Arctic Resources and Shipping of Oil, Gas and Ore along the Northwest Passage

(by Arnfinn Jørgensen-Dahl)


Oil and Gas Resources of the North-American Arctic

Canada had in 2008 28.5 billion barrels of proven oil reserves. If, however, her oil sands deposits are included, Canada has proven reserves of 178 billion barrels, second only to Saudi Arabia. More than 99% of Canada’s oil exports go to the US. The oil production comes mainly from the Western Canada Sedimentary Basin (WCSB), the oil sands deposits in Alberta, and offshore fields in the Atlantic.

As in the case of the oil industry, Canada’s natural gas production is concentrated in the WCSB, especially in Alberta. And as in the case of oil, what is not domestically consumed of natural gas production is exported to the US. Canadian natural gas made up 90% of US import of natural gas in 2008 which represented some 16 per cent of US natural gas consumption. Although some new finds of conventional natural gas have been made in WCSB, it is thought that production has peaked, and that in the future production will come from unconventional sources like coal bed methane and shale gas deposits of which several potentially promising areas containing huge amounts exist.  

Of the Arctic parts of Canada, the Mackenzie Delta in the Northwest Territories may contain some 5-6 trillion cubic feet, equivalent to about 10-11% of Canada’s proven natural gas reserves. Gas from this source could begin to find its way south if and when the planned Mackenzie Gas Pipeline is built. This would carry the gas to Alberta where it would be fed into the existing natural gas transportation system. A consortium of natural gas companies has been in existence for some years with the aim of constructing the pipeline. Regulatory delays and rising costs have so far put a stop to the start of the project. Now, new doubts stem from the increase in natural gas reserves in the US in general, and the development of huge shale gas reserves in particular which serve to undermine the economics of the pipeline project1 .

After several years of hearings the federally appointed Joint Review Panel delivered in December 2009 the results of its examination of the socio-economic and environmental impact of the pipeline project, and a decision about whether to go ahead is expected in the autumn of 2010. Several more hurdles have to be passed, however, before construction can begin not least the uncertainty as to whether or not Federal Government subsidies will be forthcoming without which the entire project is in serious doubt. The final bill is expected by some to reach Canadian $ 20 billion2 .

As part of Canada’s Northern Strategy the government announced in July 2009, a new project called Geo-Mapping for Energy and Minerals to learn more about the geology of Canada’s North, including the Canadian Arctic Archipelago. According to the document, “the large-scale projects already underway barely scratch the surface of the North’s immense store of mineral, petroleum, hydro and ocean resources…The full extent of the natural resources potential in the Arctic is still unknown.3  

Among all states with Arctic territories, the US can claim on behalf of Alaska an area that can readily be defined Arctic without too many reservations. The Alaskan economy is dominated by the petroleum industry and the Federal government which each provides about a third of all jobs in Alaska. More than 80% of the State of Alaska’s revenues come from the oil and gas industry and about 20% of US oil production is from Alaska. Most oil production comes from the North Slope with a small amount coming from the Cook Inlet which also produces some natural gas. All of it is consumed domestically.

Transport of Oil and Gas

The shipping activities of the Northwest Passage (NWP) are on a very small scale. In the year 2005 there were only 60 shipping movements in Canadian Arctic of which most were carrying the commodities of daily life such as food and fuel to the local communities. Some 9 voyages by 5 cruise ships were part of this very modest level of activities. Transit traffic through the NWP is infrequent, to say the least.Alaska’s traditional resource industries are the seafood, mining and timber industries. In 2006 Alaska produced 4.53% of US nonfuel mineral production. Zinc, gold, lead, silver, sand and gravel were the principal products. One mine, the Red Dog Mine, accounted for nearly 59% of the annual production value of the states’ mining industry4 . Although locally important producers of minerals, both the US and Canadian parts of the Arctic are relatively minor contributors to the global supply of non-petroleum resources.

There is little likelihood that oil and gas will be shipped through the NWP from ports in Arctic Canada in the next few years. It is expected that the Mackenzie Gas Pipeline will be built within the next ten years or so but this will depend heavily on the price of gas in North America and will in any case obviate the need for shipping.

In the 1970s and early 1980s the Canadian government invested in Arctic oil and gas exploration and important discoveries were made in the Mackenzie-Beaufort Sea basin and in the Arctic islands. But once the effects of the oil shocks of the 1970s wore off, the interest in the Arctic resources fell and the government withdrew its support for exploration. But although current production is very small, Canada’s Arctic region is rich in oil and gas development opportunities. As much as 1.7 billion barrels of oil and 880 billion m³ of gas have been discovered of potential resources of 8.4 billion barrels of oil (discovered plus undiscovered) and 4.3 trillion m³ of gas. This represents about 25% and 33% respectively of Canada’s remaining resources of conventional crude oil and natural gas. Some exploration activity is now underway. In 2007 exploration permits were issued to some companies to explore for oil and gas in the Beaufort Sea. In 2008 six companies received permits to explore the Beaufort Sea and the Mackenzie delta for oil and gas.

As far as Alaska is concerned, the North Slope holds about 4.2 billion barrels of US proved oil reserves or about 20% of US total proved reserves. In 2007 Alaska contributed 20% of US oil production but only about 3% of natural gas production. The main mode of transport of these resources out of Alaska is not shipping but pipeline from Prudhoe Bay in northern Alaska to Valdez, Alaska from where it is shipped by tanker to the lower 48 states5 .

