1. The Northern Sea Route’s Economic and Strategic Significance and Plan for Sustainable Usage Dr. Bjørn Gunnarsson Managing Director bjorn@chnl.no www.chnl.nowww.chnl.no www.arctic-lio.com www.arctis-search.comwww.arctic-lio.comwww.arctis-search.com ASEM Symposium on Eurasia Transport & Logistics Network Seoul, South-Korea, September 9-11, 2015

2. 1. NSR’s Economic and Strategic Significance for Russia

3. Lena River Yenisey River Ob River Kolyma River NSR will Unlock the Resource Potential of the Eurasian Arctic Murmansk Kandalaksha Vitino Onega Arkhangelsk Mezen Naryan Mar Varandey Amdema Sabetta Dikson Dudinka Igarka Khatanga Tiksi Pevek Provideniya NSR Water Area Anadyr Petropavlovsk- Kamchatskiy

4. Oil & Gas Development Transport Yamal LNG - Port Sabetta 17.6 million tons LNG per year (2021- ) Year-round operations 16 LNG tankers (172 600 m3) 240 port calls per year (1 tanker/36 h) Novy Port Oil Field - Novy Port 8.5 million tons per year (2017- ) Year-round operations New tankers of 36 000 dwt Monthly export 700 000 tons Payakha Oil Field – Tanalau 7,3 million tons per year (2024- ) Year-round operations 4-8 Arc7 tankers of 40 000 dwt 220 port calls per year (1 tanker/40 h)

5. Source: Yamal, Total 2014 Yamal’s LNG Shipping Options

6. Growth of NSR’s Cargo Traffic as a Result of Development of Russian Arctic Hydrocarbon Projects Millions of tons Source: Atomflot 2015

7. Estimates of Potential Traffic through NSR by 2030 Hydrocarbons Dry Bulk & Project Cargo Dry Bulk & Project Cargo Container Cargo Container Cargo 50 million tons5 million tons ? Including cargo from Norilsk Nickel currently about 1.1 million tons per year; iron ore from Scandinavia; deliveries to Arctic communities Current container traffic between North European ports and Asia is now about 15 million TEUs per year Export of hydrocarbon products from several energy projects in coastal and offshore areas of the Barents and Kara Seas Source: Far East Development Fund 2015

8. Russia’s Integrated Development Plan for the NSR 2015-2030 Increase NSR’s total cargo volume up to 80 million tons per year by 2030; or 20-times compared to 2014 The plan has six main focus areas to promote safer and more reliable navigation on NSR; and strategic importance Most of the planned cargos are oil and gas resources from the Russian Arctic coast and continental shelf; mineral resources Increasing cargo transport on NSR by foreign flag ships between European and Asian markets; partnerships with Asian countries, mainly China

9. 2. NSR as Alternative Trade Route NW Europe - NE Asia

10. Suezmax Tanker Vladimir Tikhonov 162 360 dwt LNG Tanker “ArcticAurora” 84 600 dwt LNGC Arctic Aurora 84 604 dwt LNGC Ob River 84 682 dwt NRS’s Demonstration Voyages 2010-2013 Tanker Propontis 117 055 dwt Tanker SCF Baltica 117 153 dwt Bulk Carrier Nordic Orio n Bulk Carrier Nordic Odyssey 75 603 dwt

11. NSR as an International Trade Route? Predictability & Punctuality Cargo Westward & Eastward Cargo Westward & Eastward Economy of Scale Transport Safety Attractiveness of NSR for transits is low due to the lack of predictability. Regularity of a year-round supply of goods is no less important than the cost of transportation Prerequisite for increased growth of transit shipping on the NSR is the availability of cargo transport in both east and west directions. New cargo base needs to be identified for shipment westward on NSR Limited number of vessels with adequate ice class represent a limitation on the utilization of the NSR; makes NSR vulnerable to competition from much larger vessels going via the Suez or Cape Russian nuclear icebreaker escort; Russian ice pilots; transport by high ice-class vessels (Arc4); NSR admittance criteria. Additional infrastructure needed

12. 3. NSR’s Plan for Sustainable Usage

13. NSR’s Administration & Management Minimize the risk of sailing delays due to sea ice A single organization needs to oversee all NSR’s activities, services and marketing Tariff system needs to be user-friendly and fees competitive to fees on southerly routes NSR «Authority» Risk of Delays Transport Fees Transport Fees

14. NSR’s Transport Services Availability and readiness of icebreaking services; optimization of icebreaking capacity Modernization of Russian Arctic ports; refuge and salvage operations Development of SAR and oil spill response services Major improvements in navigational aids and communication system Icebreakers Port Operations Port Operations SAR & Oil Spill Response SAR & Oil Spill Response Navigation & Communication Navigation & Communication

15. NSR’s Infrastructure System Design a new integraded transportation and logistics system for reliable and safe cargo transport Estimating the costs of the various infrastructure components Assessment of different funding mechanism in financing long-term capital-intensive infrastructure projects New Integrated Transport System New Integrated Transport System Cost Estimates Fanancing

16. Concluding Remarks NSR’s Strategic & Economic Importance – NSR has the potential of unlocking the natural resource potential of the Russian Arctic NSR as International Trade Route – A supplimentary route for certain types of cargos serviced by a fleet of specialized ice-class vessels on a year-round basis NSR’s Sustainability of Usage – A number of administrative, managment, service oriented and infrastructure issues need to be addressed Future NSR’s Transportation & Logistics System – We need to understand what kind of maritime transport infrastructure is needed for safer and more reliable transport on a year-round basis