Arctic Resources and Shipping of Oil, Gas, Ore, and Forest Products along the Northeast Passage 

(by Arnfinn Jørgensen-Dahl)


Oil and Gas Resources of the Eurasian Arctic

Russia is the world’s leading natural gas producer and had in 2008 the largest natural gas reserves at 23.4% of total world reserves. Almost 90% of the country’ natural gas came from northern West Siberia where three enormous gas fields supplied almost 70% of the gas production.

In the middle of the decade these reserves were in decline, however. Increasing domestic demand due to economic growth and long term export commitments to Europe have generated a need for increased gas production which has prompted the search for additional supplies to fields further north and east where the physical environment is harsher and more challenging leading to higher development costs. One of these areas is the Yamal Peninsula and its adjacent offshore areas1 . However, higher exploration and recovery costs may put the search for new Arctic gas resources at a competitive disadvantage2 . Add to this another complication that may put the development of Arctic gas resources at a further disadvantage. The great strides made in US shale gas production are also beginning to affect Europe. Potential European shale gas production in particular is seen as a way of making the EU less dependent on Russian gas.

In 2006, for example, Russia supplied Germany 36% of her natural gas consumption, Italy 25%, France 20%, Austria 74% , Finland 100%, and Switzerland 12%3 . This degree of dependency on Russian gas has caused much concern in Europe. Because of an on-going dispute with political overtones between Russia and Ukraine about gas prices, deliveries to Europe have in the past suffered serious disruptions because the pipeline that carries Russian gas to Europe runs through Ukraine4 . The new emphasis on and hopes attached to shale gas in Europe in no small measure is due to a wish to become less dependent on Russian gas supplies.

Russia, however, will continue to export large quantities of gas from fields already in production well into the foreseeable future simply because the rest of the world will continue to need Russian gas. With 23.4%, 6.3%, and 19% of world proved reserves of gas, oil and coal respectively, Russian resources are indispensable. The Russian Arctic is the home to most of these resources, much of it still in Western Siberia, declining production notwithstanding. About 91% of her natural gas production and about 80% of her natural gas reserves are in the Arctic. It is also estimated that 90% of Russia’s offshore reserves of hydrocarbons are in the Arctic5 .

The most important project is the development of the Shtokman gas and condensate field located some 600 km north of Murmansk on the Russian sector of the Barents Sea shelf. The reserves of the field are assessed to be about 3.8 trillion cubic metres of gas and 53.3 million tonnes of gas condensate. To develop the field a special purpose company, Shtokman Development AG, was formed in February 2008 with Gazprom owning 51%, Total of France 25% and Statoil of Norway 24 % of the company’s shares.

In 2008 the construction of two semi-submersible drilling rigs began at the Vyborg Shipbuilding Plant, the first of which is to be completed in the fourth quarter of 2010 and the second in the first quarter of 2011. Phase 1 of the Shtokman project is planned to produce 23.7 billion cubic metres which will be transported to the mainland by pipeline where part of it will be used to produce 7.5 million tonnes of LNG, and 11 billion cubic metres will be sent by pipeline south. LNG offloading terminals are to be located in the northern part of the Orlovka Bay6 . On February 6, 2010 the board of Shtokman Development decided to postpone the so called Final Investment Decision (FID) on the gas pipeline until March 2011 and on the LNG onshore facility until the end of 2011. This will mean no pipeline gas production before 2016 and no LNG production before in 2017. The postponement was in part justified by reference to changed market conditions.

Among the states with Arctic territories, none is so heavily dependent on oil and gas exports as Russia. The IMF and the World Bank estimate that the oil and gas sector made up about 64% of Russia’s export earnings in 2007, and attracted 30% of all foreign investment in the country. The growth of supply of oil in the decade ahead is likely to come from a few major fields outside the Arctic (the Sakhalin projects) whilst the production in others will help offset the fall in production from mature fields in the Arctic parts of Russia. An important factor in Russian oil and gas production is current government taxation on production and export earnings which, if anything, tend to inhibit attempts to increase output. However, the whole taxation regime is supposedly under review with a view to make it less burdensome on the industry.

In 2008 the USGS offered a revised assessment of Arctic undiscovered oil and gas which was said by the USGS to amount to 22% of the world’s undiscovered oil and gas resources. Most of the Arctic’s undiscovered oil and gas is thought to be found in offshore fields in Russian controlled waters. It has been estimated that of the recoverable oil and gas on the Russian continental shelf, oil make up 13% and gas 87%. The Kara Sea is supposed to house 44% of these fields, the Barents Sea 25%, the Sea of Okhotsk 9%, and the Pechora Sea 5%7 .

