Commercial Transit through the Northern Sea Route

May 15th 2012

Professor S.W.Hong Institute of Global Logistics

Youngsan University

Contents

1. Northern Sea Route (NSR)

2. Future Demand of Transit shipping via NSR

3. Current State of Affairs in the NSR Shipping

4. Potential Cargo & Transit for Korean Market

5. Korean Perspectives on the Arctic shipping

2

Northern Sea Route

3

2. Future Demand of Transit Shipping via NSR

1) High energy demand in Asian market

2) Rising oil price

3)Russian Arctic Resource development

4) Arctic sea ice in decline due to climate change

4

3. Current State of Affairs in NSR Shipping

1) Cargo traffic on the NSR

2) Transit shipping through NSR (2011)

3) Is Arctic shipping profitable ?

4) Vessel operation conditions on the NSR

5

5,000

3,000

1,800 1,801

2,119 2,150 1,956 2,023

1,718

1,000

2,000

3,000

4,000

5,000

2012 2011 2010 2009 2008 2007 2006 2005 2004

Asia Europe

•Heavy cargo(beluga,2009)

• Transit(drilling ship, Tug boat)

•Jet oil

Europe Asia

Resources • gas condensate

• iron ore, scrap metal • non-ferrous metal

• oil products

Major cargo

(est)

(est)

1) Cargo traffic on the NSR

6

source: GECON, Mikhail Grigoriev (2011.4)

Project Product Year Cargo/MIL t Market

Varandey Crude oil 2008 20 Europe, N.America

Prirazlomnoye Crude oil 2011 6.6 Europe, N.America

Shtokman Gas condensate 2018 7.5 Europe, N.America

Kumzhin Gas condensate 2015 2.6 Pacific thru Suez

South Tambey Gas condensate 2016 7.5-15 E, NA / Pacific thru NSR

Kara Hydrocarbons 2027 N.A. N.A.

Future NSR cargo traffic

7

19Mil(2015) 64Mil(2020) 85Mil(2030) (estimation, Ministry of Transport, Russia)

Hydrocarbon resource development of Russian Arctic

2) Transit shipping through NSR (2011)

• Commercial transit rigorously began

• Transit : 34 times (4 times in 2010)

1) International transit : 13 times (resources)

2) Russian coastal traffic : 11 times (fish, fuel, etc)

• Ballast : 10 times

• Operation period: 4 months

• Total transit cargo volume: 820,000 ton

(Source: Rosatomflot)

8

Vessel Cargo Operation icebreaker Duration (Average speed

MV Nordic Barents Iron ore Kirkenes Lyanyungang

Atomflot 22.5days

(12.03knot)

Monchegorsk Non-ferrous

Metal (Norilsk Nickel) Dudinka Busan

Shanhai Dudinka No escort

(Arc7) Sep-Oct

Perserverance (flag Singapore)

gas condensate

(NOVATEK: 59,981t) MurmanskNingbo Yamal, Taimir

6/30-7/15

(7.6knots)

Vladimir Tikhonov (flag Liberian)

gas condensate

(NOVATEK: 120,843t) Murmansk Ningbo Atomflot

8/23-30(7.5days)

(14knots)

STI Heritage (Marshall Island)

gas condensate

(NOVATEK: 60,944t) Murmansk -> Map Ta Phut(Thai) Atomflot

July/21-29

(14knots)

Sanko Odyssey (flag Liberian)

Iron ore (66,500ton)

(Eurochem) Murmansk Xingang Atomflot(Taimir) Aug/31-Sep/23

Stena Poseidon (flag Finland)

Gas condensate

(NOVATEK: 57,814t) Murmansk Korea Atomflot Aug 30-Sep

Mariann gas condensate

(NOVATEK: 61,259t) Vitino Incheon Atomflot Sep 20-Oct11

Perseverance (flag Singapore)

Jet fuel

(64,500ton) Korea Onsan -> Le Havre 50 years Victory Aug 31-

Commercial Transit through the NSR (2010, 2011)

9

Test shipping of V. Tikhonov by SCF (Aug 2011)

Novatek, Gas condensate 120,843ton, Time on NSR: 7.4days, Average speed: 14.0

10

Some results of Transit shipping on the NSR

• Novatek’s export of gas condensate to Asian

market (China 5, Korea 2, Thailand 2)

• Vessel Perseverance’s transport of gas

condensate & jet oil (return cargo : jet oil from

Korean refining companies )

