Promise of the Arctic 2015
The rush to push shipping into the Arctic due to receding ice is a little premature say those know the region.
For a start, the majority of ice that is melting is along the Northern Sea Route or Northeast Passage along the north coast of Russia, allowing shipping to take place primarily during the summer months. Conversely, on the northwest side of the polar cap, there is only a two-week period – not consistently the same annually – when the Northwest Passage is open to commercial marine traffic.
While a DNV report on the issue of containerships transiting the Northwest Passage (NWP) suggests traffic could begin between 2030 and 2050, currently, the sheer logistics carry too much economic uncertainty with the unpredictability of ice and snow, which could easily wreak havoc on schedules. And if a mechanical breakdown were to occur, there are no current repair facilities in the region. Additional insurance costs would also be required when ships get close to ice (e.g. breaking the Institute Warranty Limits). Vessels would also require an ice-class designation, which would also add about 10-15 percent to capital costs.
Even if containerships, for example, were to begin plying the NWP, their increasing size would preclude their use as there are too few areas with deep enough drafts to accommodate them. Only NWP-designed vessels could do it, which would again add to the capital costs of shipping in the region.
Right now, however, for the most part, mining and oil and gas activity are the primary industries that can provide revenue for marine companies. Yet even the oil and gas sector isn't growing at an unexpected rate.
"It's a kind of back to the future thing," says Gary Faber, Foss Maritime's President, Global Services Division. "This is the way it was in the early 80s when the North Slope was developing. There was a lot of traffic, both on the road and by barge to the Slope, and throughout Western Alaska, because of all the ancillary work that goes along with major installation and production projects for oil and gas. But I don't see a wholesale doubling of the activity up there."
Foss has decades of arctic experience. In 2014, the company opened a new office in Anchorage and currently has three Arctic-class tugs under construction at the Rainier, Oregon Shipyard. The new vessels are being built in anticipation of new oil development projects in the Chukchi Sea and Cook Inlet that will likely mean an increased need for tug and barge support services.
In 2013, the Foss Rainier yard completed construction of the 73-foot shallow-draft Emmett Foss, suited for assisting barges carrying modules, supplies or other kinds of cargo on arctic beaches where the water is too shallow for conventional tugs. In addition, Gunderson Marine in Oregon is building a new 360-foot ocean-going barge which is expected to perform a second sealift of oil and infrastructure to remote Point Thomson on Alaska's North Slope in early 2015. In fact, the US federal government is issuing drilling permits for the Point Thomson petroleum field, which is estimated to contain eight trillion feet of natural gas, about 300 million barrels of gas condensation liquids and traditional crude oil.
As conditions in the arctic are changing, the environment is more of an issue now than ever. Foss has instituted a zero discharge policy; nothing goes over the side, including water. Company vessel designs have changed as well, for example, more efficient heating and ventilation systems and low-emission Caterpillar engines are part of the modern eco-friendly must-haves. "You can't decide tomorrow this is something you want to be better at," says Faber. "It's something you have to put in your plan when you're designing your vessels and operations and training your employees."
That training will go far because the arctic transit window is limited. "You don't get any do-overs," explains Faber. "It's a hostile place to work. You have to be constantly aware not to forget that no matter how many years you've been working there, every day is the first day when it comes to being vigilant."
Foss recently formed a partnership with the energy services arm of the arctic Slope Regional Corporation (ASRC), a leading Alaska business with ownership of nearly five million acres of North Slope land. The subsidiary provides offshore oil response services and equipment to the industry. One of the partnership's aspects is that Foss will train Iñupiat youth for maritime industry jobs being created on the north coast.
"It's good to be going back to Alaska because it was slow for awhile and it's nice to see it awakening," says Faber. "The opportunities are there for Seattle, Vancouver and the whole Northwest down to Oregon with the robust economy in Alaska. Having been through a couple of these cycles, it's nice to see it on the upturn."
Crowley Maritime currently supports the remote communities in Alaska with seasonal fuel deliveries during the summer barging season and also with fuel and freight transportation services on the river systems in western Alaska. The fuel business has also expanded into southeast Alaska and Juneau as well. While the company has a long history of arctic work (since the 1960s), Bruce Harland, VP of Business Development says there hasn't been a huge surge of new work in recent years.
