Featured image: The LNG tanker Ob River. Photo © Gazprom.

Ob River, a Greek-owned, Gazprom-operated liquefied natural gas (LNG) tanker, is sailing from Hammerfest, Norway to Tobata, Japan and will arrive today, December 4, 2012. This is the first time that a ship carrying LNG has transited the Northern Sea Route (NSR). Developments in shipping LNG in the Arctic have picked up pace lately. Only recently did Norwegian company Knutsen OAS Shipping receive permission from Russian authorities to begin shipping LNG from Snøhvit to Japan. In October, Ob River became the world’s first LNG tanker to transit the NSR, sailing from South Korea to Murmansk. It was not carrying any LNG, though, as it was merely mapping the route. Only a month later, the Ob River, which is able to carry up to 63,000 metric tons of LNG, set off carrying the resources it is set to deliver today to Japan. The Wall Street Journal has an in-depth article on the significance of the ship’s journey, and they state that a company could save up to $3 million by using the NSR. This figure, however, does not account for additional insurance necessary to cover sailing in potentially treacherous, icy waters, or the mandated hiring of Russian icebreakers.

Arctic gas more important than Arctic oil

Currently, the Arctic is more important as a gas supplier than as an oil supplier, although that could change by 2050 according to some researchers (Lindholt and Glomsrød, 2011). Most of the region’s natural gas, being far from shore, must be exported via liquified natural gas (LNG) tankers. Japan and South Korea are the world’s largest importers of LNG; Japan’s imports alone constitute one-third of total global imports. They have no connections to natural gas pipelines, making them natural candidates for purchasing Arctic LNG. Both countries already have fleets of LNG tankers and import terminals. By contrast, China can acquire oil from closer suppliers in Southeast Asia and tap into pipelines from Central Asia.

Most of South Korea’s gas needs are met by countries in the south: Qatar, Indonesia, Malaysia, and Oman. LNG from Qatar and Oman must transit the Strait of Hormuz, presenting a riskier situation geopolitically than the NSR. For that reason, among others, Japan and South Korea are interested in exploring sourcing hydrocarbons from the north. Japan has invested in the oil sands in Alberta, and in January 2011, Kogas sent a delegation to the Northwest Territories to research constructing an LNG terminal in the Northwest Territories. Additionally, Korean and Russian delegates have met to discuss a Trans-Korean pipeline from Sakhalin to South Korea. Oleg Nikiforov, the managing editor of Nezavisimaya Gazeta, stated, “The Chinese market holds much larger potential for Siberian and Far Eastern energy than Korea. But Korea plays a crucial role in Russia’s pursuit of energy ties with the Asia Pacific region.” Russia is also looking to export its supplies to Asia because of falling demand in Europe. Japan’s demands for LNG are likely set to rise, especially as it shifts from nuclear power back to conventional fossil fuels in the wake of the Fukushima disaster. In September, the CEO of Gazprom, Alexei Miller, signed a memorandum of understanding with the head of the Japanese Ministry of Economy, Trade and Industry’s natural resources and energy agency on building a $7 billion LNG terminal in Vladivostok.

Northern Sea Route growing in importance

The NSR is gaining importance as a maritime route. 42 ships transited the passage this year, as opposed to 34 last year – an almost 24 percent increase. Russia is commissioning the construction of more LNG tankers, too, which will be able to navigate the NSR year-round. Last month, the keel was laid for the first ship of the new fleet, the Veliky Novogorod, in a South Korean shipyard. All of this new activity points to the burgeoning growth of northeastern Asia as a sort of hub energy market for exports from both the larger Arctic, including Siberia and Norway, and North America. This could reshape shipping patterns, linking the so-called Arctic Rim with the Pacific Rim through the vertices of Japan and Korea. If the Northern Gateway project bringing products from the Alberta oil sands to the British Columbia coast goes forward, then there will certainly be more shipping of hydrocarbons across the Pacific Ocean to Asia. To paint a picture of the new contours of the Arctic’s economic geography, we have South Korean shipyards building Russian ships to transport Norwegian LNG to Japan.

As oil companies make headway in the Arctic, though, it is important to keep in mind how the ongoing development of unconventional resources could hinder ambitious, expensive projects in the north, as happened with the Mackenzie Valley Pipeline. Currently, north of the Arctic Circle, the Norwegian Snøhvit project is the only LNG project underway. Russia’s Shtokman project, in the Barents Sea, has been put on hold indefinitely due to the drop in the price of natural gas. Extraction of oil sands in Canada and natural gas by means of hydraulic fracturing in the United States are reshaping global energy markets. Terminals in the United States originally meant to receive LNG deliveries are now being turned into export terminals for shipment to places such as South Korea. Cheniere Energy in Texas signed a 20-year contract with Kogas to ship LNG beginning in 2017. Hydrocarbons in the Arctic will only be developed if the price is right.

The Port of Kitakyushu near Tobata, Japan. Photo: Wikimedia Commons by そらみみ

News Links

“Russian LNG tanker takes on Arctic’s Northern Sea Route,” Alaska Dispatch

“Putin Praises Russia-Japan LNG Project,” RIA Novosti

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