'Northern Sea Route' transits set to soar

$ 650,000 savings in fuel costs alone

The 75 600 dwt bulk carrier "MV Sanko Odyssey" became the largest ever bulk carrier to sail the Northern Sea Route in 2011. (Pic courtesy Barents Observer)

Despite protests from environmentalists that see commercial shipping's use of the Northern Sea Route as a grave threat to the fragile Arctic ecosystem, a record number of ships are slated to transit the area this year, collectively saving millions of dollars in fuel costs alone. The route has become easier since 2007 as retreating ice- caused by global warming- has meant near halving of the East-West transit times compared with transits that involve passing through the Suez Canal.

Starting next month, just one company- Nordic Bulk Carriers A/S- will ship up to 560,000 tonnes of iron ore in six to eight shipments from Murmansk in Russia to China, Nordic's Director Christian Bonfils confirmed to Bloomberg last week. The reason? A saving of 1,000 tons of fuel- roughly $650,000- per transit. The Danish company will become "the biggest user of the (Northern Sea) route in terms of volumes transported by year-end", he stated.

Even though the number of ships sailing through the Northern Sea Route is small so far- just 34 vessels used the passage from Europe to Asia in 2011- numbers and cargo quantities are increasing rapidly. Cargo volumes were about 820,000 tonnes last year and just 111,000 tonnes in 2010; this year, they may well touch a record 1.5 million tons.

Russia is providing icebreaker escorts and otherwise actively promoting the use of the Northern Sea Route, especially for any cargoes that are destined for Asia and loaded north of Rotterdam. This includes oil, natural gas and bulk cargoes. The voyage allows vessels to follow the islands of Novaya Zemlya to the Bering Strait. The Murmansk-to-China journey takes just 23 days or so; using the Suez would take 43.

One issue is the availability of ships sufficiently strengthened to pass through the ice; this may be partly because the Northern Sea Route is open for just four months or so of summer each year, after which these ships no longer command a premium in the market. As things stand, 1A-class vessels are the only ones permitted by Russia’s government to use the Arctic route. Fifty-five Panamaxes out of the global fleet of 2,005 have reinforced hulls, according to Nick Brown of the Lloyd’s Register; only three have the top classification of 1A Finnish Swedish Class.

Nordic Bulk Carriers made the first commercial Arctic voyage in 2010. The following year, the company sailed the largest ice class vessel afloat- the “Sanko Odyssey”- from Murmansk to China. President of DryShips Inc. George Economou says that ship owners can charge a daily rate for suitable vessels that is up to four times higher than they do for the Suez route, because of the huge savings in time and fuel involved. His company has four ice class Panamax vessels on order, at a cost of $34 million each.

 

Countries ‘carving up the Arctic’, says Wikileaks

Oil companies “rushing to extract the fossil fuels that caused the melting in the first place"- Ben Ayliffe

Seemingly unconcerned with the accelerated rate of ice melt in the sensitive and frigid North- or perhaps because of it- stakeholder nations have planned to ‘carve up the Arctic’, Wikileaks reveals. Secret US embassy cables released by the whistleblower website show that some countries are eyeing Arctic resources- oil, gas, even rubies and aluminium. Oil reserves in the region are estimated to be equivalent to those the North Sea and are a major factor in the Arctic rush. Another factor: sea routes to the East that will be a third shorter than at present as ice melts; moreover, these will avoid the Suez Canal and the piracy swamped Indian Ocean.

One commentator says that the rush to the Arctic is reminiscent of the 19th century and the division of Africa and her resources by the West. Wikileaks says that the Danish Foreign minister Per Stig Moeller joked with the Americans at a conference, saying "if you stay out, then the rest of us will have more to carve up in the Arctic".

The Arctic Council member states - Russia, the United States, Canada, Denmark, Norway, Finland, Sweden and Iceland – meet regularly to discuss their interests in the Arctic. And, although many are shocked at the rush for Arctic oil and the opening up of sea routes that are serviced by ageing Russian icebreakers- and what environmentalists see as a potentially catastrophic Russian plan to locate nuclear power generating reactors on platforms in the region-analysts say that this commercial momentum in the Arctic is by now irreversible.

