Northern Sea Route oil shipping on the rise

By Nadia Rodova in Moscow

September 26, 2013 - Russia has an ambitious plan to turn the Northern Sea Route through Arctic waters into a major international trade artery, particularly for oil and LNG, with more and more companies testing its feasibility.

The NSR has a number of advantages over the traditional route from northern Europe to the Asia-Pacific region — via the Suez Canal and the Strait of Malacca — but its difficult, icy waters and harsh climate pose their own risks.

The NSR allows vessels to travel east from the Barents Sea along the Russian coast, through the Bering Strait and then down to the Pacific Ocean.

Analysis continues below...

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It covers the 3,000-mile long icebound route from Novaya Zemlya Island in the Arctic Ocean that separates the Barents and Kara Seas, to Cape Dezhnev, the northeastern-most point of Eurasia on the Chukchi Peninsula.

It is 3,900 nautical miles shorter than the traditional route which is over 11,000 nautical miles.

This translates into a reduced voyage time — by about 40%, or up to 20 days, for cargoes destined for Japan, China or South Korea — and savings on bunker fuel that can amount to up to 780 mt, based on the assumption that a vessel uses around 50-60 mt/day and the voyage is some 13 days shorter.

In addition, vessels traveling via the NSR would not have to queue as they do for the Suez Canal, which can also face the risk of closure due to the political situation in the region. It also avoids the risks of piracy off the Somalian coast and in the Gulf of Aden.

These advantages make the NSR commercially appealing, and in 2011 Russian President Vladimir Putin set a goal of turning the route into "one of the key trade routes of international significance and scale, which will be able to compete with traditional international corridors."

The Russian government estimates that cargo traffic via the route could reach around 85 million mt/year by 2030, the bulk of which would be hydrocarbons, and is preparing to spend billions of dollars on the requisite infrastructure along the entire route.

The NSR has been recognized as a trade route since the 15th century, but until recently its use was limited due to the harsh weather and a short navigation season.

Northern Sea Route Due to climate change, however, the navigation season has lengthened to four months a year, from early July until mid-November. It could be stretched to six months by the use of higher ice-class tankers in periods of intense ice melting, experts at Russia's largest shipper, Sovcomflot, estimate.

Until recently, more or less regular shipping was maintained only from the port of Dudinka on the Yenisei River further up into the Kara Sea and westward to Murmansk on the Barents Sea. Norilsk Nickel, which mines copper and nickel ore on the Taimyr Peninsula, sends its cargoes to Europe via this route.

But recently, independent gas producer Novatek fueled interest in shipping eastward via the NSR because it plans to deliver future LNG cargoes from the remote Yamal Peninsula to Asian markets using it. Novatek tested the NSR in 2010-12, by sending tankers with stable condensate to Asian markets.

Those sailings set a number of records. In summer 2010 an Aframax tanker traveled from Murmansk to China's Ningbo Port, the first ever voyage by a large vessel along the Arctic passage, in just 22 days. It took almost half the time of the traditional route through the Suez Canal.

The next year, Russia set a new record by sending a larger, Suezmax tanker, of 162,000 dwt, through the icebound section of the NSR in 7.3 days.

Transit of the Suezmax tanker via the NSR, with a water draft of 13.5 meters, became possible after Russia's transportation ministry conducted a hydrographical survey to the north of the Novosibirsk Islands and discovered a new deepwater route in 2011.

An Aframax vessel's capacity ranges from 75,000 to 115,000 dwt (550,000-900,000 barrels), while a Suezmax tanker is typically 120,000-200,000 dwt.

There were yet more records in 2011. Norilsk Nickel sent a vessel via the NSR in just six days. There was also a record navigation season of five months, one month longer than in previous years.

Foreign companies too have tried the route. Most recently, Cosco Group's Yong Sheng tanker, loaded with 19,000 mt of steel, made the first ever trip by a Chinese commercial vessel via the NSR in early September.

The tanker transited the NSR in 7.4 days, with the entire voyage from Dalian to Rotterdam taking 27 days, compared with 35-50 days via the Suez Canal.

Statoil sent the first LNG-laden tanker via the path in late 2012, with tanker group Knutsen OAS Shipping estimating that the route could become an increasingly useful conduit for Norwegian LNG as LNG demand in the Asian markets is set to grow. The tanker transited the NSR in 9 days.

This year, traffic via the NSR is set to hit new records as the Russian authorities have granted a record number of permits to 531 vessels as of mid-September. In 2012, just 46 vessels used the NSR.

Next page: Major uncertainties about the route

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