Current Status and Prospects of Development

1

REPORT

“Current Status and Prospects of Development

of Navigation on the Northern Sea Route”

Report of V.I. Peresypkin, Director General of Central Research and Design Institute of Merchant Marine,at Russian Maritime Register of Shipping

(23 October 2008)

The main Russian traffic artery in the Arctic– the Northern Sea Route– passes through the ice-covered Arctic seas (SLIDE 1). The coastal and off-shore areas of these seas bear large amount of natural resources (oil, gas, non-ferrous metals). Petroleum potential is measured in the volume more than 100 billion tons that makes 30 per cent of the world oil and gas resources. The field development and transportation of products is possible upon availability of powerful nuclear and ice-breaking large transport ships and special navigation safety and environmental protection system.

Russia began integration of the Northern Sea Route (NSR) into the world transportation system as an independent Euro-Asian transport corridor.

The proper functioning of the Arctic Sea Transport System is based on the nuclear ice-breakers (SLIDE 2), which have provided all-year-round navigation in the Western Arctic region for 30 years.

Objectives of the NSR development are stipulated by the Transport Strategy of the Russian Federation through 2020, the main of which are as follows:

• transport support for development of the coastal/off-shore hydrocarbon deposits of the Arctic and sea export of oil and gas;
• development of prospective large-scale export, transit and cabotage transportation, delivery of socially significant cargo to the Northern territories;
• formation of self-supporting, profitable Arctic Sea Transport System;
• development and improvement of navigational-and-hydrographical, hydrometeorological services to maritime activities, means of communication and search-and-rescue service;
• prevention of the marine pollution.

Current NSR condition on the way to market relations is characterized by transformation of the NSR parts and commercial entities to different ownership structures. Despite the losses incurred in the extent of transportation along the NSR (from 6.7 to 2.0 million tons), in transport ice-going ships, in the Arctic infrastructure, the Arctic Sea Transport System satisfies the reduced national needs in the Arctic cargo transportation. The NSR transport corridors are navigated by about 10 liner icebreakers (6 of them are nuclear ones, including nuclear icebreaker 50 Let Pobedy constructed in 2007 (SLIDE 3) and more than 60 ice-category transport ships.

Generally, the current NSR condition is characterized by renewal of transport infrastructure in the Western Arctic region, which relates to the oil and gas condensate export by sea. In the Eastern Arctic region the NSR condition remains depressive, since the cargo basis is decreased by more than 4 times due to production curtailment.

Russia has a unique experience of ice operations in the Arctic. Great ice-going ship masters, icebreaker operators, polar hydrographers, ice prospectors and weather forecasters-hydrometeorologists have been trained. Despite all the difficulties, which Russia encountered in the course of reforms, the efficient system of special marine education has been preserved. Maritime academies, university and colleges function successfully. AdmiralMakarovStateMaritimeAcademyin Saint-Petersburg has the Arctic Faculty, which prepares polar hydrographers. Russia has one of the world best training fleets; training centers are being actively developed, including nuclear power plant simulators, which are annually financed by the federal budget.

Legal basis for establishment of the national rules for navigation along the NSR transport corridors is the UN Convention on the Law of the Sea, 1982 (Article 234 – Ice-covered areas), according to which the coastal State in the exclusive economic zone has the right to adopt the national laws and rules for navigation in the areas covered with ice for most of the year in order to prevent the marine pollution from ships.

Special rules for navigation along the NSR transport corridors are applied to the NSR water basin.

At present the rules are being revised and then they will be endorsed by the RF Government.

Herewith, the sphere of rule application is extended. It applies to the areas of the Eastern Barents Sea (PechoraSea) and Western Bering Sea covered with ice for most of the year.

Pechora Sea is the area of active navigation in the Arctic, which is connected with the beginning of large-scale oil export from Timano-Pechora and Prirazlomnoye fields with the gross volume up to 20 million tons per year by 2015 (SLIDE 4).

In general, the transportation volume along the NSR will make 35 – 40 million tons per year by 2015 – 2020. Considering such cargo traffic, provision is made as regards the development of the whole NSR transport infrastructure and forming of a self-supporting, profitable Arctic Sea Transport System.