Inevitably, there are political undertones to the exploitation of resources. Greenland, an autonomous Danish dependent territory with limited self-government, is seen by the US as on "a clear track to independence", according to the leaked cables. The US sees this as "a unique opportunity" for American gas and oil companies to get a foothold; Former US Ambassador to Denmark James P Cain is quoted in the cables saying that he introduced Greenland's government to New York financiers "to help the Greenlanders secure the investments needed for such exploitation".

Wikileaks reveals that, after Russian Artur Chilingarov planted a Russian flag via submarine on the seabed under the North Pole, a senior Russian official told the US that this was a deliberate move by the Kremlin and that Chilingarov was "following orders from the ruling United Russia party". Russian Ambassador Dmitriy Rogozin told NATO, "the 21st Century will see a fight for resources and Russia should not be defeated in this fight". Tension is also reported between other countries, including allies Canada and the US, over these resources. Canadian Premier Stephen Harper reportedly told NATO to keep out of the Arctic; he felt that some European countries without Arctic territories were trying to use NATO to give them "influence in an area 'where they don't belong'".

Environmentalists are expectedly aghast at these ongoing developments. They point to recent reports by Professor Peter Wadhams of Cambridge University and the findings of the Intergovernmental Panel on Climate Change (IPCC), both of which say that the ice melt has accelerated rapidly in recent years. Professor Wadhams says, in fact, that it has ‘gone off a cliff’, the ice having both thinned and shrunk, and that, in summer, "it could easily happen that we'll have an ice free North Pole within a year or two". The IPCC said in Copenhagen recently, after 400 scientists met at a conference, that sea levels will rise by more than 5 feet in this century.

"Instead of seeing the melting of the Arctic ice cap as a spur to action on climate change, oil companies are rushing in to extract the very fossil fuels that caused the melting in the first place," environmentalist Ben Ayliffe told the BBC.

Oil companies seem to be unmindful of the criticism, though, and are aggressively lobbying their governments to give them a slice of the action. British firm Cairn Energy is reportedly at the forefront of the Arctic oil rush. The company's Commercial Director Simon Thomson told the BBC, "We're leading the charge".

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BIMCO objects to new Canadian rules on Arctic shipping.

Geopolitics in the frozen North?

The Canadian federal government's new rules regulating Arctic shipping, including in the Northwest Passage, have been criticised by the Baltic and International Maritime Council (BIMCO), the world’s largest private shipping organisation. BIMCO says that the mandatory registration system introduced by Canada on July 1 is "drastic" and a potential threat to the long-standing "right to innocent passage" on the world's oceans. It is learnt that the BIMCO objection has been sent in a formal letter to the federal government in Canada

BIMCO, based in Denmark, has as members companies that account for 65 per cent of the cargo shipped around the world, and so has tremendous influence worldwide and at the IMO. It is learnt that the organisation had requested Canada earlier to have its planned new Arctic regulatory regime vetted by a committee of the International Maritime Organisation (IMO), but the appeal fell on deaf ears.

The new rules make registration with federal authorities mandatory for any ship greater than 300 tonnes transiting Canada's Arctic waters; additionally, they extend pollution control limits from the present 100 miles to 200 miles offshore.

BIMCO spokesperson Michael Lund hastens to point out that there was no question of it asking its members not to comply with the unilateral Canadian directives. "There will be compliance, and we are very much in favour of everybody contributing to a very safe environment in these Arctic waters," he says, but points out that "we would have liked to see this go to the IMO" before Transport Canada implemented the new regulations.

"Mandatory ship reporting systems represent an administrative burden to the ship's crew that can have safety implications," BIMCO had told Canada five months ago. It also said that an expansion of the geographical area covered by the new regulations "appears drastic," saying that restrictions placed on ships as a consequence of perceived non compliance "could be seen as effectively interfering with the right to innocent passage for ships as ensured by UNCLOS," the United Nations Convention on the Law of the Sea.

Transport Canada, the body that has taken upon itself to regulate what it sees as its share of the Arctic, reiterates that "the waters in question are within the exclusive jurisdiction of Canada and there is no legal obligation to seek approval from the IMO."

As things stand now, Canada requires all ships entering the Northwest Passage to report to NORDREG, a registration system maintained by the coast guard. This move, first proposed two years ago, has been widely welcomed within the country and is seen as a way to reinforce sovereignty over waters that are becoming more navigable as sea ice melts.

