Northern Sea Route: what opportunities does Russian Suez provide

A third of Russia's territory is located beyond the Arctic Circle; due to climate change, it has unexpectedly opened up new opportunities for Russia.

In a special material for Oil and Capital, the Institute for the Development of Fuel and Energy Technologies (IDFET) analyzes the prospects of the Northern Sea Route from the point of view of energy.

These days two heavy cargo vessels are cruising along the Northern Sea Route, undertaking a mission to transport LNG modules for NOVATEK's Arctic LNG-2 project. Both belong to the Norwegian GPO Heavylift Company, and their task is to conduct reconnaissance in force and find out the viability of the new route.

GPO Grace departed from the port of Ningbo Zhoushan in China on August 26 and shall arrive in Murmansk on September 16. The second ship "GPO Amethyst" is moving in the opposite direction, from west to east. Their meeting is to take place in the East Siberian Sea. The two heavy vessels en route are supposed to demonstrate that the Northern Sea Route is a viable option for transporting oil, gas and other types of cargo.

Representatives of the Norwegian company are hopeful and say they are excited about how smooth everything will go.

Due to the fact that the Northern Sea Route has stopped freezing, according to some information, it will be available for navigation even until mid-November. This is a significant time saving.

This is up to 20-25 days less than sailing through the Suez Canal or the Cape of Good Hope.

Russian trials of the new route had taken place months earlier. In January 2021, the Russian ice-class LNG carrier Christophe de Margerie made the first ever voyage along the NSR from the Kara Sea to China back and forth, proving the possibility of year-round navigation.

Unexpected competition

It's not just temperatures that are rising in the Arctic. Political tension also runs high. Geopolitical tensions escalate as states seek to control Arctic sea routes and significant natural resources.

When Ever Given blocked the Suez Canal earlier this year, it just happened at the right time. Russia immediately took advantage of this by loudly announcing its northern alternative.

Russia has invested heavily in the development of the Northern Sea Route. According to AFP, about 274 billion rubles (approximately $3.7 billion) will be invested in the development of the route by 2024. These are only public funds. In total, 735 billion rubles ($10 trillion) will be invested in the NSR.

Now, year-round shipping is making China more accessible. Thanks to the new route, LNG from northwest Siberia becomes more competitive in price compared to cargo from Qatar, Australia and Indonesia in the Asia-Pacific region.

In addition to expanding the Northern Sea Route, Russia hopes to gain access to the resources of the Arctic region, in particular oil and gas, as the ice cover decreases.

The development of the Arctic is a strategic priority for Russia, as Vladimir Putin has repeatedly spoken about. Russian Deputy Prime Minister Alexander Novak said that the region contains 15 billion tons of oil and 100 trillion cubic meters of gas. “This will be enough for dozens, if not hundreds of years,” Novak said.

To achieve this strategic goal, Russia plans to use new nuclear-powered icebreaking ships. In the next five years, Rosatom wants to build 4 nuclear-powered ships. Construction of each of them costs more than $400 million and can take up to seven years. The ships are 52 meters high and 173 meters long and designed to withstand extreme weather. The vessels are capable of breaking ice with thickness of up to 2.8 meters. No other country will have a fleet comparable to Russia, as the US and China mainly use diesel-electric icebreakers.

Indignation of "the green"

Russia's ambitions to explore the Arctic have provoked indignation among the greens. Moscow is going to take advantage of the melting ice and plans to extract fossil fuels - this is too cynical for the greens.

The Arctic is already severely affected by climate change. Greenpeace has already stated that "the story of Russian nuclear icebreakers and submarines" should be alarming. By the way, Rosatom also confirmed that "there are risks in implementing projects in such a fragile ecosystem."

However, the Norwegians themselves from GPO Heavylift note that using the new route will lead to less fuel consumption, and, accordingly, to a reduction in emissions. The fact is that oil, burned while circulating so many huge cargo ships around the world, is the main source of carbon emissions that cause global warming.

In 2019, international shipping accounted for about 2.5% of global CO2 emissions. And a shorter route will help combat climate change.

One of the beneficiaries of the Northern Sea Route may be Vladivostok with its trade port which could become a major transshipment hub. DP World (Dubai Port World), one of the world's largest port operators, has already agreed, together with FESCO, the largest Russian intermodal operator, to study the technical and economic conditions for the construction of a new container berth in Vladivostok. The new berth is expected to help transform the port into a major transshipment hub connecting cargo flows from East Asia to Northwest Europe along the Northern Sea Route.

In July, it became known that DP World and Rosatom will together study the issues of sustainable development of the Northern transit corridor in the Arctic. The Dubai-based company claims that "the opening of an alternative East-West route to Suez will increase the resilience of world trade."

According to AFP, Russia plans to increase cargo turnover by 2024 from 33 million tons of cargo to 80 million tons. By 2035, it will quadruple, to 160 million tons. Let us recall that every year 1 billion tons of cargo passes through the Suez Canal.

Obviously, Russia is unlikely to be able to fully replace Suez in the coming years. Nevertheless, the emergence of a new faster route between Europe and Asia will undoubtedly affect the global energy market. And Russia will be one of the main players in this new reality.


Source: OilCapital.RU
Photo: Институт развития технологий ТЭК