Shipping in the High North – interests, responsibilities and opportunities

I would like to commend the science academies for creating arenas such as this, where the knowledge community, the business sector and politicians can meet and exchange perspectives, and where we can have a frank and dynamic debate.

Presence, activity, and knowledge are key words in our High North strategy – three pillars underpinning our efforts in the region. And the interplay between them is also of vital importance. I am therefore very pleased that you have arranged this event.

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Developments in the High North entail both opportunities and challenges for Norwegian interests. The High North is the Government’s most important strategic foreign policy priority, and has been so since we came to power in 2005. Much has happened since then, for example:

In March 2009, we presented the next step in the Government’s High North strategy, New Building Blocks in the North, which sets out seven priority areas – or building blocks – and concrete projects that are to be implemented over the next 10 to 15 years. We are on schedule with this work; 80% of these projects have already been started.

In next year’s budget we intend to allocate NOK 1.2 billion for measures to follow up our High North strategy. This is a 15% increase from this year. In particular, we will focus on improving safety at sea and developing maritime business activities.

We have established the maritime boundary between Norway and Russia.

At the international level, we note great interest in the High North and the Arctic, for example in the international media. A joint article that I recently wrote together with Russian Foreign Minister Sergei Lavrov on the management of resources in the Arctic and the delimitation line between Norway and Russia was published in more than 10 countries.  

Countries such as China, Japan and South Korea are showing increasing engagement in Arctic affairs. They have sought status as permanent observers in the Arctic Council. They are also keen to have a dialogue with us on the High North and the Arctic. When I visited Beijing at the end of August, I found there was great interest in Norway’s viewpoints on developments in the Arctic. We will take part in an energy dialogue with Germany later this month, and this topic is at the top of the agenda.

Why this increased international interest in the High North and the Arctic? Climate change and greater access to resources are two key answers. But before I say more about these drivers, I would like to comment briefly on the legal and political framework in the Arctic.

 

The legal and political framework in the Arctic

Firstly: with increasing international focus on the north, we are seeking to ensure that the High North continues to be a region of low tension. Increasing interest in the High North is neither negative, threatening nor necessarily a cause of conflict. We will exercise our sovereignty and authority in the north in a credible and predictable way.

Secondly: there is growing recognition of the fact that the Arctic is not an uninhabited legal vacuum. The Arctic Ocean is surrounded by states that have rights and obligations, also with regard to their sea areas and their continental shelf. The same rules apply to the Arctic Ocean as apply to other sea areas. The UN Convention on the Law of the Sea provides a solid basis and has clear provisions on issues of jurisdiction, including on the extent of the continental shelf. Last year, Norway was the first Arctic coastal state to receive the recommendations of the Commission on the Limits of the Continental Shelf.

Thirdly: the five coastal states bordering the Arctic Ocean – Canada, Denmark/Greenland, Norway, Russia and the US – met in Greenland in 2008, and again in Ottawa in March 2010, to confirm that they agree on their responsibilities in the High North and that international law provides an established basis for the coastal states’ rights and obligations. The community of obligations and interests established by international law forms a natural basis for cooperation between the five coastal states on current Arctic Ocean issues.

Fourthly: the treaty on maritime delimitation and cooperation in the Barents Sea and the Arctic Ocean. After 40 years of negotiations, agreement has been reached on the maritime boundary between Norway and Russia. I had the pleasure of signing this treaty on behalf of Norway in Murmansk a few weeks ago. It increases the level of legal clarity and predictability in this area. The parties have reached a solution that is based on modern principles of international law.

The treaty also contains provisions that ensure the continuation of the extensive and fruitful Norwegian–Russian fisheries cooperation, as well as provisions concerning cooperation on the exploitation of any petroleum deposits in these waters that extend across the delimitation line.

Fifthly: the Arctic Council, the most important Arctic cooperation forum. We would like the Arctic Council to strengthen its role as a policy development body for Arctic issues. New countries are knocking at the door. Norway’s position is that they could help to strengthen the Arctic Council. Many of the challenges in the Arctic must be addressed together with non-Arctic countries, particularly the challenges connected with climate change.

Climate change in general and the subsequent melting of ice in the Arctic in particular are key factors in the huge interest in the Arctic that we are now seeing from all corners of the world.

 

Climate change and melting ice

The northernmost sea areas have been difficult to access due to thick sea ice. Climate change is gradually changing this.

