The High North The Natural Resources The Northeast Passage

Jan Magne Markussen Managing Director, Senior Research Fellow

Ocean Futures, Oslo

Norwegian Business Delegation to The Republic of Korea Seoul 15 May 2012

Part 1: Introduction

Ocean Futures, Oslo © 2012. All rights reserved

Natural Resources – Oil and gas

Possibilities – 22% of the Undiscovered petroleum resources

in the High North

– New Border with Russia in the Barents Sea

– New Petroleum Province in the Barents Sea due to recent, major petroleum discoveries

– 5 May 2012: Agreement between Rosneft and Statoil

Uncertainties – The remaining 78%

– Shale gas

– Cost

Northeast Passage

Possibilities – Strong Increase in the Number of Sailings – Increased Sailing Season – Improved Ice Conditions – Significantly Bigger Ships – Increased International interest

Uncertanties – Commercial TEST sailings

Major Shipping Focus in the High North

– Destinational Shipping – Intra Arctic Shipping

Environment

Major Paradox – Global Climate Change has created the

opportunities

Necessary Focus on the Environment – We are witnessing the fastest and biggest changes

in the Climate in the High North

– Resources explotation and transit sailings must be done in an environmentally sustainable way

Part 2: Ocean Futures

Ocean Futures is co-located with the FAFO research center in Oslo

Ocean Futures Competence

• Independent, multidisciplinary research institute

• Polar regions, oceans and seabed

• International projects

• Holistic approach

• Cooperation with foreign and Norwegian research communities - and with representatives of industry and shipping.

Ocean Futures Projects (High North Projects 2012-2011)

• November 2012: The Shipping in Arctic Waters-report will be published as book on Springer Verlag

• September 2012: Circumpolar Maps

• May 2012: Planning Document for “The First International Narvik Conference on Arctic Ports”, to be Organized 9-11 April 2013

• April 2012: The Fishing Fleets Future Framework Conditions

• May 2011: Arctic Wiki

• April 2011: Arctic Shipping – The Effects for Northern Norway

• April 2011: Arctic Shipping – Status and Research Gaps

• March 2011: Natural Resources in the High North

• March 2011: Safety at Sea in Northern, Ice-Covered Waters

New Ocean Futures High North Programme from October 2012 Focusing on:

• Natural Resources • Trade Flows • Ports • Shipping • Logistics • Environment • Safety at Sea • Industrial Development

Ocean Futures organisational CV

• The org CV is available by contacting janmagnemarkussen@gmail.com

(temporary address)

• Ocean Futures new web site will be available July 2012

Part 3: Northeast Passage

Danish vessel Nordic Barents sailing through the Northeast Passage Oct 2010

Part 3 A Some Introductory Remarks

Research on Arctic Shipping

1. The International Northern Sea Route Programme (INSROP) was a six- year (1993-1999) international research programme (Russia, Japan and Norway) that produced 167 working papers, and several articles, reports and books.

2. Arctic Marine Shipping Assessment (AMSA) report (2009), Arctic Council.

3. Ocean Futures completed in May 2010 a multi-disciplinary 339-pages study, Shipping in Arctic Waters, to be published by the Springer publishing house in November 2012.

The study compares the Northeast, Northwest, and Trans Polar Passages, and includes natural resources, infrastructure, geopolitics, legal issues and environmental aspects.

Initiated by Ocean Futures, commissioned by CHNL, financed by Innovation Norway, CHNL and Ocean Futures.

Northeast Passage

• Northeast Passage (NEP): connects the Atlantic Ocean and the Pacific Ocean on the northern coast of Eurasia, from Murmansk to the Bering Strait.

• Northern Sea Route (NSR): The main stretch is known by its Russian name, the Northern Sea Route.

• The difference between NEP and NSR is that the former consists of NSR in addition to the Barents Sea.

