it cited a num­ber of chal­lenges to be over­come be­fore the NSR could be­come a fea­si­ble op­tion for large num­bers of ships.

It stated: “The most ob­vi­ous ob­sta­cles to com­mer­cially vi­able ship­ping in the NSR are the harsh nat­u­ral con­di­tions, in­clud­ing ice most of the year. Even though mod­ern tech­nol­ogy can over­come such prac­ti­cal dif­fi­cul­ties, the in­vest­ments needed to build a fleet of ad­e­quate ice-clas­si­fied cargo ves­sels are stag­ger­ing. An equally big prob­lem is for Rus­sia to muster the po­lit­i­cal and eco­nomic strength needed to up­hold a sta­ble, well func­tion­ing in­fra­struc­ture along the NSR, the most cru­cial task be­ing to main­tain the ca­pac­ity of the Rus­sian ice-breaker fleet.”

Sim­i­larly, the Arc­tic Marine Ship­ping As­sess­ment 2009 report also high­lighted bar­ri­ers to suc­cess­ful com­mer­cial ship­ping in the Arc­tic: “For safe op­er­a­tions in the Arc­tic there is a need for the same suite of me­te­o­ro­log­i­cal and oceano­graphic data, prod­ucts and ser­vices as in other oceans, plus com­pre­hen­sive in­for­ma­tion on sea ice and ice­bergs.”

“Ex­cept in lim­ited ar­eas of the Arc­tic, there is a lack of emer­gency re­sponse ca­pac­ity for sav­ing lives and for pol­lu­tion mit­i­ga­tion. There are se­ri­ous lim­i­ta­tions to ra­dio and satel­lite com­mu­ni­ca­tions and few sys­tems to mon­i­tor and con­trol the move­ment of ships in ice cov­ered wa­ters.”

“The cur­rent lack of marine in­fra­struc­ture in all but a lim­ited num­ber of ar­eas, cou­pled with the vast­ness and harsh­ness of the en­vi­ron­ment, makes con­duct of emer­gency re­sponse sig­nif­i­cantly more dif­fi­cult in the Arc­tic.” Sig­nif­i­cant progress in many of th­ese ar­eas has been made and in Oc­to­ber last year Rus­sia an­nounced that work would be­gin on build­ing four new ice break­ers, worth €1.8bn. There are also plans for an­other two to be com­mis­sioned. In ad­di­tion, the devel­op­ment of 10 new cen­tres for search, res­cue and com­mu­ni­ca­tion along the NSR has also been an­nounced.

For safe op­er­a­tions in the Arc­tic there is a need for the same suite of me­te­o­ro­log­i­cal and oceano­graphic data, prod­ucts and ser­vices as in other oceans, plus com­pre­hen­sive in­for­ma­tion on sea ice and ice­bergs.

Un­der­writ­ing dif­fi­cul­ties

De­spite the im­prove­ments be­ing made, there are clearly chal­lenges for un­der­writ­ers when it comes to pric­ing the marine in­surance car­ried by ship own­ers for ves­sels op­er­at­ing in this area.

Mike Thompson is marine un­der­writer at Mont­pe­lier Syn­di­cate 5151 and also chair­man of the Nav­i­gat­ing Lim­its sub-com­mit­tee of the Lloyd’s Mar­ket As­so­ci­a­tion’s Joint Hull Com­mit­tee.

For ship own­ers look­ing to send their ves­sels across the Arc­tic, he says there is no set scale for the ad­di­tional pre­mi­ums re­quired. He com­ments: “Stan­dard cover is on a world­wide ba­sis ex­clud­ing cer­tain ar­eas in­clud­ing the Arc­tic and any­thing north of 70 de­grees. The an­nual nav­i­gat­ing pre­mium is based on things like the record of the ship, its age and its con­di­tion and for each breach voy­age into a re­stricted area, a per­cent­age of that pre­mium will be charged.”

At the moment, Mr Thompson says there are a lot of en­quiries into cover, although there is not any vol­ume to speak of. In­deed, dur­ing the sum­mer of 2010, there were only four tran­sit voy­ages across the Arc­tic, mov­ing 111,000 tonnes of cargo into the Asia-Pa­cific re­gion.

As part of this, the Nor­we­gian Tschudi Ship­ping Com­pany, through its sub­sidiary Tschudi Arc­tic Tran­sit and Nordic Bulk Car­ri­ers, car­ried 41,000 tonnes of iron ore con­cen­trate on the MV Nordic Bar­ents.

