Russia’s Arctic Play and a Green Northern Sea Route

the route’s continuing opening have enormous implications for shipping, and russia is particularly well positioned to benefit.

The implications for the global shipping sector of the continuing opening of the Northern Sea Route are enormous, not just in terms of faster and more efficient transport times, but also for the environmental impact that shipping through the Arctic north is likely to have. Russia, in particular, is well positioned to benefit from these developments, writes Tatiana Mitrova.

Over the Last few years, shipping in the russian Arctic has been booming. investments in icebreakers and in the infrastructure of the northern sea route (nsr) — initially intended to support the Yamal Lng project — have resulted in a substantial improvement in the reliability and predictability of navigation in the russian Arctic.

first of all, russia is increasing its number of ice-class vessels. shortening of the average nsr passage time from 15 days in 2014 to 9.7 days in 2018 is the second critical factor. the average passage time improved to 9.5 days, based on 2019 navigation data (although further acceleration is unlikely because the passage time has reached the best possible figure and will vary from 9 to 10 days in future).1 Modern vessels with better energy efficiency, lower fuel consumption and shorter voyage time also are creating the background for movement toward a green nsr or sustainable Arctic shipping, which russia has proposed as a part of its program for its forthcoming chairmanship of the Arctic Council.

globally, environmental requirements for all means of transport have become more stringent in recent decades. sea transport remained in the comfort zone for a long time, but on Jan. 1, 2020, the global requirement to reduce sulfur content in vessel fuel from 3.5 percent to 0.5 percent took effect. the strictest requirements apply to emission Control Areas (ecas) created under the international Convention for the prevention of pollution from ships (MARPOL).2 Baltic sea and north sea ecas have been created in

europe and there is also a special Antarctic area, which is not formalized as an ECA but still has prohibited heavy fuel oil use south of 60º southern latitude since 2011. While no formal ecas are planned in the Arctic, further prohibitions on heavy fuel oil for vessels are being seriously discussed, which, combined with global sulfur requirements, actually introduce limitations comparable to ECA requirements for the Arctic. given the international Maritime Organization’s (IMO) goal to reduce greenhouse gas vessel emissions by up to 50 percent, four key methods are in play to secure that goal (see table 1).

Alternative fuels, principally Lng and ammonia for now, are the most promising way for the russian Arctic to achieve imo-defined climate and environmental goals. so for fueling ships, known as bunkering, the infrastructure and the fleet capable of operating under the global energy transition could be developed to achieve a stable competitive edge in the long run. this means not only development of Lng, methanol, ammonia and, potentially, hydrogen bunkering but also construction of Lng and natural gasbased production facilities in the Arctic.

Arranging for production of the main bunker fuel types is a particular feature of russian Arctic development, which is driven by largescale Lng projects. research by WWF russia has estimated that Lng costs are highly competitive in the Arctic compared with oil fuels (see figure 1 overleaf).

total Lng output in the russian Arctic may exceed 60 million tonnes by 2030, enabling not only scaling up of exports but also Lng use as bunker fuel in the Arctic seas and local consumer supply in the Arctic. Lng production facilities for vessel bunkering are also planned in Vladivostok and Arkhangelsk. thus, not only production and export of energy products are possible but also cost-efficient energy supplies with high environmental standards can be made available to national consumers and shipping companies.

the russian Arctic zone is one of the few

areas where fuel production can be evenly distributed along an entire transport corridor. significant reserves of natural gas, the availability of major Lng production facilities, large-scale plans to manufacture methanol, ammonia and hydrogen (the fuel types needed for navigation decarbonization) create favorable conditions for Arctic navigation security. the Arctic is a global energy supplier, and it will be logical for Lng produced in the Arctic to fuel the russian fleet. existing Lng production facilities and the planned construction of Lng terminals in the Arctic and adjacent sea shores should provide for safe vessel bunkering. Using Lng, in 2019, the nsr became the only global transport corridor using alternative fuel vessels to ship significant cargo volumes. in 2019, Lng vessels already accounted for 43 percent of the nsr transit cargo traffic.3 Cheap Lng availability, a modern fleet, shorter routes — these factors are creating good reasons for russia to go green on the nsr.

Nsr DEVELOPMENT Plans and risks

in russia’s view, the northern sea route is the shortest between europe and Asia. global warming melts Arctic ice, which enables more active use of the nsr. the shorter route reduces passage time, helps save fuel and, consequently, leads to fewer emissions of greenhouse gases and other pollutants. nsr environmental advantages will become even greater upon transition to new shipping fuel types. it may bring new customers and lower risks of environmental pressure on carriers. so, the global trends in climate and environmental regulation and energy transition are regarded as positive factors that enhance the nsr’s appeal.

nsr navigation risks related to oil product leakages have led to a campaign of voluntary refusal to use the nsr for environmental reasons. this campaign is co-ordinated by the Ocean Conservancy. several major shipping companies and global manufacturers of garments and consumer goods have joined the campaign.