• Korean shipping companies’ lack of operational

experience on arctic shipping

11

Implications of Transit shipping on the NSR

1) Transit shipping of Russian Arctic Resources to Asian Market

- Arctic resources for revival of Chinese northeastern

region

2) Promotion of Russian Arctic Resource to the Asian Market • Case 1 (2010): SCF tanker ‘Baltica’(117,153ton)

- Gas condensate from Vitino (Russia) to Ningbo (China)

• Case 2 (2011): SCF tanker ‘Vladimir Tikhonov’

-Gas condensate (120,843ton) from Honningsvaag (Norway) to Man Ta

Phut(Thailand)

12

Implications of Transit shipping on the NSR

3) Vessel operations by experienced Russian & Nordic

shipping companies (Norway, Sweden, Finland,

Denmark)

4) Most of Cargoes transported through NSR mainly

limited to Russian Arctic Resources (Gas condensate

iron ore, etc)

5) Activation for international transit shipping ?

13

Fuel price

Icebreaker service

Insurance

Return cargo

3) Is Arctic shipping profitable ?

14

Tariff for Icebreaking service

• Is tariff negotiable ?

• Current market price

• The more cargo traffic flows on the NSR , the higher possibility we pay less than ever

15

Maximum rates for icebreaker services (2011.6.7)

№ Nomenclature of cargo Unity Rate

1 General cargo

1.1 Cargo, transported in standard containers Roubles per ton of nominal gross mass

of container 1048,0

1.2 Non-ferrous metal Roubles per ton 2050,0

1.3 Converter matte Roubles per ton 1905,0

1.4 Products of mechanical engineering and instrument-making

including equipment and parts thereof Roubles per ton 2464,0

1.5 Vehicles, cars and their parts Roubles per ton 2576,0

1.6 Articles out of metals of industrial purpose Roubles per ton 1747,0

1.7 Others Roubles per ton 1048,0

2 Bulk cargo Roubles per ton 707,0

3 Bulk liquid cargo Roubles per ton 530,0

4 Timber cargo:

4.1 Round lumber Roubles per ton 118,0

4.2 Saw-timber and other products of timber, woodworking,

pulp and paper industry Roubles per ton 148,0

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4. Potential Cargo & Transit : Korean Market

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

MIL

China

Japan

Korea

Total

Eurostat(MT)

Cargo traffic increases since 2008 crisis Cargo traffic over 100 mil ton between Asia 3 & EU

1) Cargo traffic between Asia and Europe

18

SITC Product(2009) (unit: Mil Euro)

Containeriza

tion ratio

NSR Tariff

($)

EU EU

Japan China Korea Japan China Korea

24 Cork and wood 6.1 3.9 451 148 236

27 Crude fertilizers 23.6 23.5 222 310

333 Petroleum, crude oil low 17.6 141

32 Coal, coke and

briquettes low 23.5 138

334 +335

Petroleum products 0.5 17.6 1,195

Promising cargo transportation Korea imports crude oil & export oil products

1) Cargo traffic between Asia and Europe

19

SITC Product(2009) (unit: Mil Euro)

Containeri

zation ratio

NSR Tariff

($)

EU EU

Japan China Korea Japan China Korea

51 Organic chemicals 19.9 23.5 2,344 2,351 888 1,750 2,904

57 Plastics in primary forms 19.9 23.5 473 2,347 617 289 583

59 Chemical materials

and products 19.9 23.5 784 1,149 548

52 Inorganic chemicals 19.9 23.5 266 625

78 Road vehicles 22 85.8 3,749 8,188 12,230 2,902 3,330

67 Iron and steel 1.3 58.1$ 2,120 1,023 1,857 1,115

source: eurostat, External intra-EU trade-statistical yearbook, 2010 edition

Export & import of Chemical & iron product is salient Road vehicles difficult due to high NSR tariff

1) Cargo traffic between Asia and Europe

20

1. Crude oil and related cargo

2. Iron and steel 3. Petroleum products/chemical

product

4. Coal

5. Wood and its products

6. Road vehicles

7. Fertilizers

Potential Cargoes

by using NSR

21

source : kita.net(MT)

item 2009 2010

Coal 4,719,780 8,557,320

Crude oil 3,693,571 6,726,704

Natural gas 1,016,914 2,932,807

Petroleum and its products 1,457,799 1,172,735

Steel waste & scrap 534,672 781,451

Steel ingot & its semi processed products 472,078 592,245

Pig iron & sponge iron 472,078 592,245

Fish(fresh, refrigerated, frozen) 212,369 262,711

Aluminum 246,031 197,057

lumber 384,128 185,203

Processed log 88,292 165,884

Pulp & waste paper 120,302 156,488

Import increase of Russian coal, crude oil & natural gas

2) Potential Cargo: Korea’s import from Russia

22

source : kita.net(MT)