The extent to which these resources will soon be exploited will depend on a number of factors, including their precise location and accessibility, the general global demand and supply situation, the cost of exploration and recovery in the Arctic as compared to other parts of the world where the remaining 78% of the undiscovered oil and gas resources are located.

Other Mineral Resources of the Eurasian Arctic

Russia is a leading producer of many important minerals. The largest amounts of Arctic non-fuel mineral resources by far are found in the Russian Arctic. In 2006 there were 25 mines operating in Arctic Russia. The Kola Peninsula contains a remarkable abundance of various minerals. Among them are copper, iron, nickel, cobalt, titanium, rare metals, ceramic raw materials and precious stones. In 2007 the mineral raw material sector produced about 30% of the Russia’s GDP and about 70% of the country’s budget revenues. The oil and gas sector alone accounted for about 20% of the GDP. It also accounted for more than 60% of export revenues and 30% of all direct foreign investment.

Russia’s heavy reliance on oil and gas exports in particular and on ferrous and nonferrous metals makes her economy extremely vulnerable to fluctuations in world prices of oil, gas, minerals and metals. The biggest consumer of Russia’s exports of energy products in 2007 was the EU which imported 63% of Russia’s oil exports and 65% of her gas exports. Russia was also the leading supplier of oil to the EU and provided 27% of the EU’s oil imports and 44% of total EU gas imports8 .

It should not be ignored that the extraction of minerals in the Russian Arctic has also been attended by very high to extremely high levels of pollution which is affecting the continued life of mining operations, not to mention human settlements and the natural environment surrounding these operations5 .

Norilsk Nickel, the world’s leading nickel producer, has mining and processing operations on the Kola Peninsula and on the Taymyr Peninsula in Western Siberia. It is also Russia’s leading producer of copper. In 2007 independent audits put proven and probable reserves of nickel in the two locations at more than 6 million tonnes. Annual production of nickel products amounts to about 250,000 tonnes. Proven and probable reserves of copper contained in deposits on the Kola and Taymyr Peninsulas exceed 9 million tonnes. Annual production of copper is about 430,000 tonnes. Long term plans of Norilsk Nickel call for an increase in ore production on the Kola and Taymyr Peninsulas from 21.8 million tonnes in 2006 to 26 million tonnes in 2015.

Russia has more than 20,000 mineral deposits of which about 40% is in production. In the past twenty or so years, however, the average metal content of ores has decreased by between 30% and 50%. The percentage of ores and coal from which it is difficult to extract sufficient metal content to make the mining economical has increased from 15% to 40%. A large percentage of the reserves classified as economic using the reserve classification system of Russia would be classified as non-economic if subjected to market economic criteria. In 2007 34% of lead, 49% of tin, and from 15% to 30% of apatite, coal, copper and titanium would be classified as non-economic resources8 .

Future Prospects of Natural Resource Exploitation in the Eurasian Arctic

Oil and gas will remain the most important sector of the Russian mineral industry but at a slower rate of growth because of depleting reserves and lack of sufficient investment. Increases in the production of non-ferrous metals are expected most of which will be due to added aluminium production. New copper mines will be opened thus leading to an increase in copper production. The Russian metallurgical industry, however, is reportedly handicapped by production technology that is inferior to those used in industrially more advanced countries. This has affected the competitiveness of the products since it requires Russian industry to spend comparatively more to produce goods. To remain competitive in world markets, the metallurgical industry would need resource-saving technologies and more high value-added products8 .

The economies of the Arctic rely overwhelmingly on the extraction and some basic processing of mineral resources which are then transported to sub-Arctic regions to become part of manufacturing industries and processes in many countries.           Only about the Russian Arctic can it be said that its mineral resources have given rise to local industrial processing activities of some magnitude. Northwest Russia consists of ten regions of which not all are usually included in the Arctic. The oil and gas industries of the Northwest Russia are nationally not very significant. This may change, however. Russia’s most promising proven but untapped gas resources are in the Barents Sea.

Considerable oil and gas resources are likely to be found in Western Siberia including the Kara Sea. Arctic offshore exploration and production have scarcely begun, as is, indeed, also the case of Arctic North America.  Exploration activities are planned or under way, construction of new refineries and pipelines are under consideration, and if plans are to be trusted, Arctic regions in both North America and Russia stand on the threshold of an entirely new stage in their economic and commercial development.

