Arctic Economics

Russian oil tankers bump into each other on the Northeast Passage

Two Russian oil tankers transiting the Northeast Passage evidently collided on the night of July 16 near the New Siberian Islands.  No one was hurt, and none of the diesel fuel they carried was spilled: Collision was ’just a situation’.

For more background, see (a) Arctic oil tankers collided and (b) Oil tankers through Northeast Passage.

The Arctic's evitable gas industry

There's a lot of natural gas in the Arctic: maybe 30% of the world's undiscovered natural gas resources.  But the value of those resources, and the likelihood of development, depends on the availability of substitutes. 

Unfortunately for Arctic jurisdictions hoping to cash in on their resources, there's been a big increase in the availability of substitutes recently.  The Economist has an overview this week: Natural gas, An unconventional glut.  

New law to govern Russia's Northern Sea Route

Russia is preparing a new law to regulate activity along its Northern Sea Route.  Here's the report from the Barents Observer: Russia prepares law on Northern Sea Route:

Why did Russian stock prices start to drop in May?

The RTS index of Russian stocks began to decline in mid-May:

Source: Bloomberg investment tools.

Oil prices (and broader commodity indices) wouldn't peak for weeks, the war with Georgia didn't start until August, and the Putin/Medvedev predation on corporate Russia had been obvious for years.  Why was May 2008 a turning point?

Clifford Gaddy says it was oil prices: Russia's Stock Market Fall: It's All About Oil but Simon-Erik Ollus identifies some spring-specific factors: The global financial turbulence and Russia:

Russia is not an isolated country. The global financial turbulence has proved this fact in the recent months. When the American financial crisis started in summer 2007, Russia still appeared as a quite safe investment country with a high rate of return and a low risk. Russian firms did in 2008 still IPOs for a record of 18 billion dollars, and the cash flow to the country in dollars continued to grow, as the oil price climbed. The economy boomed and the market value of Russian firms grew rapidly in recent years. In the spring 2008, there were 13 Russian firms among the world 500 largest firms by market value, while still a year earlier there were only eight. Russian business seemed to enjoy a period of renaissance and rapid growth

In early 2008 we started to see some changes, and some Russian firms started to cancel their planned IPOs as the international demand fell. In 2008 Russian firms have done so far IPOs for only 1 billion dollars, all during the spring. Some Russian corporations complained already in spring that international interest rates stared to climb and lending was harder, but any financial crisis in Russia was still far from expected. In May 2008, we started to see the first real signs of some disturbance. International oil prices started to decline and the problems with Fannie Mae and Freddie Mac showed us that the American crisis is worse than we first expected.  American institutional investors started to withdraw capital from abroad and Russia, which was seen in modest decline of the two main Russia stock indexes: RTS and MICEX.

Sometimes you have to choose

Source: BarentsObserver.com

Gazprom may not have enough money to develop both the gas resources of the Shtokman Field in the Barents Sea (in the upper left of the figure) and the resources of the Bovanenkovo Field on the Yamal Peninsula (upper right).  If it has to choose, it may postpone Shtokman development: Shtokman, Yamal, or both?:

Gazprom is a champion on the laying of pipelines and developing land-based fields, but has little experience from developing huge offshore fields. That might make the company choose Yamal as priority number one.

Gazprom is reportedly already well underway with the development of the biggest of the fields in Yamal, the Bovanenkovo field. Thanks to this field alone, Gazprom will according to plans be able to increase annual gas production with 115 billion cubic meters. When the whole peninsula is developed, regional gas production will boost to a projected 250 billion cubic meters....

While the development of the Bovanenkovo field is progressing, no actual construction works have yet started in the Shtokman project. There are still no signs of the planned railway line, roads and other infrastructure. The project final investment decision is to be taken in fall 2009.

Hang together or separately

What are the Russians up to in and off of Norway (Norway's Security)...

...where fighter jets scramble on average once a week to intercept Russian warplanes buzzing close to their country. The Kremlin’s aircraft and ships do not quite break international law. But they commit what a senior official terms “breaches of etiquette”. These have included naval manoeuvres in the midst of Norway’s oil and gas platforms in the North Sea, involving aggressive air sorties that grounded all offshore helicopter flights; that was inconvenient, expensive and dangerous. Also troubling was a mock bombing run against Norway’s northern command centre at Bodo, and at least three other, so far unpublicised, incidents.

Whatever it is, it's making people nervous.  Norway, Sweden, and to some extent Finland, are looking at increased security co-operation: North stars.  Introducing the Nordic Atlantic Defense Organization:

The Cruise of the Queenfish

In 1970 the U.S nuclear submarine Queenfish explored the fringes of the Soviet Union's eastern Arctic Laptev, East Siberian, and Chukchi Seas.  Alfred McLaren, the Captain of the Queenfish at the time, told the story last spring in his book Unknown Waters.

Queenfish followed the route shown in the map below (taken from a New York Times story based on the book): Queenfish: A Cold War Tale.

The route of the Queenfish through the Arctic Ocean.  Source: New York Times.

The Queenfish entered the Chukchi Sea on July 30, passing submerged through the Bering Strait.  She turned east, traveled to the latitude of Barrow, and then took off for the pole, reaching it on on August 5. 

A sober look at the Northern Sea Route

Claes Lykke Ragner of Norway's Fridtjof Nansen Institute has written an excellent, short (8 pages) up to date (2008) status report on Russia's Northern Sea Route:The Northern Sea Route.

The Russian's opened the Northern Sea Route to transits by foreign ships in 1991.  It has not been used much (I'm only pulling his discussion of cargo carrying transits here, not his discussion of local traffic or non-commercial and cruise ship transits):

Russia's Shallow Arctic Seas and Straits

The Northern Sea Route cuts 39% off the shipping distance between Hamburg and Yokohama, but that doesn't help much if you have to make four separate trips to move the same amount of stuff. 

According to researchers at the U.S. Army Corp of Engineers Cold Regions Research & Engineering Laboratory (CRREL, in 1996), depth limitations in important straits and ports limit the size of ships that can use the route to vessels with a cargo capacity 25% of the vessels using more southerly routes.  It would take one of these ships four trips to move the cargo that a larger vessel can move in one trip.

Northern Sea Route prospects

When you look at a globe it's clear that trans-Arctic shipping routes between Europe and Northeast Asia are short compared to alternatives through the Panama and Suez Canals.  But trans-Arctic shipping may not spring into existence as the ice cap shrinks as quickly as some expect. Once you begin looking more carefully at the routes various challenges become clear (Old ice and the Northwest Passage).

The Northern Sea Route runs from the Barents Sea, across Arctic Russia, to the Bering Straits and the Pacific.  But some of the Route's infrastructure has decayed, and trans-Arctic shipping may not be economical on it anyway.

Source: Maritime Market.  The Northern Sea Route expects active maritime traffic