Displaying two shipping routes. The Northeast Passage (red) compared to the Suez Canal route

(yellow)

Source: PAME 2006

Types of Shipping

• Intra-Arctic shipping is shipping between

destinations within the Arctic Ocean, for example between Dudinka and Murmansk.

• Destination-Arctic shipping is shipping from the Arctic to destinations outside the region, for example between Murmansk and Rotterdam.

• Transit-Arctic shipping is transit sailings between ports in the Pacific and the Atlantic Oceans via the Arctic Ocean, for example sailings from ports in Japan to ports in Germany, via the NEP.

Ice Conditions in the Arctic

• The extent of the Arctic sea ice was at its second lowest in the satellite record, on 9 September 2011.

• The minimum extent was only slightly above 2007, the record low year, even though weather conditions this year were not as conducive to ice loss as in 2007.

• Northeast Passage had a record long sailing season in 2011, spanning from 29 June to November 18 (Barents Observer, accessed 20 December).

• The Northwest Passage was open for a period during September.

Sea ice extent in the Arctic September 18 2011.

Source: National Snow and Ice Data Center, Boulder, CO

Part 3 B Northeast Passage

Status and Prospects

Northeast Passage Sailings Some Transit-/Destination Sailings Summer Seasons 2009 og 2010

Source: Ocean Futures 2011

Owner Ship Dwt Destinations(Date)

Cargo Comments

BelugaShippingGroup

MVForesight 12000 Ulsan(21.08.09)-NovyPort(07.09.09)-Murmansk-

Componentstopowerplant

Firstforeignshipintransitthroughthe

NortheastPassage(NEP)

MVFraternity 12000

BelugaShippingGroup

MVHouston 12000 Norrkoping-NovyPort(26.07.10)

Componentstopowerplant

Destinationalshipping,wherepartsoftheNEPare

used

MVFortitude 20000

MurmanskShippingCompany

Indiga 16000 Murmansk(14.07.10)-Pevek(22.07.10)

Dieselfuel Startetthetransitseason2010Varzuga 16000

Sovcomflot SCFBaltica 100000 Murmansk(14.08.10)-Pevek(25.08.10)-Ningbo(Kina)(06.09.10)

Gascondensate ThebiggestgastransportintransitthroughNEPin2010

season

NordicBulkCarriers MVNordicBarents 41000 Kirkenes(04.09.10)-Kina(30.09.10)

Ironoreconcentrate

Firstforeignbulkshipintransit

throughNEP

NorilskNikkel Monchegorsk 18000 Murmansk(15.09.10)-Dudinka-Shanghai(17.10.10)

Metalconcentrate Firstshipwithouticebreakingassistance

intransitthroughNEP

Russianstateowned GeorgOts 12600 Murmansk(09.09.10)-Anadyr(26.09.10)-Petropavlovsk-Vladivostok(10.10.10)

Passengership Firstpassengershipintransitthrough

NEP

Northeast Passage Sailings Cont. Some Transit-/Destination Sailings Summer Seasons 2011

Cont.

Some Transit-/Destination Sailings Summer Seasons 2011 Cont.

Sources: Ocean Futures 2012 and CHNL 2012

VolumeoftransitcargoestransportedontheNortheastPassagein2011Cargo Volumeton VoyagesGascondensate 600607 9Kerosene 64500 1

Dieselfuel 21409 5Iron-oreconcentrate 109950 3

Fish 27535 4Generalcargo 10930 4Total 834931 26

Source:CHNL’sHighNorthLogisticsInformationOffice

Volume of transit-Arctic shipping cargoes transported on the Northeast Passage

in 2011

Part 3 C Northeast Passage

Some Additional Comments

Developments Last Year Within Transit Sailings

• The number of transit sailings have increased considerably (32/34 in 2011)

• The ships are becoming increasingly bigger – cf the 162.000 Capesize “Vladimir Tikhonov”

• Different types of raw materials are still being transported • Ice conditions have been extremely good last two seasons • The sailing season has increased due to the ice conditions • Russian sailings versus Western and Asian sailings • We are still talking about commercial test sailings • Test sailings without ice breaker support cause

environmental challenges – how safe is this?

