Transport impetus for the Arctic

Decisions on investments into Arctic hydrocarbons were made in the period of high oil prices. According to recent views, LNG projects in the Arctic will not pay back if oil costs less than $60 per barrel. Despite pessimistic forecasts, Russian Government supports implementation of Arctic projects with a focus put on infrastructure development and measures undertaken for acceleration of return on investments.

Looking for profitability

It was when oil prices were above $100 per barrel that Russia made decisions on investing into costly projects of hydrocarbon production. Those projects will let economically revive Russia’s Arctic region, create new transport infrastructure, establish related manufactures and generate jobs. Besides, those projects imply the use of the Northern Sea Route as the main route for transportation of produced resources. Exports will be followed by transit and coastal trade cargoes.

The largest project in the Arctic is Yamal-LNG. Even with high oil prices (gas prices correlate with oil prices), by the moment the project is operational this market will see high competition amid LNG supplies from Australia, Qatar, Africa, Norway and other countries. As Aleksandr Kurdin, head of the Department for Strategic Studies in Energy, the Analytical Center for the Government of the Russian Federation, said at the international conference Arctic and Shelf Projects: Prospects, Innovations and Regional Development (Arctic 2016) in Moscow, for Russian companies to break even selling liquefied natural gas (LNG) to Europe, the price of LNG must be USD 250-300 per thousand cubic metres, which could only happen if oil was trading at about USD 60 a barrel (oil prices correlate with natural gas prices). 
Meanwhile, Yamal-LNG has announced that LNG had been contracted under long-term agreements.

According to pessimistic expert opinion, it would be better today to focus not on costly Arctic projects but on the use of the Northern Sea Route. Read about the plans to establish a container line at the Northern Sea Route >>>> 

Perhaps, that was the reason for Russian authorities to start speaking about alternatives to use port Sabetta (built for Yamal-LNG project) for taking over goods from the Trans-Siberian Railway and Baikal-Amur Mainline through construction of the Northern Latitudinal Railway >>>> 

Arctic transport

Revised state programme “Socio-economic development of the Russian Arctic till 2020”, development of a unified transport infrastructure and securing transport facilities for the Arctic zone of Russia were discussed at the  meeting of the State Commission for Arctic Development held on March 9, 2016 in Murmansk.

The new approach to implementation of the state programme “Socio-economic development of the Russian Arctic” should be based on anchor projects, Deputy Prime Minister Dmitry Rogozin said. This will help ensure favourable background for implementation of large scale infrastructure projects in the Arctic, considerably intensify NSR shipping and carry out comprehensive modernization of transport and other infrastructure facilities, establish safety and communication facilities at the ports.

There will be eight anchor projects, said Aleksandr Tsybulsky, Deputy Minister of Industry and Trade. “Having analyzed the situation we came to a conclusion that a territory cluster principle appropriate for the Arctic zone should be applied. Climate and low density of population in the Arctic correspond to cluster development of the territories. This approach will ensure comprehensive social and economic development,” he said.

The Northern Sea Route should become a transport corridor linking the new Arctic luster with the conventional international routes. By the order of RF President Vladimir Putin, the Ministry for the Development of the Russian Far East is working on a financial and economic model for further development of this route.

Sergei Kachayev, Deputy Minister for the Development of the Russian Far East, said that within the coming three months a forecast for revenues and expenditures of RF budget from NSR would be developed and optimal forms of state participation in its development would be defined.

Special meeting of the State Commission for Arctic Development should be held in late April 2016 to discuss the issues of the Northern Sea Route and to designate a special logistic operator for NSR, said Deputy Prime Minister Dmitry Rogozin. 

“NSR Administration just registers the clients’ applications but a logistic operator is required to carry on a dialogue and to encourage partners through highlighting the advantages of cargo transportation by NSR, to conduct continuous economic monitoring of the Northern Sea Route,” he said.

Yuri Sychev, Director of the State  Oceanographic Institute named after N.N.Zubov commented on the suggestion of Dmitry Rogozin: “Current practice of NSR transportation shows that problems emerge frequently when it comes to coordination of different carriers’ activities. Logistic operators are required to coordinate and plan shipping. Even today, when traffic volumes are low, it is difficult to find a vessel. Besides, the issue of transportation rates is still open.”

Uninterrupted transportation of cargoes and passengers between the points of the Arctic zone and outside it the basic principle of the draft concept of Arctic transport system development prepared by the Ministry of Transport.

“Russia needs a transport structure adequate for extreme conditions. NSR is the basic of the Arctic transport system and its development is a priority,” said Victor Olersky, Deputy Transport Minister of the Russian Federation, head of Rosmorrechflot.

He reminded that almost all Russian ports in the Arctic Basin are freezing ports requiring the fleet of icebreakers.

In the end of 2016 Rosmorrechflot will take the delivery of the third serial 16MW icebreaker. Deadline for completion of two large diesel-electric icebreakers (LK-25) is postponed due to essential rouble devaluation and other reasons. “The first 25 MW icebreaker which was to be built in 2015 will be delivered 2 – 2.5 years later.

The state programme “Socio-economic development of the Russian Arctic will be considered at the meeting of RF Government in late April 2016. Total federal investments into implementation of the state programme are estimated at RUB 262 bln. Draft document should be completed by the Ministry of Industry and Trade and approved by the related authorities by the end of March.

Vitaly Chernov, Pavel Stepanenko