Here are some facts about the changes we are seeing in the northernmost seas:

Reduction of sea ice year by year: Satellite observations of the extent of sea ice from 1979 to 2006 show an annual reduction of 45 000 km2, which is equivalent to 3.7% every ten years.

More rapid melting of ice in the summer: The ice cover has been shrinking at an average rate of 6.2% every ten years over the last 30 years. This summer, there was very little ice in the Arctic, as there also was in the summers of 2007 and 2008.

Thinner ice in winter that is easier to break through: The extent of the extremely hard multiyear ice is being reduced. In the winter of 2009, less than 10% of the Arctic sea ice was more than two years old.

The extent of the sea ice is changing: The edge of the sea ice in the summer has receded to north of Svalbard, and the Northern Sea Route is almost ice free. This year, the whole of the North West Passage was ice free, as was the Beaufort Gyre north of Alaska.

The main message is that ice in the Arctic is melting at a rate that is dramatic and very serious, and this must be our main focus. The Arctic Climate Impact Assessment, the Intergovernmental Panel on Climate Change (IPCC), the report Melting snow and ice (commissioned by Al Gore and me, and presented in Tromsø in March–April 2009 and in Copenhagen in December the same year) all highlight these serious developments. We must maintain focus on both mitigation and adaptation. We are seeking to ensure that the United Nations Climate Change Conference in Mexico (COP 16) will bring us significantly closer to agreeing on permanent reductions in greenhouse gas emissions.

At the same time, the serious degree of climate change that we are seeing in the Arctic are also making the natural resources in the region more accessible. Over the next years, this could result in commercial activities in the Arctic.

 

Resources: oil and gas

The world’s demand for oil and gas and other natural resources is growing. Here are some facts:

At the end of last year, the International Energy Agency (IEA) estimated that world demand for energy will increase by 40% by 2030, and that the demand for gas will increase by 42% in the same period. At the same time, nearly half the world’s existing production capacity will be phased out. The remaining oil resources will be increasingly difficult to extract. Oil production will be more costly and require high levels of investment. This will also apply to the oil reserves in the High North and the Arctic.

The situation today is that the demand for oil has risen again after the financial crisis, and is now – in 2010 – higher than it was in 2007 (before the crisis). Oil prices have risen steadily since the low point just before Christmas 2008 when North Sea oil cost USD 40 per barrel. Today a barrel costs around USD 80.[1] The transport sector is the main driver of demand. The strongest growth has been in China, India and South East Asia.

The global demand for gas plummeted in 2009 as a result of the financial crisis. At the same time, two factors are affecting the supply of gas: an estimated 50% rise in liquefied natural gas (LNG) production in the period 2009–2013, and the increasing production of unconventional gas. This has led to a surplus of gas in many parts of the world, including in Europe, and has pushed prices down. However, demand has risen since the middle of 2009, and prices are now on their way back to pre-crisis levels. China’s demand for gas continues to grow. At the same time, there is some uncertainty about how demand will develop. This is affecting investment decisions, particularly with regard to complex and costly projects, for example in Arctic areas.

The Arctic could be home to much of the world’s remaining natural resources. According to US Geological Survey (USGS) estimates, undiscovered recoverable petroleum resources in the region could amount to as much as 22% of the world’s total, i.e. 50 billion tonnes oil equivalents. There is a great deal of uncertainty attached to these estimates, but there is general agreement that these resources are mainly in the form of gas deposits offshore Siberia and in the Barents Sea.

The extraction of petroleum resources in the Arctic is increasing steadily, mainly in the Russian Arctic. Both the US and Canadian authorities have awarded new licences for oil and gas operations in Arctic areas, and the British oil company Cairn Energy started test drilling off West Greenland this summer.

 

Resources: ores and minerals

As a result of strong growth in the world economy and growing demand for metals in recent years, prices have increased by 80% since 2000. Despite the economic crisis, metal prices in May 2010 exceeded the 2007 peak by 4%. This significant increase in demand is mainly due to the rapid recovery of the Chinese economy after the economic crisis.

There are important ore and mineral resources in the Arctic:

There are several large mines in Arctic areas that produce nickel, zinc and other ores. For example, the Red Dog mine in Alaska is one of the world’s largest zinc mines, and the mining company Northland Resources has started extracting iron ore in Pajala in Finland. The first estimates from Northland Resources indicate that there is sufficient ore to run the mines for at least 25 years. The company has decided to ship its annual production of more than 5 million tonnes via Narvik in North Norway.