The Alaskan Arctic coast is thought to hold at least 27 billion barrels of oil and 1 trillion m³ of natural gas that have remained undisturbed because of cost pressures and various regulatory and political factors. In August 2008 BP and Conoco-Phillips announced that they have joined forces to build the Alaska Gas Pipeline. The project will consist of a gas treatment plant on Alaska’s North Slope and a large-diameter pipeline that will travel more than 700 miles through Alaska and into Canada through the Yukon Territory and British Columbia to Alberta. The pipeline will be the largest private sector construction project ever undertaken in North America6

Figure 3.8: Map of Canada


Source: WorldAtlas.com

Other Mineral Transport

The closing of some mines in the Northern Territories and Nunavut of Canada meant that no mining production took place that would involve Arctic shipping. Mines in a pre-production stage are under development but will not lead to substantial cargo volumes. As far as the future is concerned the most promising cargo potential is to be found in the development of an iron ore project at Mary River on Baffin Island. This is expected to be operational by 2020 and to generate shipment levels of about 12 million tons per year. Assuming 200,000 dwt vessels there would be about 60 loads in transit per year through the NWP. Other mining developments could require shipping services but the quantities are likely to be relatively small due to the nature of the minerals that are being exploited. In some cases no more than 6-12 vessel transits are expected during an extended season. Other means of transport operating over land are likely to be used to carry the output away. Some, like the output of gold, diamonds, and uranium in some places, are more readily flown out by aircraft that are already a part of the supply chain7 .

Alaska’s export of minerals and precious metals amounted to 16% of the state’s total exports. The minerals export was valued at $511 million. The most important mineral both in volume and value terms is zinc. The Red Dog Mine in North-western Alaska is the world’s largest zinc mine and accounts for more than 70% of the total value of Alaska’s mineral production. The mine has its own loading facilities and the shipping is seasonal because of ice conditions. The output is stockpiled at the port facility and is shipped out between July and October to markets in Asia, Europe, and Canada. Coal to South Korea is loaded on-board at the Port of Seward.  

Figure 3.9:  Map of Alaska 


Source: WorldAtlas.Com

Future Prospects of Shipping along the NWP

What is not sent by pipeline of Alaska’s exports, as in the case of oil and gas is shipped south and to export markets in other parts of the world through Pacific Ocean maritime corridors and not through the Northwest Passage.

The maritime traffic in the North American parts of the Arctic is likely to continue into the foreseeable future at the same low level of traffic it has in the past. Resources are carried out of the regions mostly by means of transport other than shipping. Starting from an already low level, the Canadian Arctic Shipping Assessment of 2007 envisages a very modest increase in shipping activity in the period until 2020.

The melting polar ice has led some to suggest that the Northwest Passage (NWP) will prove to be an economical route compared to the Panama Canal for super-sized freighter traffic from the east coast of Asia with cargoes destined for the east coast of North America. Today the ships have either to unload on the west coast to allow the cargo to be transhipped to the east by rail or truck, use the Panama Canal, or sail the great distance from East Asia across the Indian and Atlantic Oceans to reach the North American east coast.

Apart from escaping the congestion that frequently plagues the Panama Canal, using the NWP route is also about 7000 km shorter, the exact distance being dependent on the ports in question. Three factors speak against the NWP, however. The first is that there is no ice in the Panama Canal, the second is the expansion of the capacity of the Panama Canal that will allow ships carrying up to 10,000 containers in so-called post-Panamax vessels as opposed to the current Panamax vessels that can carry a maximum of 4,400 containers, and the third is that melting sea ice notwithstanding, ice conditions and the influence of ocean currents will still remain very difficult and unpredictable with extreme-year-to year and seasonal variability thus making it next to impossible for shipping companies to guarantee reliable transit times on which the economic viability of the industry relies.

Transportation is not, however, a one-way street with goods and commodities only leaving the Arctic. So far the story about shipping has dealt only with the transport of resources out of the Arctic or in transit. Lest we lose sight of the other side of the coin, it must be emphasized that the development of Arctic resources may also require the importation into the Arctic of huge production facilities and great amounts of equipment and products at both high and mundane levels of technological sophistication, including food and other necessities of daily life. This is part of destination Arctic shipping the future volume of which is very difficult to predict since it depends so heavily on investment decisions in the petroleum sector in particular.

To the extent other types of goods are carried into the Canadian Arctic and Alaska, the volumes are relatively limited mainly due to the small population residing in these areas. In 2007 about 35 000 tons of cargo were carried by water transport and loaded and unloaded on the Northwest Territories. In Nunavut some 159,000 tons were carried by one form of water transport or another. The small populations can to a large extent account for the small volumes. The Northwest Territories has a population of about 42,000, Nunavut about 28,000 and Yukon about 31,000. Alaska has a population of about 690,000. The amount of shipping activity needed to carry the necessities of life for populations as small as these is limited and most of the supplies needed are not freighted through the NWP. 


  •  1. US Energy Information Administration (2009), Country Analysis Briefs 2009, Canada Oil-Natural Gas
  •  2. CBC News (December 30, 2009), www.cbc.ca/canada/north/story/2009
  •  3. Kosich, Dorothy (28 July 2009) www.mineweb.com/mineweb/view/mineweb/en/
  •  4. US Department of the Interior (2009), USGS, 2006 Minerals Yearbook Alaska, July 2009
  •  5. Beauregard-Tellier, F. (2008), The Arctic: Hydrocarbon Resources, Library of Parliament, 24 October 2008.
  •  6. Gulf oil and Gas: www.gulfoilandgas.com
  •  7. The section that follows on Canada relies on material in Canadian Arctic Shipping Assessment (2007). Mariport Group Ltd. for Transport Canada.

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