Transport of Oil and Gas     

Seen from the point of view of the two principal Arctic sea routes, the North East Passage (NEP) and the Northwest Passage (NWP), the survey indicates in no uncertain terms that much greater volume of the petroleum resources in the Arctic, discovered and undiscovered, is located in Arctic Russia and thus along and in more or less close vicinity of the Northern Sea Route (NEP).

So far only Russian onshore resources are being tapped. When the petroleum industry of Russia, like Norway’s, in earnest move offshore the NSR and its cousin, the Northern Maritime Corridor (NMC) may take on the lively appearance of the main street of a market town through which everything of any importance have to be moved.                                                                                                                                                                                                                                                                                                                                                                                             Western Siberia is the largest Russian oil and gas region with two thirds of the country’s discovered oil reserves. More than two thirds of discovered gas reserves are located in the northern most area of Western Siberia9 . The Russian continental shelf is said by the Ministry of Natural Resources and Ecology to contain extractable reserves of hydrocarbons to the tune of 10.8 billion tons in oil equivalent terms, and to contain 98.7 billion in oil equivalent terms of recoverable resources.

The Barents and Kara seas are supposed to contain 4.5 billion tons and 3.7 billion tons, or 41% and 34%, respectively of the extractable reserves and 30% and 41% respectively of the recoverable resources. The Russian Arctic shelf is about 4.5 million km² and some 75% of it is thought to contain extractable hydrocarbon resources. The Barents, Kara, Laptev, East Siberian, Chukchi, and Bering Seas together are thought to account for about 85% of these resources. The other two shelf areas with significant resources are the Sea of Okhotsk and the Caspian Sea.

Western Siberia is the principal centre of the Russian oil industry. More than 53% of the oil reserves are in the region, and it has since the mid-1980s produced 2/3 of the Russian oil. Before 2002 the volume of oil transported by sea from the Barents region along the coast of Norway was insignificant. In 2002 however there was a very substantial increase when some 4 million tons were shipped westwards. This volume was doubled the next year to 8 million tons. The trend continued and between 2005 and 2008 annual amounts ranging from 9.5 to 11.5 million tons were shipped. By 2015 more than 100 million tons of oil and gas may be shipped along the northern coast of Russia and Norway.

Situated along the NSR are a number of ports and terminals for loading oil and gas from Tiksi on the Laptev Sea in the east via Dudinka, Dikson, and Ob Bay on the Kara Sea, Varandey, Koguev, and Indiga on the Pechora Sea, Arkhangelsk, Onega Bay and Vitino on the White Sea, to Teriberka, Murmansk and Pechenga on the Barents Sea. All of these and others are receiving crude oil, oil products and gas condensate by ship, pipeline, railway and river routes, and sending loads for export directly or via offshore transhipment terminals in Norwegian and Russian ice-free Barents areas.

Figure 3.10:  Map of Russia


Source: GraphicMaps.com

Other Mineral Transport

As in the case of petroleum resources, the Russian Arctic territories are the major repository of non-fuel minerals among Arctic states. The transport volume of oil and gas along the NSR increased quite dramatically between 2002 and 2008, from about 4 million tons to about 11.5 million tons, albeit be it from a less than impressive initial level. Minerals as a ship’s cargo are much less prominent and cannot record anything comparable. One of the main sources of cargoes is the Norilsk Nickel company that generates some 1.2-1.3 million tons of minerals, mainly nickel and copper, and sends it away through the port of Dudinka. The port of Murmansk is the largest ice-free port in the northern part of Russia through which much of the cargo that enters or departs the NSR and the NMC goes.

The volume of cargo leaving Arctic Russia via the NSR is expected to increase by 2015 by very substantial amounts. In 2006 the port of Murmansk handled some 27 million tons of coal, timber and mineral ore. The same year the Port of Arkhangelsk handled about 10.5 million tons of oil, oil products, coal and timber. The share of minerals in these volumes is uncertain. In 2010 it is expected that the freight going through northwest seaports may nearly double compared to 2006. Both ports have been and are undergoing a modernisation process that will substantially increase capacity.

Norway’s coal mines at Svalbard have estimated reserves of between 35 million and 45 million tons. The production in 2007 amounted to 322,000 tons. Svalbard’s coal and Sweden’s iron ore, most of which is shipped through Narvik, along NMC rather than NSR.