However, there is wider geopolitics involved in the decision. The Arctic has long been considered international waters, with few countries recognising Canada's claims to the passage. The United States, with its large navy, has also expressed concerns about these new Canadian regulations. Analysts say that although five countries- Canada, Denmark, Norway, Russia, and the United States—share a border with the frozen Arctic, the race for control of the region may be hotting up. There are said to be huge oil, gas and other resources in the region, and the opening up of lucrative passages for trade and economic activity would greatly shorten the distances between the Atlantic and Pacific oceans. The Canadian rules seem to be another step in the game for control of the frozen North.
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The strange case of the ‘Arctic Sea’ hijack

The tale of the ‘Arctic Sea’ gets curiouser and curiouser. The missing Russian cargo ship was reportedly sighted last weekend off the Cape Verde islands in the Atlantic. However, confusion still reigns, with the Russian ambassador to the islands having denying similar reports earlier. In addition, at the time of writing this report, the Arctic Sea’s managers say that they are "unaware of any report that the ship has been located".


The last known contact with the Arctic Sea was in the end of July. The ship had left the Finnish port of Pietarsaari on July 23 en route to the Algerian port of Bejaia with a cargo of 6500 tonnes of sawn timber. Owned by Solchart Management AB owned and Maltese registered, the ship reported trouble on July 24, saying that up to a dozen masked and armed men claiming to be police officers boarded the vessel at about 3 a.m. and tied and assaulted the 15 member crew. "The members of the crew were allegedly assaulted, tied, gagged and blindfolded and some of them were seriously injured," the Maltese maritime authority had said in a written statement at the time. The crew reported that the attackers left the Arctic Sea in an inflatable lifeboat after many hours.


During the hijack, the ship was seen to be performing ‘extreme manoeuvres’, according to a spokeswoman for the Swedish police. The managers reported the hijack to police in Helsinki, Finland, on July 28; the same day, the ship made a routine VTIS report to the Dover Coast Guard as it passed through the English Channel, but did not mention anything unusual. Crew members last spoke to Swedish police on August 31 when Swedish authorities called the ship and spoke to someone they think was the Captain. The ship, believed off the French Coast at the time, then seems to have then vanished until she was sighted by a spotter plane off Portugal. Interestingly, European Union officials say that a second attack on the ‘Arctic Sea’ was reported off the Portuguese coast, giving rise to speculation that this was carried out by stowaways who had remained on board after the first attack.


Meanwhile, Russian naval vessels ‘authorised to use force’ were hunting the Arctic Sea headed by its patrol ship ‘Ladny’. The Maltese Maritime Authority revealed later that the ship was headed towards the Atlantic. It was also revealed that NATO was monitoring the ship’s movements.
In fact, the Russian news agency Itar Tass reports that the original tip off giving the Arctic Sea's location came from NATO. In the end, five Russian naval vessels, including frigates and nuclear submarines were reportedly sent off Cabo Verde to intercept the vessel.


The full story may well be known by the time Marex goes to print. Speculation is rife in marine circles, however, that the ship may have been hijacked by drug or arms smugglers, as Cabo Verde is a key transit point for cocaine trafficking from Latin America. Some say that the crew could well have a hand in the disappearance of the ship, given that the incident happened in the well monitored waters of Europe.


Ingemar Isaksoo, a Swedish police investigator, told a news agency: “This is the first time I have heard about something like this happening in Swedish waters.” A spokesperson for the Swedish Coast Guard echoed this sentiment, saying that the last known hijacking of a vessel in Swedish waters occurred in the 16th century.



Postscript: Just before going to press, we have learnt that the Russian's now say that the Arctic sea has been retaken. According to the Russian Defence Minister, eight people of Estonian, Latvian and Russian nationality were arrested during the operation to liberate the Arctic Sea. Investigations revealed that on July 24, 2009, these people boarded the Arctic Sea and using the threat of arms and demanded that the crew change course. The Arctic Sea then sailed on to an African route indicated by the aggressors and turned off its navigation equipment.

Mr Serdyukov reported on the measures taken in accordance with the President's instructions concerning the disappearance of the Arctic Sea and the Russian crew on board. Earlier on during the meeting, Mr Serdyukov reported to President Medvedev that the crew of the Arctic Sea has been released.

One has a feeling that this mystery has still a long way to go before all is revealed.