Ice Floes and Global Economics Woes: The Future of Arctic Shipping Considered

Heather A Conley, Senior Vice President for Europe, Eurasia, and the Arctic, opened the discussion at the Center for Strategic and International Studies (CSIS) on the current and future state of play related to destination shipping and transshipment across the Arctic region. The following panelists contributed to the discussion:

Ms. Helen Brohl, Executive Director, U.S. Committee on Marine Transportation System
Director General Ida Skard, Director General, Norwegian Ministry of Trade, Industry and Fisheries
Dr. Lawson Brigham, Distinguished Professor of Geography & Arctic policy, University of Alaska Fairbanks
Charlotte Demeer Strøm, Director – Head of International Politics, Norwegian Shipowners’ Association

The conversation focused on a deeper dive into what is going on as it relates to Arctic shipping – whether there is a slow down as commodity prices are suppressed, or if there will be a continued upward trajectory as tourism, fisheries, and other human activities increase.

Conley stated that in some ways this is a tale of two Arctic’s: there is the European/ Norwegian Arctic, which is a populated area with very developed infrastructure; and there is the North American Arctic which consists of sparsely populated areas with very light infrastructure.

This is something that needs to be kept in mind in terms of the future of the Arctic’s shipping status – there are different Arctic’s that are having different challenges with infrastructure as well as economic development.

Helen Brohl began by stating that the Committee on Maritime Transportation Systems (CMTS) is an authorized federal coordinating committee, and is responsible for bringing the 25 federal agencies that are engaged in marine transportation to address broader transportation issues.

On the maritime side, the CMTS’s goal has been to bring together all of the marine transportation-engaged agencies to hone broader policy decisions. On the Arctic-specific side, in 2010, CMTS was directed to coordinate transportation policy in the U.S. Arctic for safety and security.

In 2013, in response to their 2010 authorization, and in response to the Arctic Marine Assessment Report, CMTS did a report to assess the components of a marine transportation system in the U.S. Arctic.

Brohl also announced that the first ever science ministerial meeting will be held in Washington, DC in late summer or early fall in 2016. This meeting will look at things that are broader than just the environmental impacts in the Arctic.

The CMTS has a role in these broader elements, in terms of safety and security. In 2013, CMTS released a report which gave an overview of the Arctic Marine Transportation System, and the maritime components of a transportation system in the Arctic. In the report, CMTS made broad recommendations of infrastructure needs to support a safe maritime system.

In a follow up to this report, CMTS was asked by the White House to conduct a projection of maritime activity in the U.S. Arctic over a 10 year period from 2015 – 2025. This report was finished in 2014, at a time when it was presumed that Shell would still have operations in the U.S. Arctic. This projection consisted of a scenario-based analysis of what the low and high ends of traffic would be in the U.S. Arctic.

The report incorporated factors contributing to growth, which were divided into 3 groups: natural resources exploration and development, expansion of destination Arctic vessel traffic (supporting communities and intra-Arctic resource transport), and Arctic transit traffic diverted from other international shipping routes like the Suez or Panama canals.

By adding the business-as-usual (BAU) growth and diversion together, they projected ship activity by ship type and by month that will cross the U.S. Arctic. This forecasts approximately 750 ships traversing the U.S. Arctic in 2025, or a seven-fold increase from current transits for the vessel types considered.

Recognizing that there is significant uncertainty of future ship activity growth in the Arctic, estimates for ship transits in 2025 range anywhere from 400 to 1,120.
CMTS just received ship transit numbers for the past year from the U.S. Coast Guard and 2015 was a record year (the previous high was 2012). Since Shell had no more vessels in the region in 2015 than they did in 2012, where are these additional ships coming from?

The Coast Guard reported in 2012 that there were 215 vessels of concern in District 17 (their Alaskan maritime region) and 300 in 2015. Through the Bering Strait, there were 480 in 2012 and 540 in 2015.

Brohl stated she only had aggregate numbers, so she could not say which countries these additional ships were coming from, but she could say what types of ships they were. There were more cargo ships, tugs, research science vessels (which are separate from oil and gas research science vessels), and government vessels.

The increase in cargo ships and tugs is consistent with our 2013 projections for the year 2025. Even if those numbers are said to stay the same, the track lines are everywhere. In addition to unique vessels, the amount of vessel movement around the Arctic should also be taken into account.

