Pacific Maritime Magazine - Marine Business for the Operations Sector

By Jim Shaw 

Russia's Arctic: More Than Promise

 

February 1, 2019

A growing fleet of Arc-7 class LNG carriers built in South Korea are loading gas at the Arctic Port of Sabetta which serves the giant Yamal project managed by Russia's Novatek. Photo courtesy of Novatek.

The arctic holds considerable economic potential as ice retreats, with last year being the region's second warmest year on record, but most commercial development is taking place in the Russian arctic where ship traffic has increased two-fold over the Northern Sea Route (NSR).

Although Russia's transport ministry is not yet providing unconditional permission for foreign-owned vessels to transit the NSR, petroleum and gas developments in the area, led by the massive Yamal LNG project, have swelled ship numbers. Russia's transport ministry, in fact, has made an exception for the 15 large foreign-flagged LNG carriers that have been contracted to transport gas from Yamal facilities.

Most of these Arc-7 ice class ships, which measure 981 feet by 164 feet and have a capacity of 172,600 cubic meters, have already been delivered, the twins Vladimir Vize and Rudolf Samoylovoch making their maiden voyages to the Yamal project's Port of Sabetta this past autumn. They joined the already delivered sister ships Christophe de Margerie, Boris Vilkitsky, Fdor Lidtke, Edward Toll and Vladimir Rusanov, and have since been followed by siblings Georgiy Brusilov, Boris Davydov and Nikolay Zubov.

This year, Nikolay Yevgenov, Vladimir Voronin, Georgiy Uhakov and Yakov Gakkel will join the fleet, with the final vessel of the series yet to be named. All are powered by diesel-electric propulsion systems consisting of four 12-cylinder and two nine-cylinder Wärtsilä 50DF engines delivering a total output of 64.35MW and driving three 15MW Azipod propulsion units.

This gives the 80,200-dwt gas tankers the ability to break through ice nearly 5 feet thick at a speed of 5 knots while being capable of a speed of 19.5 knots in open water.

LNG Carried East and West

The capability of the Arc-7 ships to operate competitively in the arctic was demonstrated late last year when the 128,975-gt Rudolf Samoylovich, operated by Vancouver, BC-headquartered Teekay, made the first east-bound crossing of the NSR carrying a full cargo of LNG from Yamal to China without an icebreaker escort. The ship loaded at Sabetta in late October, toward the end of the seasonal navigation period, and reached the Bering Strait from the Yamal Peninsula in just 7.5 days, with the entire trip to the Fujian LNG terminal in China taking only 20 days.

According to Leonid Mikhelson, chief executive of Novatek, the controlling operator of the Yamal terminal and one of Russia's largest independent gas carriers, the voyage was made at a commercially viable speed, confirming that competitive LNG deliveries can be made to the Asia Pacific gas market. Shortly after departure of the ship Novatek placed its third LNG train on line at Yamal, more than a year ahead of schedule, with three liquefaction trains now having a total capacity of 16.5 million metric tons per annum (mmtpa).

As of the end of 2018 more than 100 LNG cargos had been shipped since the project's first loading in December 2017. Mikhelson noted that the Yamal facility is now the largest operating LNG producer in Russia and has an aggregate share of approximately five percent of the global LNG market, with a goal of producing 55 - 60 mmtpa of gas by 2030.

A Russian-Flag Fleet?

Looking to the future both Novatek and the Russian government are seeking to limit the carriage of the country's natural resources, including gas and petroleum, to Russian-built, owned and flagged vessels. This has seen the continuing development of the Zvezda shipbuilding complex near Vladivostok, which now has contracts to build Arctic-class tankers, icebreakers and offshore vessels.

Novatek has also decided to establish a new subsidiary, Sea arctic Transport, to manage shipping operations in the arctic. Russian President Putin has stated that all shipments of oil and natural gas from ports along the NSR will eventually be nationalized and that only Russian-built vessels will be allowed to move such products, along with coal, to and from ports in the region. However, this goal is somewhat distant as only one of the 15 Yamal LNG gas carriers, the 2017-built Christophe de Margerie, is currently owned and operated by a Russian company and even this vessel is sailing under a foreign flag.

Nevertheless, development of arctic LNG-2, the projected next large natural gas project in the Russian arctic, is expected to see a Russian-flag fleet formed as up to 20 million tons of LNG will need to be transported annually.

The formation of such a fleet would follow in the footsteps of Russian mining and metallurgy company, Norilsk Nickel, which operates its own fleet of five ice-classed container carriers between the Northern Sea ports of Dudinka and Murmansk.

Oil and Ice

While LNG is now being transported east and west above Russia, petroleum is also moving along the NSR in substantial amounts. In October the LNG-fueled tanker Lomonosov Prospect, operated by Russia's Sovcomflot (SCF), successfully transported a cargo of oil from South Korea to Northern Europe with the Arc4 ice-class vessel taking only 7.8 days to complete the 2,194 nautical mile NSR passage.

The 114,000-dwt ship, which had been delivered to SCF by South Korea's Hyundai Heavy Industries just prior to the voyage, is the second in a series of six LNG-fueled Aframax tankers being built for the Russian company, with two more recently ordered from the Zvezda complex. (see pacific maritime magazine, Jan 2019).

According to SCF, the 820-foot by 144-foot Lomonosov Prospect travelled almost the entire length of the NSR without icebreaker escort, covering some 950 nautical miles in ice conditions using her own icebreaking abilities. Assistance from the nuclear-powered icebreaker Taimyr was only required when the tanker reached the shallow portion of the East Siberian Sea. The petroleum carrier, which followed class leader Gagarin Prospect into service, was operating under the command of Captain Dmitry Belozerov, who had served as Chief Officer of Sovcomflot's tanker SCF Baltica in 2010 when that ship became the first-ever large-capacity commercial vessel to complete a full transit of the NSR.