Part 4: Natural Resources

Foto: Allan Klo. Melkøya, Finnmark

Why Are Northern and Arctic Areas Attracting so Much Interest?

1. Resources, especially oil and gas - plentiful

2. Climate change and global warming – easier access

3. The new boundary line in the Barents Sea

between Norway and Russia

4. Military-strategic issues - less prominent

5. Increasing interest in northern and Arctic affairs on the part

of non-Arctic states

The New Boundary Line in the Barents Sea

© Ocean Futures 2012. All rights reserved.

Petroleum Exploitation in the

Norwegian Part of the Barents Sea

• In 2007, Norwegian LNG plant in Melkøya in the Barents Sea started to produce and ship liquefied gas from Snøhvit field for export.

• The oil field Goliat is expected to start producing in 2013, but it is still uncertain how much it will produce and thus how much will be transported at sea.

• Two more discoveries in April and August 2011:

– Skrugard, a large oil field and Norvarg, a significant gas field in the Barents Sea, respectively.

• In January 2012, Statoil announced that they had found another oil field, Havis, only 7 kilometers Southwest of Skrugard.

• Combined, Skrugard and Havis are the 16th largest discovery on the Norwegian continental shelf all-together and the volume lies in the range of 400-600 million barrels of recoverable oil equivalents (statoil.com and e24.no, 9 January 2012, ).

• Havis is the second most significant oil discovery in the Barents Sea in nine months. It has approximately the same volumes and reservoir properties as that of its twin Skrugard.

• With these two significant findings, a new petroleum province opens in the Norwegian part of the Barents Sea.

Share of World Reserves of Oil and Gas 2010

Country Oil (bbs) % World Gas (tcm) % World

___________________________________________________________________

United States 30.9 2.2 7.7 4.1

Canada 32.1 2.3 1.7 0.9

Russia 77.4 5.6 44.8 23.9

Norway 6.7 0.5 2.0 1.1

Arctic states 147.1 10.6 56.2 30.0

total

World total 1383.2 100.0 187.1 100.0

Source: BP Statistical Review of World Energy June 2011

Arctic Areas Share of Oil and Gas

Reserves of Arctic States in 2007

At end 2007

billion

barrels Oil

Arctic share

total

reserves Oil

At end 2007

tcm

Natural Gas

Arctic share

total

reserves

Natural Gas

United States 4.2 20.0 % 0.18 3 %

Canada 2.0 0.1 % 0.16 10 %

Russia 59.2 75.0 % 38.07 90 %

Norway 0.2 2.0 % 0.21 7 %

Arctic total 65.6 5.3 % 38.41 22 %

Source: BP Statistical Review World Energy June 2008 and Arctic Oil and Gas 2007

Arctic Proven Reserves of Oil and Gas

• Oil: 5.3% of world reserves

• Gas: 22.0% of world reserves

Arctic Production of Oil and Gas • Oil: 10.0% of world production

• Gas: 25.0% of world production of which

Russia produces 80% of the oil and 99% of the gas

Oil and Gas in the Barents Sea

© Ocean Futures 2012. All rights reserved.

Arctic Undiscovered Oil and Gas

US Geological Services estimated in 2008 that

22 % of world undiscovered O&G (o.e.)

are to be found in the Arctic

- 13% of undiscovered oil

- 30% of undiscovered natural gas

- 20% undiscovered NGL

(Arctic defined as all land and sea territory north of the Arctic Circle)

In the Arctic, but where?