Vessel transits that went down were tankers, cruise ships, adventuring ships, and bulk (particularly from the Red Dog Mine).

CMTS is currently analyzing projections for investment priorities in the U.S. Arctic – what should be done over the next 10 years and what do agencies want to take on or consider to take on in the next 10 years to address system needs.

In the Arctic, system needs is a much more complicated conversation. We still look at infrastructure investment relative to navigable waterways, physical infrastructure, informational infrastructure, response services, and vessel services. We also are currently looking at what we want invested in the short-term, medium-term, and long term.

CMTS is taking into consideration 41 – 45 recommendations, and some of them can be discussed generally. For instance, the recommendation of designating a federally – recognized port of refuge.

There is also discussion on the leverage partnerships to support domestic and international waterways coordination. To deal with some of the emptiness in the Arctic, you need to think about some of these management schemes. This includes water level observation networks, all of the continuously operating reference stations, Arctic geo-data frameworks, port reception facilities to address current and future ship and vessel needs, and environmental protection.

Brohl added that we need to continue to develop Arctic weather and sea ice forecasting abilities, continue to prioritize charting of the U.S. maritime Arctic, and advance the Arctic communication network, including AIS capabilities.

CMTS, through its federal agency partners, is reviewing infrastructure priorities for the next 10 years. The goal is to coalesce these priorities to be consistent with the other White House needs for the Arctic, as well as the marine transportation system components.

Director General Ida Skard began by giving an overview of Norway’s outlook in the midst of predicted increases in economic activity and shipping in the Arctic. Few other nations have as many people living in the Arctic, so high levels of activity in the region mean a greater economic impact for Norway when compared to other Arctic nations with more diversified economies.

80% of all Arctic seaboard shipping traffic takes place in Norwegian waters. While all this maritime activity is an advantage, the massive volume of maritime traffic crossings in the region is a demanding position. Given the multitude of investment opportunities in the Arctic, the Norwegian government adopted a strategy last year making Arctic investment one of the nation’s main priorities.

However, the drop in oil and mineral prices has slowed down activity in the Arctic region and it is uncertain how quickly it will rebound. The number of passages through the Northwest Passage has slowed down this past year.

The challenges in the North are enormous, and the adoption of the Polar Code represents a crucial step toward ensuring sustainable shipping in international Arctic waters. Skard added that we must also ensure adequate training of crew aboard ships in the Arctic. There have been amendments made to the International Maritime Organization’s (IMO) Polar Code related to the training requirements for officers and crew on board ships. This amendment will tentatively be adopted into the Polar code in February 2016.

Skard welcomes the U.S. task force on telecommunication infrastructure in the Arctic. Norway is actively participating in the task force and Skard looks forward to seeing the finished report next year.

Dr. Lawson Brigham began by saying with the two previous speakers’ presentations were helpful by focusing on economics. He believes that when we talk about Arctic marine shipping assessments, the main concern is not about sea ice retreat, but about the economics of natural resource development.

Brigham outlined how the Arctic is linked to the Global Economic System. He gave the following figures that represent the percentage of resources found in the Arctic relative to worldwide estimates:

10% of international fishing is done in the Arctic

There are many different hard minerals found in the Arctic, including: palladium (40%), nickel (22%), diamonds (20%), platinum (15%), and zinc (10%)
Arctic hydrocarbons also contain 30% of the world’s undiscovered oil and 13% of the world’s undiscovered gas.
Other potential resources that are valuable global commodities include rare earth metals, coal, and fresh water

Additional roles Dr. Brigham says the Arctic plays in the global economic system are the global marine tourism industry, regional trade to Northern communities, and infrastructure development in the Arctic.

He stated that sometimes there is misinterpretation when it comes to access to the Arctic. We tend to focus on map projections of the largely ice-free and navigable Arctic in the summer months even though the region is largely covered in ice the rest of the year. There is barely any ship activity from January through May.

The increase in numbers may also be a result of more Automatic Identification System (AIS) domain sites which simply pick up vessel operations that were previously undocumented. Even so, the numbers are insignificant relative to global trade, but they are not insignificant when it comes to protection of people and the environment.

