Arctic Transport Routes and the Resources of the Arctic

 (by Arnfinn Jørgensen-Dahl)

Arctic shipping is both a contributor to the economies of the Arctic regions, and itself dependent on and a beneficiary of the vitality and health of these economies. To varying degrees, the Arctic economies are relying heavily on the abundance and accessibility of mineral and biological resources. The presence of vast resources is by and large a well-established fact but access to them has proven to be very demanding indeed. Mother Nature has not been kind to those who are set on venturing into the Arctic to exploit its resources for whatever motives.

Developments in the World Economy

But to assess the prospects of Arctic shipping demands more than a focus on the Arctic itself. The Arctic regions and their economic activities and life are but parts of the states to which they each belong. The economies of these states in turn are parts of and (in the case of some) vital to the overall world economy, the ups and downs and health of which inevitably reflect back on these economies and their Arctic parts.

Economic activity and power has always been unevenly distributed. The North Atlantic area – Western Europe and North America – has been for the last three to four centuries the centre of world economic power and influence. This state of affairs is changing. During the last three   decades the economies of countries such as China, India and Brazil have grown at rates impressive enough to indicate that in the not too distant future these countries will become a new centre of gravity in a global economic system.

The emergence of these and other developing countries are changing international trade patterns as they lay claim to an increasingly larger share of the world’s Gross Domestic Product (GDP) and natural resources. After having had double digit GDP growth rates until   2008, China’s rate slowed down under the influence of the global economic recession but still managed to grow by 8.7 per cent in 2009 and is expected to grow by 10 per cent in 2010. India’s growth rate slowed to 5.6 per cent in 2009 but is expected to grow by 7.7 per cent in 2010.

The still robust growth rates in countries like China and India could not, however, prevent the world financial crisis that began in the US to spread to almost all other parts of the world. It caused the advanced economies to shrink by 3.2 per cent in 2009 with the result that the world economy suffered its first recession since the 1930s when it declined by 0.8 per cent. The collapse of demand for goods and services in markets as important as those of the advanced economies inevitably influenced economic activities everywhere including the Arctic parts of the world.

The shipping sector was among those hit hard. After having enjoyed a decade of increasing demand for its services during which massive over-contracting of new tonnage took place, the economic conditions of 2008-2009 served notice that harder times lay ahead. In a sense shipping is double hit with both a reduction in demand and a supply side growing too fast. With a record high order book by the end of 2009, the world fleet will grow by 6-8% per year the next 2-3 years, the order cancellations taken into consideration, and the prospects for demand growth is way below 6-8% on average, so there are tough years ahead.

The Northeast Passage


Russia is the world’s leading natural gas producer and had in 2008 the largest natural gas reserves at 23.4 per cent of total world reserves. Almost 90 per cent of the natural gas comes from one region in northern West Siberia. The production in these fields is declining, however, and the search for new supplies is focusing on the Yamal Peninsula in particular, and on the development of the Shtokman gas and condensate field in the Barents Sea. Higher exploration and recovery costs may slow the pace of the search for Arctic gas in the time ahead. The international market for gas, especially the US, no longer seems as promising as it did not very long ago because of the appearance of alternative sources of supplies, very important among which are very large quantities of shale gas in the US.

Russia will nevertheless continue to export large quantities of gas well into the foreseeable future from fields already in production. With 23.4 per cent, 6.3 per cent and 19 per cent of the world’s proved reserves of gas, oil and coal respectively, Russian resources are indispensible. Most of these resources are to be found in the Russian Arctic. About 91 per cent of her natural gas production and about 80 per cent of her natural gas reserves are in the Arctic. It is also estimated that 90 per cent of Russia’s offshore reserves of hydrocarbons are in the Arctic. According to the United States Geological Survey (USGS)  22 per cent of the world’s undiscovered oil and gas are to be found in the Arctic, and most of it are thought to be in offshore fields in Russian controlled Arctic waters.

To what extent already discovered and undiscovered  resources will soon be exploited will depend on a number of factors, including their location and accessibility, the cost of exploration and recovery in the Arctic compared to other parts of the world, and the general and particular global supply and demand situation. 

The areas in the Arctic least difficult and presumably less financially demanding from an exploration and recovery point of view may be in the Barents Sea. This stretch of sea is about 1.760.000 km² and covers a continental shelf of which most lies under less than 500 meters of water. Large parts are not ice infested and other parts much less so than other offshore areas of the Arctic. According to the USGS, the Russian and Norwegian Barents Sea shelf areas may contain about 11 billion barrels of undiscovered oil, 380 billion cubic feet of undiscovered natural gas, and 2 billion barrels of undiscovered natural gas liquids. Most of this, approximately 68 per cent of the oil, 85 per cent of the natural gas, and 65 per cent of the natural gas liquids, are estimated to be in the Russian controlled East Barents Basins Province. The resources of the Barents Sea shelf are assumed to be recoverable regardless of the presence of sea ice or depth of water.  

Russia is also a leading producer of many important minerals. In 2006 25 mines were operating in Arctic Russia. The Kola Peninsula contains a remarkable abundance of various minerals. In 2007 the mineral raw material sector produced about 30 per cent of Russia’s GDP and about 70 per cent of the country’s budget revenues. The oil and gas sector accounted for about 20 per cent of the GDP. 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. A good deal of the Russian minerals industry is struggling with outdated   production technology that makes it hard to compete with counterparts in the industrially advanced countries. Oil and gas will remain the most important sector of the Russian Arctic minerals industry but at a slower rate of growth in the immediate years ahead because of depleting proven reserves, lack of sufficient investment, and challenging international market conditions.  