Development of icebreaker fleet is stipulated by the Federal Goal-Based Programs “Modernization of the Russian Transport System” and “Development of the Russian Transport System” at the expense of the federal budget (SLIDE 5). Three multipurpose variable-draught nuclear icebreakers of ЛК-60Я type with shaft capacity of 60 MW and 5 diesel liner icebreakers of ЛК-25Д type with shaft capacity of 25MW will be constructed by 2020.

It is obvious that delivery of three nuclear icebreakers of ЛК-60Я type with the draught varying from 8.5 to 10.5 m is cost effective. They will replace five out-of-service nuclear icebreakers, including three icebreakers of the Arctica type and two icebreakers of the Taimyr type, which are involved in the ship piloting along the Murmansk-Dudinka line to provide the Norilsk MMC cargo transportation.

Itisthefirstconstructionofavariable-draughticebreaker. For the moment, a detailed icebreaker design is being developed; last year the draft design was completed. The icebreaker will be capable of operation in ice up to three meter of thickness. At the icebreaker design stage a number of complex problems shall be dealt with, which relate, first of all, to redesign of high capacity in shallow waters, etc.

On the diagram (SLIDE 6) you can see the dynamics of putting the existing icebreakers out of service and delivery of new nuclear icebreakers of ЛК-60Я type against the background ofincreasing transportation volumes. The diagram shows that with the new nuclear icebreakers of ЛК-60Я type being put in operation since 2015, the total number of nuclear icebreakers will provide cargo transportation till 2020. Though, the Dudunka line along Enisey may suffer a two-year “icebreaker pause”, when operating shallow-draught icebreakers Taimyr and Vaygach will be put out of service by 2013, while a new variable-draught nuclear icebreaker will be delivered to replace them only in two years. This shows the need in rigid deadline for construction of the lead nuclear icebreaker ЛК-60Я in 2015. Otherwise, during the “icebreaker pause” on the river part of Dudinka line use shall be made of the new generation diesel icebreakers ЛК-25Д with lesser cost efficiency and ice-going capacity, which are designed for transportation of supplies from the East and for the ship piloting along the Eastern Arctic area during summer navigation.

The icebreaker profits may be reduced from 2.5 to 0.7 billion rubles, as compared to those of 2007, due to the Norilsk Nickel MMC refusal of the icebreaker piloting services for their five Arc7category container ships, which will be commissioned by 2009. Herewith, the required annual subsidies of the State may increase to 1.8 billion rubles.

The Russian Maritime Doctrine through 2020 approved by the RF President provides for the State financing of maintenance, construction and operation of icebreakers and ice-class transport ships, primarily with the nuclear power plants, creation of a specialized basing system. An example – the experience of Canada and the USA, where the State icebreakers navigate in the Arctic free of charge, i.e. at the expense of the State.

Actually, these provisions are not met in our country, though, it should be noted that since 2007 subsidies for icebreaker fleet support have been allocated. 250 million rubles were allocated in 2007, 800 million rubles– in 2008. We hope that in 2009 the subsidies will be allocated in the sufficient amount.

This year a serious reform is carried out as regards management of the icebreaker fleet by transferring it into the economic management of Atomflot within Rosatom State Nuclear Energy Corporationon 28 August 2008. This requires the establishment of an optimal scheme of interaction between the RF Ministry of Transport and the Federal Agency of Sea and River Transport (Rosmorrechflot)on the one hand, and Rosatom State Nuclear Energy Corporation, Atomflot and Maritime Operations Headquarters, on the other hand, during the ship piloting by icebreakers and piloting charges.

Federal goal-based program “Development of Civil Marine Equipment through 2009 – 2016” provides the development of technical proposals and conceptual design of a lead nuclear icebreaker of shaft capacity 110 – 130 MW, capable of safe and effective operation in any ice conditions in any area of the Arctic basin, including all-year-round piloting of transit ships along the high-latitude NSR transport corridors.