According to plan, Nussir will start to mine copper in Kvalsund in North Norway in 2013. Estimates indicate deposits worth NOK 35 billion.

 

Bulk – the Northern Sea Route

These developments entail an increase in maritime traffic, and unless we develop efficient logistics systems, we will not be able to sell our geological resources at competitive prices.

Bulk transport of oil, gas, ores and minerals accounts for a significant share of shipping in Arctic waters. The Arctic Marine Shipping Assessment shows that in 2004, 20% of maritime transport in the Arctic was bulk transport of oil, gas and other natural resources.

This illustration shows the Northern Sea Route (North East Passage) – the most promising of the Arctic sea routes in terms of its potential for maritime transport.

It is estimated that the volume of goods transported via the Northern Sea Route will increase from 1.5 million tonnes in 2002 to 50 million tonnes in 2020.

Between 2002 and 2008, the volume of oil and gas transported via the Northern Sea Route increased from 4 million tonnes to 11.5 million tonnes. Today, it is mainly oil from Western Siberia that is shipped along this route and transhipped in the Barents Sea on both the Russian and Norwegian side. The Arctic Marine Shipping Assessment estimates that the volume of oil and gas transported via the western section of the Northern Sea Route (from the Pechora Sea to Europe) could reach 40 million tonnes a year in 2020.

The volumes for minerals are currently lower. Norilsk Nickel ships most of its production (mainly nickel and copper) – estimated at 1.3 million tonnes a year – from the port of Dudinka in the Kara Sea. The volumes transported along the Northern Sea Route in the future will depend on such factors as economic developments in importing countries like China, Japan and South Korea.

The Arctic Climate Impact Assessment from 2004 forecast an extended navigation season for the Northern Sea Route from 20–30 days in 2004 to 90–100 days in 2080. We have seen that the transport volume along this route has increased in recent years, and it can be expected to increase further in the years to come. Here is an example:

At the beginning of September, the 41 000 tonne bulk carrier MV Nordic Barents took 12 days to sail from Kirkenes in North Norway to the Bering Strait through the Northern Sea Route. It was carrying iron ore concentrate from the mining company Sydvaranger Gruve to China.

The Northern Sea Route (NSR) is partly covered by ice, the extent of which varies according to season. This means that vessels passing along this route need the assistance of icebreakers. Russia has the world’s largest icebreaker fleet, and 54 of the estimated total of 80 icebreakers in the world operate in Russian waters. In 2008, 28 of these were active in Arctic areas and 7 of these are nuclear powered.

There are four main factors that affect the amount of time and money that can be saved by taking the Northern Sea Route:

­        Distance (the NSR is shorter and this reduces total fuel costs)

­        Speed (reduced speed along the NSR, which increases time and costs)

­        Insurance costs (higher for the NSR)

­        Icebreaker services (additional cost in connection with the NSR)

 

It is estimated that for the Yokohama–Hamburg route, the NSR is approximately 40% shorter than the route via the Suez Canal, and the fuel costs are approximately 20% less.[2]

Atomflot indicates that the voyage from Murmansk to Japan via the NSR is 13 days shorter than the voyage via the Suez Canal, and likewise that the voyage from Murmansk to South Korea is 11 days shorter and to China 8 days shorter.

The distance between Kirkenes in Norway and Qingdao in China via the NSR is 6 650 nautical miles (nm), compared with 12 405 nm via Suez and 15 842 nm via the Cape of Good Hope.

 

Cruise traffic in the Arctic

In addition to the transport of natural resources to the world markets, we are also seeing an increase in cruise tourism in the Arctic.

Cruise ships mainly sail through areas that are ice free, at least in the summer. However, they often pass close to land and the ice edge in order to give the passengers the best possible views. This increases the risk of encountering ice and of subsequent accidents.

According to one study, there were 1.2 million passengers aboard cruise ships operating in Arctic waters in 2004, and in 2007 the figure had almost doubled. In our own Arctic waters, we are seeing a marked increase in cruise tourism around Svalbard. The number of calls to Longyearbyen increased by 20% from 2008 to 2009.

The main challenge is that cruise ships are often so large that local rescue capacity would not be sufficient to deal with an accident if one occurred. Moreover, these ships pass through very inaccessible areas and low sea and air temperatures mean that it is vital to ensure a rapid and effective response in the event of an accident.