There is some dispute over what constitutes a “transit”. For example, 57 transits may be reported when in reality there were only 37. While a transit to most mariners is from point A to point B, there can some “flexibility and agility to them, to be polite.”

These number of voyages is small but very significant. An LNG ship going from northern Norway to Japan takes three nuclear icebreakers to escort it, something that raises the question how economic this type of transit is.

Brigham concluded with the four issues he finds most significant:

No one has a definitive answer to the question of how long a shipping season in the Arctic should be to remain economically viable.
The infrastructure gap problem will only continue to grow if it is not addressed
Implementing the Polar Code in theory would be the responsibility of the flag state, but in practice, the Arctic states would probably be the ones who would have to enforce the Polar Code
The challenge CMTS and others face when trying to accurately project plausible traffic estimates. This requires a global economic analysis and a thorough assessment of the global maritime industry.

Question & Answer about the Costs Associated with the Polar Code

Conley listed questions for the panelists to address. One question she raised was regarding future costs, and what costs that panelists anticipated to be associated with the implementation of the Polar Code in January 1^st, 2017.

Brohl responded that in any regulatory process of implementing a rule, the agency would have to look at the financial impact to industry. That is really is a question for the U.S. Coast Guard.

Dr. Brigham added that the Polar Code is a seminal, historic regime for the Arctic and the Antarctic. It does give the insurance industry international standards to look to, but operating at both ends of the world is costly.

We are not sure what flag states will do regarding implementation and the speed of the implementation of the Polar Code, but you can be sure that the port states will ask for transiting vessels’ polar certificate, polar operations manual, the experience of the mariner, and how their vessel meets the Polar Code. This gives Arctic states an opportunity to have some leverage in the implementation of the Polar Code.

The Arctic states could work together through the Arctic Coast Guard Forum (ACGF). They would not be able to do so through the Arctic Council (AC), as the AC is a nonoperational agency. It is within the individual states through the IMO that these new amendments will be enforced.

Question & Answer about Arctic Traffic Lanes/ Corridors

Conely asked another question about creating Arctic corridors, or traffic lanes, and what would the cost be to ensure these safety measures are put in place.

Skard responded that a similar concept to traffic corridors in the Norwegian and Russian waters does exist. There is very good cooperation between Norway and Russia on this issue.

Dr. Brigham added that he is not a fan of traffic lanes, because icebreaker captains sometimes need to take a ship on a route that could be ten nautical miles away from the designated shipping lane in the interest of safety efficiency. The idea of traffic lanes in ice in some areas in the Arctic like the Bering Strait is novel, but not applicable.

In free water, the traffic lanes should be seasonal because when there is ice cover, “it is a completely different ball game.” In the Canadian and Russian Arctic, there may be traffic lanes because of existing infrastructure, but these lanes are probably different when there is ice compared to an ice-free season.

Question & Answer about public-private partnerships in the Arctic

An audience member asked where the greatest opportunities for public-private partnerships exist in the Arctic, and if there are specific examples of these types of partnerships in the past.

Brohl stated that the CMTS has to submit a report to the White House on applying public-private partnerships (P3’s) to support infrastructure investment. Related to Alaska specifically, the focus should not be on “public-private partnerships,” but rather on “private-public partnerships.” As federal partners, the bigger issue is what the definition of a public-private partnership is. There was a legal analysis done of federal government authorities, and found that each authority had a different definition of what a P3 was, as well as different mechanisms to implement them.

CMTS has begun to conduct research and held one webinar on what stakeholders are doing in the Arctic (this webinar can be found here in the 16^th Edition of The Arctic Report 2015), and the main outcome of was that private industry would be happy to lease their ships to federal agencies. However, contracting is not the same thing as a P3.

There has been some success with sharing and federal properties and lands. In the Arctic, we have not begun to think of the land related side of this very thoroughly because there is not a typical intermodal land connection that exists elsewhere in the U.S. In Barrow, for example, there is no land connection, it is all by water. She added that P3’s are ultimately one example at a time.

Charlotte Demeer Strøm stated that P3’s are about dialogue between authorities and industry as it relates to developing the Arctic. As an example, the search & rescue in the High North, which is a P3 project, is funded by the minister of foreign affairs and co-funded by a multitude of private business.