Russian Arctic LNG production provides new impetus and prospects for the Northern Sea Route
 Global warmists may have had a hard time selling their creed in North America given the Arctic weather US southern regions had to endure this year, but things were different in Europe where the Northern Sea Route in the Russian Arctic has warmed up.
Beyond better navigation conditions, which only allow for a two to three months passage of ships in the brief Arctic summer, new developments have given the Northern Sea Route new impetus and greater credibility as a working trade lane than ever before.
That is, Russia's major commitment to developing its Arctic oil and gas reserves, particularly liquefied natural gas production (LNG), and exporting it though western Siberian ports.
To this end, Rosatom, the Russian atomic energy corporation, has taken over administration of the Northern Sea Route, and boldly predicts that the Arctic waterway will see a 92.6 million tons of cargo shipped annually - up 450 per cent - within six years above last year's 20 million tons.
Included in the Rosatom plan is 41 million tons of liquefied natural gas from Novatek Yamal LNG, and Arctic LNG 2 that will provide 22 million tons. Also included is 17.5 million tons of oil, five million tons of which from the Vankor area, another five million from the Payakha field and 7.1 million from Novy Port.
Russian President Vladimir Putin's five-year plan includes 80 million tons of shipments on the Northern Sea Route per year by 2024. Rosatom, however, believes it can do even better that by more than 12 million tons.
Coupled to this development is the United Nations mandate for low sulphur fuel from January 1. This new mandate is a virtual ban on sulphur emissions from ships, cutting down the allowable level to .05 per cent from the present 3.5 per cent limit.
The bureaucratic favourite fix is the most expensive - LNG. While LNG is not particularly expensive in itself - much of it was burnt off as collateral waste when it had of no value - it faces high front-end infrastructure costs as it is hard to condense and expensive to transmit though hoses and pipelines.
Competing against LNG are scrubbers and blends. Blends are also known as low-sulphur fuel in that they blend heavy bunker fuel with more greatly refined and more costly fuel to get an acceptable mix which keeps emissions within the limits of the UN's International Maritime Organisation (IMO). With scrubbers, one burns the old standard heavy bunker, but scrubs the particulates from the exhaust before sending it skyward.
Each option has its upsides and downsides. LNG is quick loading and clean-burning, but costly. Blends are cheaper but can do harm to engines if the blend is not calibrated correctly and results in engine failure when one least wants it to happen in storm-tossed heavy seas.
Electronic pamphleteers are now out in force pressing scrubbers and LNG on the industry. The lobbying has its aggressive aspects in that Singapore and Dubai have announced a ban on open loop waste water disposal from scrubbers into the sea, with little more than a better-safe-than-sorry justification for the prohibition. One suspects such ports are motivated by a desire to boost their own LNG sales by making the use of alternate technologies difficult.
The Clean Shipping Alliance (CSA) is fighting port authority bans on the discharge of scrubber waste water into their territorial waters, saying the ban does nothing to enhance environmental protection.
South Africa has expressly stated that it makes no such demands and welcomes onboard scrubbers, which means they can continue to burn high-sulphur bunker fuel from 2020 and dump open loop waste water in South African territorial waters and ports.
Thus, ships fitted with open loop scrubbers can continue to burn high-sulphur bunker fuel from 2020, and comply with the 0.05 per cent sulphur limit, in South African territorial waters and ports.
Open loop scrubbers have been selected for more than 80 per cent of the 2,500 ships that will have scrubbers installed by the end of 2019, said the CSA lobby. Scrubbers have other drawbacks too. They require much more space that might otherwise be used for cargo. They are also expensive and expensive to install.
The big unknown is what sort of market will these United Nations rules and regulations create. It is hard to know what demand there will be for any one of the three fuel options, as the market share of one will have a direct impact on another. Analysts are counting ships they know are converting to one or other of the technologies, but it is too early to make much more than an educated guess. Some ship operators are taking one course, are quite prepared to take other if it seemed to be a better option.
French energy giant Total as a stake in the Russian LNG operation, and French Shipping giant CMA CGM is heavily committed to LNG.
Some 1,500 miles from Moscow is the site of Russia’s most ambitious LNG project, operated by a company, Novatek, that only entered the market a year ago.
During the season, several times a week, a tanker leaves these Siberian ports carrying the super-chilled fuel to buyers in Europe and Asia from the only LNG plant beyond the Arctic Circle.
Novatek PJSC, the main shareholder of the Yamal LNG plant on the western Siberian Yamal Peninsula, says plans for further projects and is already the world’s top exporter of pipeline gas and second-biggest shipper of crude oil. “Russia can be in the top four main LNG exporters,” said Novatek’s chief financial officer Mark Gyetvay.
Russia has more confidence in their ice-strengthen ships and their huge nuclear-powered icebreakers than any progress in global warming, especially when a greater body of Russian scientific community believes in global cooling. But Russians are also aware that the global warming scare builds western faith in the Northern Sea Route and that is all to the good.
Together, these ships should ship enough LNG to Western Europe to make it pay. There is talk of going to China but that would involve going east and even farther north, and more than twice the distance before an LNG tanker cleared Russian waters and headed south to China. Global warming will have to come true to a far greater extent in the immediate future before that route becomes economic - unless the route is short-circuited by pipeline.
Going west is easier and more practical. The voyage is only 1,400 miles, a little longer the distance from New York to Miami. It also skirts the warmer southernmost coast of the Northern Sea Route until it gets to the ice-free Russian port of Murmansk, near Norway.
But they are betting on managing to get enough LNG to Murmansk for export to the outside world, mostly Europe clearly in the grip of the global warming craze. It seems clear that LNG will have a good market from the Baltic to the Atlantic as these densely trafficked waters have been part of an Emissions Control Area for decades and a multiplicity of carriers that ply these routes are well-schooled in compliance with the most regulated regimes in the world.
Of course, it all depends on how the market shapes up after carriers respond to the UN mandate. As the year matures, there will be more information about the relative popularity of LNG, blends and scrubbers, which should provide guidance as to what the future holds. But little can be known at this point as to whether the Northern Sea Route will be a boom or bust for the Russians, who now depend on it for a bonanza. |