Arctic Russia has a much higher population than other parts of the Arctic. Fairly substantial volumes of goods and merchandise have to be transported every year into the region to sustain human life and settlements. But there are clear indications that the Russian Arctic or parts thereof is losing population. Since the year 2000 the Russian population of the Barents region has decreased by 462,000 or almost 11%. The Murmansk Oblast recorded the biggest decline of 10.4%, the Komi Republic by 9.3 %, the Arkhangelsk Oblast by 9.2 % and Karelia by 6.5 %. The decline has been steady and continuous since the start of this century and if it continues will influence the freight picture as well the as the economy of Arctic Russia.

Transport of Forests Products

Russia has the largest forest reserves in the world. It has about 20% of global forest resources. But Russia provides only about 4% of global forest products. Her annual new forest growth significantly exceeds her current harvesting capacity. Her softwood (mostly pine, spruce and birch) grows at northern latitudes where slow growth gives high wood density and fewer knots. This in turn means high timber value.

Yet, Russian forests are an underdeveloped resource. The reasons are several. Harvesting costs are low but transport costs are high. Roads and railways are not located well in relation to the forest resources. The forest industry is highly fragmented. More than 20,000 forestry operations exist but very few saw mills, and these mostly have equipment that is more than 50 years old. About 95% of the timber is harvested manually. The skilled workforce needed for operating modern timber harvesters is not there. The industry is organized to supply the basic round wood product which has dominated Russian exports.

In late 2007 a New Forest Code was introduced which is designed to alter this state of affairs significantly. Previously investment in the Russian forestry sector had not been an attractive proposition, especially for foreign investors. The new code provides for strategic investors to qualify for 49 year licences to harvest. Strict reforestation requirements are introduced. Punitive tariffs of up to 80% put on the value of uncut logs for export becomes effective in 2009. VAT and other tax benefits are being introduced to encourage the importation of modern foreign machinery and equipment. The main purpose of all this is to make the export of round wood logs economically unattractive and to encourage the industry and investors to focus on value-added timber products.

To emphasize these matters in a study like this is simply to point out that the lead time between the initial decision to invest under the New Forest Code in a modernizing Russian forestry industry and the appearance of tangible and profitable results of the investment is probably considerably shorter than in the petroleum and mining industries. Everything else being equal (which, of course they never are), investments made today in the forest industry in Arctic areas of Russia are likely to show positive economic returns much sooner than investments made today in Russian Arctic offshore oil and gas. This may affect Arctic shipping prospects.

In terms of Arctic shipping, forest and forestry products are mainly shipped from the Murmansk and the Arkhangelsk ports. In what quantities are difficult to determine. Aggregate figures are available but product specific figures are in short supply. A great deal of forest products are also shipped from the port of St Petersburg in the Baltic.

Alaska’s forest industry is small and wood exports make up only 4 per cent of the State’s exports. Of Alaska’s export to Japan worth $1.1 billion in 2008 only 3 per cent were forest products.


  •  1. Gazprom, Yamal Megaproject, www.gazprom.com/production/projects/mega-yamal
  •  2. See above for data about the costs of developing resources in the Arctic.
  •  3. US Energy Information Administration (2008), Russia – Natural Gas, May 2008.
  •  4. BBC News (2009), Dispute hits Europe gas supplies, 01/07/2009
  •  5. Glasby, G.P. and Voytekhovsky, Yu. L. (2009), Arctic Russia: Minerals and Mineral Resources, Geochemical News, July 2009.
  •  6. Gazprom Release, “On meeting dedicated to Shtokman fild development”, 28.10. 2010
  •  7. US Energy Information Administration, Countr Analysis Briefs 2009, Russia Oil
  •  8. US Department of the Interior (2009), USGS, 2006 Minerals Yearbook, Commonwealth of Independent States, Russia, p 7.15, July 2009
  •  9. Bambulyak, A & Frantzen, B. (2009), Oil transport from the Russian part of the Barents Region. Status per January 2009. Akvaplan-niva AS, The Norwegian Barents Secretariat, 2009
  •  10. Gazprom, “Shtokman Development AG Board of Directors approve way forward on Shtokman” 08.02.2010: www.gazprom.com/press/news/february/2010

Arnfinn Jørgensen-Dahl, 2010, Arctic Resources and Shipping of Oil, Gas, Ore, and Forest Products along the Northeast Passage , CHNL.©