Development of transport fleet is performed under the plans and at the expense of production companies (SLIDE 7). State support in the form of subsidies is sent for payment of the interest rate part on the Russian bank credits for construction of ships to the Russian flag at the Russian shipyards.

About 60 ships shall be delivered by 2020, including 18 tankers.

For oil transportation from Varandey terminal in the PechoraSea, on order of LUKOIL in December 2007, a lead (in a series of 3 ships) Arc6category shuttle tanker Vasiliy Dinkov with a deadweight of 70000 tons was constructed.

For servicing a drilling platform in an off-shore field Prirazlomnoye in the Pechora Sea, on order of Gazprom, two more Arc6category shuttle tankers with a deadweight of 70 000 tons will be constructed by 2010. To provide the platform with icebreaker support two supply vessels Yuri Topchev and Vyacheslav Strizhovwith shaft capacity 20 MW were constructed (SLIDE 8).

On order of Rosneft, construction was started of a series of Arc6category shuttle tankers with a deadweight of 30 000 tons designed for oil- and oil products transportation from the White Sea Ports of Archangelsk and Vitino; lead tanker RN Archangelsk was commissioned in 2008.

The operation of ice-class tankers will be more cost effective, if they are used as shuttle tankers. Ice-class tankers deliver oil to the offshore oil shipment terminal at the port of Murmansk. Then the oil is dispensed to storage tanker, and from there – to ocean tankers with deadweight of 150 – 300 000 tons, which export oil to the European and the USAports.

For all-year-round navigation along the Dudinka line and transportation of cargo of Norilsk Nickel MMC, on Norilsk Nickel MMC order, a lead (in a series of 5 ships) Arc7category containership Norilskiy Nickel with deadweight of 15 000 tons was constructed in 2006 (SLIDE 9). All containerships of the series shall be constructed by early 2009. Results of the lead containership sea trials show that it is capable of independent navigation without piloting in ice up to 1.5m of thickness along the Dudinka – Murmansk line with the special hydrometeorological support.

Within the Federal Goal-Based Program “Development of the Russian Transport System (through 2010 – 2015)” four Arc7category supply vessels shall be delivered with deadweight of 1500 – 2000 tons to ensure delivery of the socially significant cargo to the Arctic region.

The transit transportation along the NSR was finished in 2001. It is necessary to carry out a number of measures to restore the NSR transit. According to the estimate of the foreign experts, the volume of transit cargoes by the NSR may potentially reach 5 – 6million tons in the Eastern direction and 2 – 3 million tons in the Western direction. The climate warming and shrinking of the Arctic ice cover observed over the last years open new prospects for the transit in the high latitudes at light ice conditions. Meanwhile, there is an alternative opinion that it is too earlier to speak about the global warming: light ice conditions may change to harsh conditions; climatic and ice changes are cyclical.

That is why our institute has made a calculation of the NSR container transit transportations between the ports of Yokohama and Hamburg for Arc7 category containerships of 2500 TEU capacity at light and medium type ice conditions as opposed to the transit along the Southern route through the Suez Canal on the 2556 TEU traditional container ship (SLIDE10).

Calculation of the containership speed through the ice piloted by the nuclear icebreaker ЛК-60Я and 50 Let Pobedy and during the autonomous navigation is based upon the economical and mathematical model.

Duration of voyage at light ice conditions (a) along the NSR, which may happen in case of the global warming, will be less during the whole year; at a medium type of ice conditions (б) – during 8 – 9 months. During the autonomous voyage of a containership along the NSR the advantage (as opposed to the southern route) shortens to 8 – 9 months during warming and it shortens to 6 months at a medium type of ice conditions.

The prime cost of transportation of one container (SLIDE11) during winter navigation along the NSR at light ice conditions on average is 25 – 27 per cent higher than along the southern route. However, during summer navigation the transportation along the NSR is on average by 33 – 35 per cent preferable than the transportation through the Suez Canal. In the autonomous navigation of containership the prime cost of transportation is on average by 13 per cent lower than the prime cost of container transportation along the southern route. However, it is impossible to guarantee timeliness (just in time) of cargo delivery along the NSR.

