The authors of Arctic Shipping 2030 (Arctic Shipping 2030: From Russia with Oil, Stormy Passage, or Arctic Great Game?, 2007, Econ) lay out factors that may affect the volume of Arctic maritime traffic in 2030. Each factor operates by influencing either the position of the supply curve for transportation services (the marginal cost of an increment of transportation services), and/or the position of the demand curve (the marginal benefit of an increment).
Here's my summary:
Walking through, demand side first...
- Rising temperatures will increase the productivity of fish stocks and forests, and reduce the costs of exploiting oil, gas, and minerals. All this will increase the demand for marine transportation. On the other hand, they may melt the permafrost, increasing the costs of pipeline, road, and rail substitutes.
- Don't expect climate policy to have much impact on global warming by 2030. However, climate policy may affect operating costs for vessels. Marine transport is currently being fingered as an important source of greenhouse gases. Policies that put a significant price on CO2 emissions may increase transportation costs. This may increase the costs of substitute (longer) maritime routes from Europe to Asia and make the Arctic look more attractive. Shipping also becomes more attractive compared to air transport.
- Arctic oil and gas - how much is up there? The more there is, the greater the demand for shipping to bring in people and material, for construction and repairs, and to bring out the products. Much of this is going to be in Russia, and development will depend on Russian policy, and its willingness to involve outside firms. How fast will new technologies become available?
- Technological change, depletion of southern deposits, and growing world demand, will increase demand for shipping Arctic minerals. Shipping demand may be greatest in the Russian Arctic because of limited road and rail infrastructure.
- Similar factors would affect the demand for shipping Arctic timber. Demand for shipping Canadian timber depends on Canada's ability to diversify beyond the U.S. market.
- Will globalization be tempered by resource nationalism? Will regionalised trade, and protectionism disguised as health, safety, and environmental standards, reduce world trade activity - and the need for trans-Arctic shipping?
- "Innovation and investment in traditional East-west trade routes may thwart visions of an Arctic transit route." The authors aren't just thinking of the Panama and Suez Canals, and other waterways, but also about trans-continental railroad systems; other marine routes and railways are substitutes for Arctic transit.
- Growth in China and East Asia may increase the demand for trade goods and Arctic transit. Growth in India may not; India may be more interested in transit via the Suez Canal.
- The Northern Sea Route across Russia's Arctic could be the best transit route, and Russia has enormous Arctic resources. How will she go about development? How will she choose to pursue development - through "increasing centralization of power, state-sponsored nationalism, semi-authoritarian tendencies and hesitant market reforms..." Or will Russia reform? Will she find a way to take advantage of the expertise of international firms? Russian policy will affect the speed with which her resources will be developed, and thus the demand for marine transportation.
- How fast will the nations of the world define rights to exploit the seabed and harvest trans-boundary and migratory fish stocks? Clearly defined and enforceable rights will expedite resource exploitation and increase shipping demand.
...and then the supply side:
- Rising temperatureswill melt the ice: as more ice melts, the sea lanes will be open more of the year. This reduces transit costs. But greater ice movement and wave action may increase costs by increasing operational risks. If all the ice melts each summer, all winter ice will be thinner one-year ice, reducing the costs of winter operation.
- Fuel cost increases associated with climate policy may affect operating costs for vessels.
- Improvements in vessel design will reduce the costs of transportation. Vessel superstructures will be vulnerable to icing, and new deicing technologies would be helpful. Will icebreakers be replaced by "double-acting vessels" with their own ice breaking capacity when they go stern ahead? "As it is impossible to design a vessel for optimum operation in both open water and thick ice, for some cargo chains it may be better to introduce ship-to-ship transfer between vessels optimally designed for each of these conditions. This implies large investment in reloading ports and development of more sophisticated reloading technology."
- Investment in infrastructure and knowledge: Satellite systems monitoring sea conditions and transportation routes can reduce the costs and risks of transit, and reduce response times to life- or environment-threatening accidents. Research that improves our understanding of sea and ice dynamics will reduce costs. Investment in aids to navigation, icebreakers, and emergency response capabilities will all reduce costs and risks.
- How fast will the nations of the world define rights to transit international straits. Clearly defined and enforceable rights will reduce the costs of marine transportation. Will the WTO come up with services rules regarding trade in maritime services? "This should help create a level playing field in the provision of services in much of the Arctic, including for public procurement contracts, e.g., for icebreaker services. It would also make it difficult for a country to charge foreign vessels different rates from those it charges national vessels..." Good rules will reduce costs.
Awesome! I can't wait until all the ice is gone and we can finally swim and take holiday in the Arctic. Now, if we can just get rid of all those pesky fish and other wild animals around the world, we'll really be on to something . . .
Posted by: cheap dsi r4 | February 03, 2010 at 11:50 PM