item 2009 2010

Motor cars and other motor vehicles 482,960 1,151,779

Acetal resin , polyether & epoxy resin 144,818 112,726

Petroleum oils and oils obtained from bituminous

minerals (other than crude); preparations 43,244 101,875

lime, cement & building materials 154,194 60,083

Vessel, boat & floating structure 45,354 59,234

Polymer Ethylene (primary product) 117,448 47,034

Poly stylene (primary product) 67,110 46,634

Miscellaneous edible products and preparations 55,740 44,559

Parts and accessories of the motor vehicles 126,878 39,848

Polymer of vinyl chloride or of other halogenated

olefins, in primary forms 44,366 34,968

Flat-rolled products of iron or non-alloy steel,

clad, plated or coated 39,586 32,625

2) Potential Cargo: Korea’s export to Russia

23

Gas condensate (Import)

Russian raw materials (import)

Steel products (export)

Heavy cargo (export)

3) Promising cargo (in case of using NSR)

24

5. Korean Perspective on the Arctic shipping

Korean Government’s Arctic Strategy

(Ministry of Land and Maritime Affairs, Korea)

1) Long-term - Participation in Arctic resource development & Maritime transportation (since 2008)

2) Mid-term - Development of ice classed vessels : Arctic expedition by research icebreaker ‘Araon’(2010) - Ice navigation crew training (2012) 3) Short-term - test shipping (2012)

26

Korean Activities in the Arctic shipping

1) Korean shipping companies - Study on the economic viability of the arctic

shipping 2) Korean shipbuilders - building offshore facilities (Ice class LNG carrier,

platform, floating units, drilling ship, etc) 3) Korean research institutions - Economic analysis of NSR & Suez Canal - Analysis on the resource transportation

27

Korea-Norway Cooperation in Arctic shipping

• Norway’s extensive experience and knowledge

in Arctic shipping

• Maritime cooperation in Arctic shipping

• Business opportunities through NSR

- Commercial business : raw materials

- Project business : offshore facilities

28

3-hour Flight Radius

20％ of World’s GDP

25％ of World’s Population

33% of World Container Volume

Logistics Hub

Largest Manufacturing Base

3rd Largest Economy

Busan in Northeast Asia

29

North & New Port

4 Terminal Operators (18 berths)

6 Terminal Operators (20 berths)

30

31

Busan shows the highest growth rate!!

31,500 29,938

24,404 22,570

16,175 14,686 14,400

13,020 12,800 11,900

9.3%

5.3%

3.0%

0.3%

14.0%

11.7%

13.4%

8.9%

11.3%

6.0%

0.0%

5.0%

10.0%

15.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

T/Put Growth Rate (Unit : 1’000 TEU, %)

Source: Busan Port Authority (BPA)

2011 World’s Top 10 Container Ports

31

Potential of Busan port

• Logistics Hub of Northeast Asia

• Located near the Main Trunk Route of eastern part of NSR

• Best logistics Service (5th world Container Port)

• Provision of Ship repairing service

• Provision of fuel supply

• Distribution center for ship supply

• Oil Hub Port (Ulsan) located near Busan Port

• World’s best shipbuilders located near the Greater Busan area

• Governmental support

32

Korea Seoul

Busan Ulsan Japan

China

Ulsan Port Liquid Logistics Hub of Northeast Asia

Korea’s No 1

Liquid cargo port

• Liquid cargo traffic (Korea’s No 1) (handling 35% in Korea)

• Cargo traffic(World’s 17th, 2010)

• Import of Crude oil , No 1 in Korea (52%)

• Car production (World’s No 5)

• Largest Reservoir tanks infra in Korea

• Exports and imports (2011) (export: 70.4 bil $, imports:81.2bil$)

33

Ulsan Port’s 59 liquid cargo berths

34

Source : Ulsan Port Authority, 2010

• Houston

• South Louisiana

• Antwerp

• Rotterdam

• Amsterdam

• Singapore

Ulsan

Antwerp : 40,482

Rotterdam: 209,400

Amsterdam : 36,106

Houstin: 125,491

South Louisiana: 132,075 Singapore: 176,262

Ulsan : 136,362

World’s major liquid logistics port Unit : K ton

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Thank you !

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