Dis­cussing the voy­age, chair­man of the ship­ping com­pany Felix. Tschudi, says: “It has been our am­bi­tion for years, so we are very happy to fi­nally have the op­por­tu­nity to do this voy­age. The NSR can be of great im­por­tance for the com­pa­nies in north­ern Scan­di­navia and on the Kola Penin­sula which ship oil, gas, min­er­als and other raw ma­te­ri­als to the in­creas­ingly im­por­tant Asian mar­kets.” Last year, trans-Arc­tic ship­ping traf­fic amounted to 34 ves­sels mov­ing 820,000 tonnes, which rep­re­sents a size­able in­crease.

Lo­gis­ti­cal ob­sta­cles

De­spite the grow­ing ap­petite for use of the NSR, there are numer­ous lo­gis­ti­cal con­cerns to deal with as well

The cur­rent lack of marine in­fra­struc­ture in all but a lim­ited num­ber of ar­eas, cou­pled with the vast­ness and harsh­ness of the en­vi­ron­ment, makes con­duct of emer­gency re­sponse sig­nif­i­cantly more dif­fi­cult in the Arc­tic.

as those cre­ated by harsh weather con­di­tions, poor avail­abil­ity of ac­cu­rate seabed map­ping and un­der­de­vel­oped in­fra­struc­ture.

The NSR runs through Rus­sian wa­ters and com­pli­ance with its rules and reg­u­la­tions is re­quired for ships wish­ing to se­cure per­mis­sion to un­der­take this pas­sage.

The North­ern Sea Route Ad­min­is­tra­tion (NSRA) was es­tab­lished by the Rus­sians and in 1991 pub­lished its reg­u­la­tions for nav­i­ga­tion on the sea­ways of the North­ern Sea Route.

The reg­u­la­tions re­quire that ships are ice classed and per­son­nel are suf­fi­ciently ex­pe­ri­enced and qual­i­fied to op­er­ate in the Arc­tic en­vi­ron­ment. Full de­tails of the voy­age, its route and the pro­posed dates are re­quired and an in­spec­tion of the ship in ques­tion will also be car­ried out.

Ships are then es­corted by at least one Rus­sian ice breaker to aid them on their jour­ney. Fur­ther de­tails of what is re­quired are out­lined in the box on this page.

Com­ment­ing on some of the is­sues at hand, John Fla­herty, part­ner at Clyde & Co who spe­cialises in this area, says: “Even though you can now sail across the NSR it is still only really open from midJune through to Septem­ber and you still need to be be­hind an ice breaker. You still need to be an ice classed ship and as you are in Rus­sian wa­ters you are still un­der their author­ity.”

In­deed, Rus­sian ice breaker fees are a cen­tral con­sid­er­a­tion to the eco­nomic vi­a­bil­ity of ships us­ing this route and ship own­ers are look­ing for

not only cer­tainty around the avail­abil­ity of ice break­ers to es­cort them, but also around the charges that will be levied for do­ing so.

Grow­ing in­ter­est

To date, the NSR re­mains an ex­cit­ing prospect that a small num­ber of ships are us­ing and a small num­ber of un­der­writ­ers are pro­vid­ing cover for.

How­ever, it is an area that is be­ing in­creas­ingly an­a­lysed as Neil Smith, man­ager of emerg­ing risks at Lloyd’s, says: “We want our man­ag­ing agents to con­sider the full range of risks when they get in­volved in un­der­writ­ing com­mer­cial ven­tures in this area, so we are try­ing to pro­vide as much sup­port and in­for­ma­tion as pos­si­ble.”

To this end, Lloyd’s has re­cently pub­lished a re­search pa­per en­ti­tled Arc­tic Open­ing: Op­por­tu­nity and Risk in the High North.

How devel­oped the NSR and the in­surance mar­ket that sup­ports it be­come, will de­pend on the abil­ity of com­pa­nies to ex­tract the Arc­tic’s en­ergy as­sets suc­cess­fully, the need for them to ship cargo out of that area and the scale of on­go­ing cli­mate change to keep the ship­ping lanes open.

For now though, in­ter­est in the pos­si­bil­i­ties con­tin­ues to grow rapidly. i

The ar­ti­cle is re­pro­duced with the per­mis­sion of the Char­tered In­surance In­sti­tute and it first ap­peared in the June/July 2012 edi­tion of The Jour­nal.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.