The Magnetic North
The United States has granted Royal Dutch Shell conditional approval of its plan to begin drilling exploratory wells in the Beaufort Sea, off the North Slope of Alaska, next summer.
Shell has spent nearly $4 billion over more than 5 years, to obtain the right to drill in waters north of Alaska.
Aside from environmental issues, the challenges to the maritime industry are very large ones. The Arctic itself is an oceanic area around and north of land masses that circle the pole. In May of this year, the extent of Arctic ice was the third-smallest since collection of data began in 1979.
Alaska itself has a coastline that is longer than that of the combined “lower” 48 states. Nevertheless, the United States has very limited resources to cope with search and rescue responsibilities; Last May, an Arctic Search and Rescue Agreement was signed by 8 nations – Iceland, Finland, the United States, Norway, Russia, Sweden, Canada and Denmark, in which it was agreed to cooperate on rescues above the Arctic Circle. At its meeting in Greenland, the Arctic Council refrained from any attempt to resolve the issue of territorial claims.
Russia has made claim to a large part of the Arctic, which is thought to hold as much as a quarter of the world’s oil and gas reserves; It takes the position that an underwater ridge running from northern Siberia runs directly to the North Pole. Whether this gives it a valid claim to subsea resources along the ridge is a matter of dispute.
With the melting of Arctic ice amid rising global temperatures, surface temperatures in 2010 were approximately those of 2005, both being the warmest on record according to the Goddard Institute for Space Studies, a part of the U.S. National Aeronautics and Space Administration. The nations that surround the Arctic Circle are competing to establish new shipping routes and fishing grounds, as well as oil and gas drilling claims.
The United States remains the only major nation, and the only one bordering on the Arctic, that has not ratified the United Nations Convention on the Law of the Sea.
Arctic conditions heighten the risks of drilling, and make any attempt at cleanup of a potential spill far more complicated than in the warm waters of the Gulf of Mexico.
The Shell plan recently approved sets out detailed plans on how the company and its suppliers would respond to a blowout and oil spill analogous to the Macondo disaster of 2010. In the Beaufort Sea, Shell has proposed drilling four wells at a depth of about 160 feet of water, about 20 miles from the Alaskan shore. The well that exploded in the Gulf of Mexico on April 20, 2010 was at a depth of more than 5,000 feet and 40 miles from the Louisiana coast. The accident killed 11 workers, and spilled nearly 5 million barrels of oil. Shell has proposed using two drill ships in the Arctic, each capable of sinking a relief well for the other. It also has put an extra set of shears on its blowout preventers, and promises to keep emergency capping systems near drill sites to capture any leaks.
Environmentalists are still unconvinced, asking whether any company has the ability to respond to a major oil spill in hurricane-force winds, high seas, broken and shifting sea ice, subzero temperatures and months of fog and darkness.
Of greater concern to observers is the relative lack of maritime resources available to governments, particularly the United States. At a time of increasing budget cuts, a question persists: will there be a need for icebreakers on Arctic routes, particularly for transiting vessels, and if so, where will these ships be found?
U.S. Coast Guard has only two icebreakers available at present, one of which is in more or less permanent layup. A third icebreaker is supposedly being updated. China is reportedly building what will be the most powerful conventional icebreaker in the world. The Russian fleet, which includes nuclear-powered icebreakers, is fairly old and of doubtful reliability, much less availability. The cost of a fleet of icebreakers would run into the billions of dollars, and there is no evidence that the congressional will exists to appropriate that sort of money. As a transarctic trade route draws closer to reality, the need for international cooperation in polar and subpolar seas grows greater all the time.
Arctic ice classed tonnage development is opening up new energy frontiers at a time when many tanker owners are still suffering from red ink balance sheets due to the prolonged recession. The harsh winter in northern Europe and the Baltic provided a lifeline for many ice class 1A tankers as they were able to penetrate deeper thicknesses of ice without the aid of icebreakers keeping the energy supply chain flowing. It was the maximum classification limits test in harshest of conditions for this relatively new ice class. Around 280 ice class 1A vessels are in service with some 70 per cent under 20,000 dwt vindicating the vision of shortsea owners and yielding rich dividends in terms of premium hire rates while non-ice tonnage suffered.
Progress in development of offshore oil and gas fields in the Arctic promoted deepsea owners to order larger sizes of conventional tankers and shuttle vessels of which record numbers entered service in the last year. Not all are trading in ice regions but it is one more earning option which owners know will be in demand in the future. Some 200 ice class 1A types are on order although this remains a niche trade area in the context of the global tanker fleet but the new ice class age has definitely arrived. Technology is gaining ground all the time and this year saw the first purpose-built LNG carriers ordered. The fact that so many owners are capitalizing on the Arctic potential can only serve to encourage further development of oil and gas exploration.
The Barrents Sea, Kara Sea, Laptev Sea, Beaufort Sea, Greenland Sea, Davis Strait and Arctic Ocean are the key areas of oil and gas development while it is also relevant to mention developments in sub Arctic conditions in the Caspian Sea and Black Sea as well as the Sea of Okhotsk. Undiscovered oil in the Arctic is estimated at 90 million barrels with a further 1.7 trillion cubic feet of natural gas. Russia is the driving force but has called on the experience of ice region traders and owners to pool their expertise and co-operation in meeting the challenge of getting new energy discoveries to a global market. Against a recession hit conventional trading market tanker owners are expecting rich pickings in the years ahead.
The relatively fast pace of some developments has caught the market by surprise as there are still many commercial and technical barriers to overcome. An acute shortage of icebreakers for escort duties has proved a headache with Finland and Russia having “neglected” ordering new tonnage as winters became milder but these are expensive vessels to operate. The harsh winter of 2010/2011 has changed this thinking with joint ownership of new icebreakers under consideration between Russia and Finland. Some ice class supply vessels are also doubling up as icebreakers to fill the void but service is restricted. Mindful of safe passages Russia has banned non-ice class 1A tankers from trading to Arctic regions in the winter months. This in turn lifted newbuilding commitments for this class of tanker.
While it is not expected that the Arctice Ocean will never become ice free, shippers are ready to exploit the current thinning ice trend giving longer shipping season and better access to energy production in remote areas. In the long term new Arctic shipping routes will be opened up including the Northwest Passage. A milestone was passed in August last year when Sovcomflot’s aframax tanker SCF Baltica achieved a voyage time of 11 days from Murmansk to Pevek in northern Russia. Under escort of nuclear ice-breakers the vessel covered 2,500 nautical miles via the Barrents Sea, the Vilkitkiy Strait, Taimyr ice field, Sannikov Strait, Laptev Sea and ice fields of the East Siberian Sea. The tanker’s commercial cargo of 70,000 tonnes of gas condensate was delivered early and underlined the real possibility to reduce transit times along the Northern Sea Route unlocking the potential to deliver hydrocarbons to the Asia-Pacific region.
Like many other maritime issues, resourcing the northern trade routes lacks the degree of support from the public and from governments, necessary to get the job done. If there was ever a cause to be embraced by the United Nations, the development of an international icebreaker flotilla would seem to be a worthy one.
Clay Maitland
This article has been initially published at www.claymaitland.com