authorities argue that actual nsr use demonstrates a significant decline in the fuel volume required for cargo transportation and, consequently, in pollutant and greenhouse gas emissions. the total reduction is at least 20 percent compared with the suez Canal route. there are opposing opinions from the countries and the companies that have used the nsr for shipments. for instance, Anders Hermansson, vice president of the swedish Association of ship Owners, regards the nsr as positive for the global climate. private companies that have been navigating the nsr keep records of navigation-related emission reductions and emphasize the climate and environmental efficiency of nsr. the voyage made by Oldendorff to transport coal from Vancouver, Canada, to raahe, finland in 2016 illustrates the benefits of using the nsr. the company estimated the voyage to be 12 days quicker than the panama Canal route. round trip acceleration by 24 days saved 504 tonnes of fuel and cut CO2 emissions by 1,325 tonnes. the voyage made by COSCO shipping specialized Carriers to transport 30,000 tons of pulp from Helsinki to Qingdao via the nsr may serve as another example. the route time decreased threefold and fuel costs by 40 percent. A reduction in greenhouse gas and pollutant emissions was also noted.

such signals suggest that ship owners choosing the nsr will be put under special environmental pressure, as part of the global competition among carriers. solid mineral and crude hydrocarbon production projects are likely to be exposed to such pressure, too. to this end, sustainable long-term positioning of the nsr as an environmentally clean route becomes a key factor and a real challenge for nsr development.

for russia, availability of its own Lng production facilities along with the creation of terminal infrastructure in Murmansk and Kamchatka allows for Lng bunkering in nsr navigation. sovkomflot’s three commercial nsr voyages illustrate

Significant reserves of natural gas, the availability of major LNG production facilities, large-scale plans to manufacture methanol, ammonia and hydrogen create favorable conditions for Arctic navigation security. The Arctic is a global energy supplier, and it will be logical for LNG produced in the Arctic to fuel the Russian fleet.

the implementation of new arrangements. With IMO promoting a prohibition on heavy fuel oil use in polar waters, a wrong strategic fuel choice for new vessels may entail multi-million dollar losses. ship owners and fleet operators in the russian Arctic face a rather uneasy strategic choice: the use of distillate fuels would push up operating costs immediately, while a scrubber installation may be a poor investment if a prohibition on the use of residual fuels in the Arctic is introduced and investments in the equipment cannot be paid back before the prohibition. ship owners undertake even greater risks on new ship construction as it requires high capital investments.

three russian agencies — rosatom, the Ministry of transport, and the Ministry for the develrussian

opment of the russian far east and Arctic — will be actively engaged in northern sea route development. the plan is divided into three implementation phases. during 2019/2024, the primary official goal is to increase cargo turnover via the northern sea route to 80 million tonnes per year and to start eastward transportation along the route. By 2030, year-around navigation along the entire nsr is to be achieved by building up new atomic icebreakers and improving port infrastructure. in the final stage, by 2035, the cargo turnover is supposed to rise to as high as 130-170 million tonnes per year.

development of large-scale fossil fuel resources with maritime logistics in the russian Arctic is also associated with numerous political, environmental and social considerations. first of all, Arctic development is a focus of global geopolitical processes. it is not by chance that many countries regard the nsr as a global transportation corridor not subject to russian law. the related tension may rise as transit transportation via the nsr expands.

the main problems that may arise in nsr utilization are associated with the decline in global demand and prices for energy resources due to the Covid-19 pandemic. Arctic projects are quite expensive, and their launch is likely to be postponed in the current situation.

Conclusion

the russian Arctic is transforming into a global Lng production hub: an output of 80 to 140 million tonnes by 2035 is the benchmark for the russian Lng industry. the active site infrastructure makes a big difference for the efficiency of an entire Lng production facility. for example, placement of the Yamal Lng t4 production line has resulted in an aggregate efficiency increase of the Yamal Lng project by 3 percent to 4 percent. Usage of gravity-based platforms for new

Lng projects would also result in ~30 percent reductions in construction costs.

given these considerations, the russian Arctic projects show good competitiveness on the global Lng market. it is still unclear how fast global economic recovery will occur after the Covid-19 pandemic. nor is it clear what speed energy transition will have in the post-pandemic world. But so far, most outlooks draw a picture of growing global gas demand, which creates good chances for russian Arctic Lng to find its market niche.

energy transition and growing consumption of carbon-free energy types, such as hydrogen, may boost gas production in the Arctic for gas processing and production of carbon-free ammonia. in the russian Arctic zone, CO2 derived in hydrogen or ammonia production can produce some economic benefits (e.g. to increase oil recovery in declining oil and gas fields) assuming all safety measures and monitoring systems are in place. processing natural gas into chemicals (like ammonia, hydrogen, methanol, olefins and polyolefins, ethane/ethylene) can make medium-size natural gas fields operative and at the same time make the cargoes greener.

Of course, the success of a green nsr will depend also on broader conditions, including the speed and shape of the post-covid-19 recovery, the consequences of climate change for the Arctic, and the general policy environment. the idea of a green nsr is new and innovative. domestically in russia, some stakeholders oppose it; others promote it. time will tell whether a move toward a green nsr becomes an important development or simply a case of marine greenwashing. tatiana Mitrova is director of the Energy Centre at the Moscow school of Management skolkovo.