Oil ProvincesMMBO (Mil

barrels Oil)

•Natural Gas

MMBO (Million barrels Oil)

•Natural Gas Provinces

•vinces •MMBO (Million barrels Oil)

•Natural Gas Provinces

•SSSOurceSourceBCFG (Billion CF

Oil Provinces Million barrels of oil

Natural Gas Provinces

Billion cubic feet

Arctic Alaska 29.960.94 West Siberian Basin 651,498.56

Amerasia Basin 9,723.58 East Barents Basin 317,557.97

East Greenland Rift

Basin

8,902.13

Arctic Alaska

221,397.60

East Barents Basin 7,406.49

West Greenland-

East Canada

7,274.40

Sub total (70.3%) 63,267.54 Sub total (71.3%) 1,190,454.10

Total Arctic

89,983.21

Total Arctic

1,668,657.84

Source: US Geological Survey

Will the 22% undiscovered Arctic

petroleum resources be found and

recovered?

Probably yes

BUT

Let’s not forget the other 78% of the world’s

undiscovered oil and gas!

Where are they?

In areas of the world that are climatically friendlier

and much less costly to develop.

Some Examples

1. Four West African geological provinces from Senegal in the northwest, almost uninterrupted to Namibia in the south. OIL – 72 billion barrels. GAS – 187 trillion cubic feet. NGL – 11 billion barrels.

2. 22 geological provinces in Southeast Asia. OIL – 22 billion. GAS – 299 trillion cubic feet.

3. Geological provinces in the eastern Mediterranian and Egypt. OIL – 3,5 billion barrels. GAS – 345 trillion Cubic feet.

Source: EIA, US Dept of Energy

Costs

Estimates suggest that costs of developing onshore gas

projects in Alaska can be 50-100% more than similar

projects in Texas.

Estimates of cost of offshore exploration and

development in the Arctic vary from twice to four times

or more as financially demanding as elsewhere.

To be profitable Arctic oil and gas activities are

dependent on high prices and strong demand, or, put

differently, weak or insufficient supply from other

sources.

This is precisely the «condition» that does not obtain

today as far as Arctic offshore gas is concerned.

The main reason:

US Shale Gas

Potential Shale Gas Producers (onshore)

(Select countries)

• UK 200 trillion cubic feet

• Poland 187 - « -

• France 180 - « -

• Norway (existing offshore

• gas reserves 72) 83 - « -

• Ukraine 42 - « -

• Sweden 41 - « -

• China 1,275 - « -

• US 862 - « -

• Canada 388 - « -

Source: Energy Information Admnistration (EIA), US Dept of Energy

When and how fast Arctic petroleum resources will be

developed will depend on

1. The state of the world economy.

2. On economic growth in the big energy consuming countries that

now experience little or anaemic growth, for instance in the US and

Europe.

3. On demand in emerging market economies like China and India

that now grow somewhat less strongly than in past years.

4. On availability of sources of supply not located in the Arctic of

which there are plenty.

Part 5: Announcements

Port of Narvik

First International Narvik Conference on Arctic Ports

Narvik 9-11 April 2013

The Conference will be focusing on Resources, Trade Flows, Shipping, Ports,

Logistics, Environment and Industrial Development.

For further information please contact:

• Rune Arnøy, Port of Narvik, Conference Co-Chairman ra@narvikhavn.no

• Jan Magne Markussen, Ocean Futures,

Conference Co-Chairman/responsible for the programme janmagnemarkussen@gmail.com (temporary address)

• The planning document for the conference is available by contacting Jan Magne Markussen

Conference organizers

In coop with

New Book November 2012

SHIPPING IN ARCTIC WATERS written by

Willy Ø streng, Karl Magnus Eger, Arnfinn Jørgensen-Dahl, Brit Fløistad,

Lars Lothe, Morten Mejlæ nder-Larsen and Tor Wergeland

Approx. 500 pages

To be published by Springer Verlag

in cooperation with Ocean Futures

Available from Springer.com and book shops

A special thanks to my colleagues

Senior Research Fellow, Dr. Arnfinn Jørgensen-Dahl, Ocean Futures

Researcher Ø ystein Russ Kristiansen,

Ocean Futures

Thank you for your attention

janmagnemarkussen@gmail.com

(temporary address)