"We supported a number of drilling programs, most notably Shell in the mid 80s and 90s, then the price of oil didn't support development and it went away until recently with Shell's recent drilling activities," he says. "We have a number of assets on charter to Shell to support that effort, including spill response efforts and towing vessels for rig tows and some ancillary support services."
Crowley also provides an annual coastal barging service in Prudhoe Bay in the summer season for oil and gas projects and operates a hovercraft service to North Star Island, six miles offshore of Prudhoe Bay for carrying crew and materials.
This service provides a vital link during the spring and fall seasons when the ice prevents conventional vessels from operating but an ice road has not yet been built (it takes a couple of months to build an ice road). "We use the hovercraft until either the ice road is completed in late January or the summer when the ice is gone and tugs and barges can take over the service," says Harland. Just below the arctic Circle, Crowley provides tug assist services for tankers transiting in and out of Valdez and Prince William Sound.
While geography and ever-changing weather conditions are challenging, Harland says vessel operations run as they have in the past. "We're just attacking the challenges with new, more technically-advanced assets," he says. For example, Crowley recently built a fleet of high-horsepower rig moving boats in the Gulf of Mexico. "They have dynamic positioning (DP) capabilities and we have two of those on charter to Shell for the 2015 drilling campaign."
Harland believes if Shell successfully proves economically-recoverable resources in the Chukchi Sea and the Beaufort Sea, other oil majors such as Statoil that hold leases may get on board to further explore and eventually produce oil in the region.
"The other significant project that everyone is holding their breath on in Alaska and has been for many decades, is the Alaska LNG pipeline that would bring stranded gas from Prudhoe Bay south," says Harland. "There's more optimism now than there has been in many years."
Matt Ganley, Vice President, Media and External Affairs at Bering Straits Native Corporation, (BSNC) says people in the community keep hearing the press talking about the so-called expanding arctic. "They are the first ones at ground zero as far any of the negative impacts that might occur through any kind of maritime disaster or increase in traffic," he says. "So we're watching this from a couple of different fronts."
BSNC has their eyes on a piece of property just off the Bering Straits for possible oil and gas infrastructure development, State of Alaska needs and other industry. The corporation selected Point Spencer in 1976 under the Alaska Native Claims Settlement Act. The spit separates Port Clarence from the Bering Strait, and could become a new deepwater port if market demand is forthcoming.
However, an impact study called Feasibility Analysis: Port Clarence Support Base, that was prepared by Northern Economics, Inc. for BSNC and Crowley Maritime in early 2014, revealed that over the next 10 years, the oil and gas market is the only segment with enough potential revenue to support the development of Port Clarence. A capital investment of anywhere from $20 to $50 million would be needed to provide very basic infrastructure to support oil and gas or any other industry.
"That's excluding any federal or State funding that might occur," says Ganley. "But Alaska is facing some lean years in the future and this is tied to oil production and some other issues, so the federal government is not likely to invest in infrastructure unless there is an economic basis for it."
Even if oil and gas development goes ahead, an economic upturn won't necessarily trickle down to the local people as the drilling leases are located in federal waters. So unless legislation is put into place for some type of revenue sharing, communities in the region will be cut out.
"This is why BSNC is trying to leverage our position on the Straits as landowners so we can be involved as far as providing facilities and lay down yards," says Ganley. "That's really the only way we're going to capture any benefits short of any fix through legislation or policy that would allow communities to see some benefit from the revenues produced in those leases."
On the shipping side, Ganley feels there has to be a lot more predictability in the opening and duration of ice-free waters on an annual basis. A few companies are using the Bering Straits, both through the Northern Sea Route and the Northwest Passage to ship cargo. For example, a huge shipment of nickel ore from Canada sailed through the Passage last year.
Most of the Bering Strait communities are located along the coastline; some in the Strait itself. "We see the potential in gathering some of the benefits as far as providing services and growing the economy if that occurs, but we're also wary of the risks that come with development in the near-shore and off-shore waters," says Ganley.
That said, Ganley believes other types of infrastructure will also be critical. "The industry is doing their utmost to make sure they could manage a spill incident but I don't think as a region, we have enough in place to deal with any disaster of any size," he says.
"If a cruise vessel had a major catastrophe in the high arctic waters off the coast north of Bering Strait, there aren't enough hospital beds in the community to deal with something like that. But it's not all gloom and doom. There is a great future. It's just getting there is going to be trying."