Eventually, the performed studies give ground to come to an optimistic conclusion that the NSR transportation of container at an expected change of climate may be a competitive variant to the southern route of transportation through the Suez Canal at a lower annual rate of expenses.

Being interested in the development of the international navigation along the NSR, Russia maintains standards of the safety of navigation and environmental protection at the relevant international level.

The following indicators will determine the development of system ofthe safety of navigation (means of navigation, hydrography, hydrometeorology, search-and-rescue) as long as the scope of the State financing increases by the year 2020:

Navigation:

• improvement of provision of the information on the safety of shipping to ships ( Slide 12) by means of modernization of the SafetyNET satellite system and the NAVTEX shore stations for the transmission and the automatic acquisition of the navigational warnings, meteorological messages and search-and-rescue information on ships;
• improvement of the ship navigation accuracy ( up to ±10 m) due to launching of 11 shore-based control and correction stations of the Global Navigation Satellite System GLONASS/GPS enabling the system to operate in the differential regime;
• updating of 747 sea navigational charts, including 194 charts in English, 19 guidelines including the Regulations for Navigation on the Seaways of the Northern Sea Route in Russian and English, as well as the sailing directions for all Arctic seas;
• development of the electronic charts based upon hard copy charts.

Hydrography:

• 10000 sq.km areal survey (Slide 13) of the estuary areas of Enisey, Hatanga, Anabar, Kolyma andLena;
• up to 60000 km hydrographic survey for operation support of the “Northern delivery” of cargoes by ships on the limiting areas and detected navigation dangers;
• maintenance of the hydrographic fleet (14 ships) by means of launching new ships.

Hydrometeorology:

• launching of a set of polar and in-orbit hydrometeorological satellites (3 satellites) enabling the radiolocation survey of ice conditions;
• improvement of the technology for the ice conditions analysis and transmission of the annual, seasonal and short-term ice conditions forecasts to clients;
• implementation of the Decart-Ice-Navigator software package on the ice breakers, overlapping ice picture with the electronic navigational chart;
• constructionof38 automated hydrometeorological stations with the satellite data transmission channel.

Search-and-rescue:

• allocation of 12 emergency radio observation stations in the Arctic ports;
• expansion of the search-and-rescue stations’ assets in Murmansk, Arkhangelsk and Peveka;
• purchase and renovation of means for the liquidation of the oil spills for FSUE “Murmanskoe BASU” and the expeditionary search-and-rescue and subsea technical detachment of OAO “SevernoyeMorskoye Parokhodstvo” (Northern Shipping Co);
• construction of one rescue tug and one sea-going diving ship for each of the port of Narjan-Mar and Pevek.

Risk assessment of navigation along the NSR over the whole history of the NSR is based upon the studies of CNIIMF, Arctic and Antarctic Research Institute and Russian Maritime Register of Shipping and is characterized by the following indicators.

Relative probability of the ship loss in ice is 10 times less than in the open ocean.

Probability of getting hard ice damage with water leakage doesnot exceed 2 per cent of ships navigating along the NSR. This is the same rate as the rate of the ship collisions in the coastal waters of the world oceans.

No oil spills due to damage were reported over 30 years of operation of 17 ice-going tankers. No damages were reported over 50 years of operation of nuclear and diesel liner ice-breakers. Radiation situation on the nuclear ice-breakers stays within the technical limits.

Insurance of shipsnavigatingalong the NSR is performed by the Russian P&I Pool. This Pool was established in 1997 and now it comprises 14 leading Russian insurance companies. Responsibility of the Pool is protected by the reinsurance contract with three Western insurance companies. Having a network of branches in 600 ports worldwide, the Pool can insure the foreign ships going along the NSR. The above mentioned information on the sea risks and insurance of ships navigating along the NSR is more objective than the information usually provided in the West and this may be useful for the foreign shipowners intending to send their ships for navigation along the NSR.

Improvement of the navigation management system along the NSR is based upon the principles set forth in the Russian Maritime Doctrine: protection of the national interests of the Russian Federation in respect of the Northern Sea Route, centralized State management of this transport system, ice-breaker maintenance and provision of the equal access for all transporters concerned, including foreign ones.