Not for Boxships

While the Northern Sea Route is expected to see increased use by tankers and gas carriers as arctic petroleum reserves are tapped, most container ships are still expected to keep to a more southern route via either the Suez or Panama canals. This was demonstrated last year by Maersk Line's new ice-class 3,600-TEU capacity container carrier Venta Maersk which made use of the NSR while traveling between its builder's yard in South Korea and northern Europe. Although the container ship was able to maintain a steady speed of 13 knots in the relatively ice-free waters in the eastern extremity of the NSR it required the help of one of Russia's icebreakers three days west of the Pevek peninsula when ice conditions worsened. The ship then had to stick close to shore to avoid ice to windward and was required to reduce speed to between 8 and 10 knots.

Arild Moe, a researcher with the Fridtjof Nansen Institute, noted that because of the shallow straits in some areas of the NSR, large container vessels would only be able to make use of the route for part of the year and that, even in summer months, ice can delay transit times making it impossible for container lines to guarantee just-in-time delivery. Maersk also said that its sending of the Venta Maersk across the NSR was a one-time event, to test conditions and ship's systems, and that it had no intention of sending vessels across the route on a regular basis.

Coal Still Counts

Coal is being shunned in some parts of the world but it still remains very big business in Russia and Asia. Late last year Murmansk Shipping Company (MSCO), one of the primary shipping lines operating in the arctic, entered into a five-year contract with Sibanthracite Overseas to carry coal from the Russian arctic to Europe. As a subsidiary of Russian coal company VostokCoal, Sibanthracite arranges transportation for coal moving from the massive Taimyr coal basin, which is one of the largest anthracite coal deposits in the world. Under the contract MSCO vessels will transport cargoes of high-quality anthracite from the Port of Dikson, located on the Kara Sea, to several ports in Europe with year-round movements expected to begin later this year, some of which will require icebreaker assistance in the winter months.

Another coal project that could generate considerable traffic along the NSR is the potential development of the Indiga port project in the Nenets Autonomous Region which borders both the Kara and Barents Seas. The region has the potential of exporting more than 50 million tons of coal annually and the AEON Corporation, headed by Roman Trotsenko, is currently negotiating with Russia's railway system concerning the development of railway lines that would link regional mines with the port.

The overall project could take five to fifteen years to complete and cost more than $4.5 billion but AEON says it is prepared to make an initial investment of $890 million to get things started. Other potential investors in the development include coal producer Kuzbassrazrezugol, headquartered in Kemerovo, and SUEK, Russia's leading coal producer and electrical power generator.

China Sees Promise

While Russian-owned or chartered ships have been the prime users of the NSR, China has indicated the arctic route will play an increasing larger role in its own aspirations to move cargo to and from Europe. This was underlined this past summer by the sailing of the 37,125-dwt multipurpose ship Tian En, operated by Cosco Shipping's Specialized Carriers Company, between China and the European countries of Sweden, France, Finland and the Netherlands with a full cargo of wind power equipment.

In a white paper on its arctic policy published last year China, which is already a partner in the Yamal project and has sent more than three dozen ships across the NSR, said it plans to intensify its cooperation with other countries to jointly develop what it terms the "Polar Silk Road" as part of its larger "Belt and Road" Initiative. Cosco has made a substantial investment in several of the Arc-7 class gas tankers serving the Yamal project and has been sending an average of ten cargo ships across the NSR over each of the past two years. It has calculated that its use of the NSR has eliminated a combined 221 days of shipping time compared to using a more southernly route via the Suez Canal.

The reduced sailing time has also saved more than $10 million in operating costs as well as Suez Canal fees that can average up to $400,000 per vessel. Last year the Chinese Development Bank agreed to provide $9.5 billion in funding to Russia's state-controlled Vnesheconombank in order to create a development partnership for the Eurasian Economic Union and the Belt and Road initiative. At the same time China passed South Korea to become the world's second largest importer of LNG and its import of the commodity is expected to grow to around 87 billion cubic meters annually by 2023.

Cautious Cruising

Cruise ships are also venturing into portions of the NSR but their transits are somewhat rare compared to the number of passenger vessels that have been using the Northwest passage above Canada and Alaska. This past year London-based Poseidon Expeditions chartered the 1991-built Sea Spirit, once operated by Seattle-based Cruise West as Spirit of Oceanus, and the Russian nuclear-powered icebreaker 50 Years of Victory to make several cruises through the Franz Josef Land Archipelago. This region was once off-limits to foreign travelers but is now being opened up to limited cruising while under management of the Russian arctic National Park System.

China has invested substantially in the development of Russia's gas reserves in the Arctic and has also taken partial ownership of several of the Arc-7 class LNG carriers being used to transport it to Chinese ports. Photo courtesy of CNPC.

Last year around 1,000 travelers were allowed to visit the archipelago, with Poseidon accommodating about two-thirds. This year the company plans to operate another series of voyages to the region as well as a trip to the North Pole using one of Russia's icebreakers. Also cruising in the area has been Germany's small Arc5 ice-class cruise ship Bremen while the 132-passenger expedition ship Silver Explorer, operated by Monaco-based Silversea Cruises, will explore the region this summer.

Russia has taken a cautious attitude toward passenger vessels using the NSR, possibly because of a number of incidents that have taken place in the Northwest passage. This includes the grounding of a cruise ship operated by Squamish, British Columbia-headquartered One Ocean Expeditions this past summer in the Canadian arctic, a mishap requiring the evacuation of its 162 passengers and crew. Ironically, the ship involved, the 1989-built Akademik Ioffe, is owned in Russia.

 
 

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