The infrastructure for search and rescue in the Arctic region is limited, although it is better in some areas than others. Norway has a robust system and adequate resources as a result of the Government’s targeted efforts over several years. The strategy document New Building Blocks in the North sets out that the Government intends to “improve monitoring, emergency response and maritime safety systems in northern waters”.

In other areas, there is little or no emergency response capacity to assist a cruise ship in distress. Among other things, there is a major shortage of helicopters that can tackle the distances involved and undertake heavy lifts. Helicopter operations can also be restricted by weather conditions, and there are few bunkering and service facilities in the Arctic.

 

International agreements and development of the regulatory regime

As a coastal state, Norway has obligations under international law with regard to search and rescue services. A number of agreements on search and rescue have been concluded. For example, in 1995, Norway entered into an agreement with Russia on search and rescue cooperation in the Barents Sea. As a result of this agreement, Norway and Russia carry out joint annual sea rescue exercises.

In addition, Norway and the other members of the Arctic Council are currently negotiating a new binding instrument for search and rescue in the Arctic. The aim is to improve regional organisation of search and rescue services in the Arctic, and to divide the region into national search and rescue areas in order to clarify the responsibility of the individual coastal states. The fourth meeting in this process was held in Helsinki 6–8 October, and the next will be held in Reykjavik in December. The aim is that an agreement will be signed during the Arctic Council’s next Ministerial Meeting in Nuuk in May 2011.

But we must remember that a search and rescue agreement will not provide all the answers. The time factor will often be critical. Long distances may mean that it will not be possible to reach those in distress in time.

Although the legal framework for the Arctic Ocean is set out in the UN Convention on the Law of the Sea, new developments may make it necessary to further develop this framework in certain areas. Shipping is by nature international; it is a tool for international trade. The regulatory regime for international shipping must therefore be developed with the aim of achieving harmonised and universal rules.

Norway attaches great importance to further developing the rules for shipping in Arctic areas, and in particular to the ongoing work in the International Maritime Organization (IMO) to develop a new set of binding rules for the Arctic – a polar code. The next meeting of the Maritime Safety Committee will take place at the end of October. At this meeting, a working group will be established to draft such a polar code. Norway has been requested to lead this group, and the aim is to complete the polar code in 2012 with a view to it entering into force in 2014.

 

Conclusion – the need for more knowledge

There are considerable challenges related to shipping in Arctic waters. It is costly to build ice class vessels. Winter darkness, summer fog and ice formation on vessels all represent risks. The charts are not good enough and neither are the weather forecasts. We are therefore considering establishing an Arctic Regional Hydrographic Commission.

 The Government intends to improve monitoring, emergency response and maritime safety systems in northern waters. This focus is being followed up in the government budget for this year and next. Emergency response capacity for dealing with oil spills and accidents will be increased through concrete measures such as competence-building for Coast Guard staff, increasing tugboat capacity in the north, continuing the allocations for oil spill response equipment, and research cooperation on oil spill response under difficult climatic conditions. In addition, we have started to develop an integrated maritime surveillance system for the High North – BarentsWatch.

Through the Barents 2020 programme, we are helping to build knowledge about, in and for the High North. For example we supported the establishment of the Centre for High North Logistics (CHNL).

Interaction and networking between the various actors in the knowledge and business sectors in Norway and Russia is vital. Since 2007, funds from the Barents 2020 programme have co-financed cooperation with Russian industry and authorities on the establishment of common environmental and safety standards in connection with developing oil and gas activities in the Barents Sea. We are now seeing that actors from other countries are interested in taking part in this project. The oil company Cairn Energy, which is currently engaged in exploration of Greenland’s continental shelf, is taking part in two of the working groups in this project. The exchange of knowledge and experience can help to improve HSE standards for petroleum operations and associated maritime transport in the whole Arctic region. The development of new knowledge is the basis for future value creation in the north.

Knowledge is a key factor in the Government’s High North strategy – and I would like to stress this here today. With knowledge, we can meet the challenges and opportunities that maritime transport in the High North entails, and thus safeguard Norwegian interests in the region.

One month ago, I met President Nils Christian Stenseth for a discussion on science and politics in this splendid building. This gave me new input for my efforts to promote Norwegian interests internationally. I hope that today’s symposium will likewise foster exchange of knowledge and interaction between academia, the business sector and politicians in a way that ensures the best possible development of maritime transport in the High North.

Thank you.