Tracts of the vast forest resources are also found in the territories regarded as Arctic. Yet the Russian forest industry is lagging behind its counterparts in Europe, North America,   and elsewhere. Old fashioned methods of harvesting, outdated equipment and a lack of a trained workforce to handle modern equipment have been prominent features of the Russian forest industry. In 2007 a New Forest Code was enacted to modernize the industry away from an emphasis on export of round wood towards an industry relying predominantly on value-added timber products.   

Shipping and Alternative Modes of Transportation

When one turns to the transportation picture of Arctic Russia, one is at once confronted with a more complex picture than in the North American Arctic. The region stretches some 7000 km from the border with Norway in the west to the Bering Strait in the east, and the demographic picture is much different from its counterpart regions in North America. Arctic Russia has a much bigger population. Fairly substantial volumes of goods and merchandise have to be transported every year into the region to sustain human life and settlements. A new census is to be conducted in Russia in 2010 and the Russian Arctic or parts thereof are losing population at an alarming rate. Since the year 2000 the population of the Russian part of the Barents region has decreased by 462 000 or by almost 11 per cent. The Murmansk Oblast recorded a decline of 10.4 per cent, the Komi Republic of 9.3 per cent, the Arkhangelsk Oblast a decline of 9.2 per cent. At the beginning of 2009 the total population of Barents Russia was almost 3.8 million and a year later 24 000 less. One should note, however, that the Barents region includes territories that are not regarded as Arctic. In the population of 3.8 million there are substantial non-Arctic populations. Yet, the biggest decline was recorded in the parts of the Barents region that are usually regarded as Arctic. The decline has been steady and continuous since the start of the century, and if it continues will influence not only the economy of the Russian Arctic but also shipping prospects.

Apart from transportation by sea, large amounts of goods are carried by railways, roads, inland water ways, and pipelines. The distribution of freight on the various modes of transport has remained fairly steady since the middle of the 1990s until 2008. How much of the freight volumes originate in the Arctic and how much is resupply of the Arctic is difficult to determine. Oil and gas figure very prominently in Russian economy and export accounts.  Of the 1.3 billion tons of freight carried by the Russian railways in 2008, some 200 million tons or 18 per cent were oil. The only significant amounts of oil exported by railway go to China. Much the largest amounts are exported by pipelines to Europe. Most of the oil transported by sea goes from the port of Primorsk in the Baltic Sea and the port of Novorossiysk in the Black Sea. The shipment of Russian oil and gas and other commodities from the Black Sea area has made the straits of Bosporus and Dardanelles busier than the Suez and Panama Canals.

About 36 000 tons/d of crude oil and products were transported from Murmansk by sea in 2007. During the last decade the amount of oil exported by sea from terminals in the Russian Arctic, including the Barents area has increased substantially. In 2002 some 4 million tons were sent by sea, in 2008 some 11.5 million tons. In a five to ten years perspective it is thought that exports of oil by ship from Russian Arctic terminals may reach 100 million tons a year.

The Northwest Passage


Like other Arctic parts, the economies of the North American Arctic are resource based.

Arctic Canada - Yukon, the Northwest Territories (NWT) and Nunavut - all rely heavily on mining. Gold, uranium, and diamonds are the most important products. Though valuable the quantities mined are relatively small and by and large transported by means other than ships, for example, by aircraft. Some mines have been closed in the Northwest Territories and Nunavut. The development of the iron ore mine at Mary River on Baffin Island is the most promising mining project in the Canadian Arctic. The mine is not supposed to be operational before 2020 and is then expected to produce about 12 million tons of ore a year.

The Mackenzie Delta in the NWT may contain huge amounts of natural gas; equivalent to about 10-11 per cent of Canada’s proven natural gas reserves. Gas from this source is meant to be transported by the much heralded but yet not built Mackenzie Gas Pipeline to Alberta where it will be fed into the existing natural gas distribution system. After years of hearings the federally appointed Join Review Panel delivered its results in December 2009.  The final decision to build the pipeline is still pending but is likely to be made in the second half of 2010. The costs of constructing the pipeline and the uncertain market outlook for gas in the years ahead are two of the factors likely to weigh most heavily in the decision.          

The Alaskan economy is completely dominated by the petroleum industry. Some 80 per cent of state revenues come from the oil and gas industry. Oil production in Alaska is centred around the Prudhoe Bay field on Alaska’s North Slope. In 2007 Alaska contributed about 20 per cent of US oil production but only 3 per cent of natural gas production. The principal mode of transport of the oil is by overland pipeline from Prudhoe Bay to Valdez from where it is shipped by tankers to the lower 48 states.

Alaska has non-fuel mineral production the value of which in 2007 was about $3.3 billion or 4.4 per cent of the US total. The most important mineral both in terms of value and volume is zinc. The Red Dog Mine in north western Alaska is the world’s largest zinc mine and accounts for more than 70 per cent of the 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 and shipped out between July and October. What is not sent out by pipelines of Alaska’s exports, as in the case of oil and gas, is sent south through the Northern Pacific maritime corridor and not through the NWP.

Shipping and Alternative Modes of Transportation

As in other parts of the world there is in the Arctic various ways of transporting goods and cargoes. In the Canadian Arctic very small but extremely valuable volumes of precious minerals are transported by air, and other types of cargo are sent by ship through the NWP. In 2007 about 35000 tons of cargo was carried by water transport and loaded and unloaded in the Northwest Territories. In Nunavut some 159000 tons were carried by water transport the same year. Small populations partly account for the small volumes. The Northwest Territories has a population of about 42000, Nunavut about 28000 and Yukon about 31000. Only a very modest increase in shipping activity is envisaged by Transport Canada in the years ahead until 2020.

Much the same situation prevails in Alaska. As in the case of minerals, goods are transported partly by road and partly by sea but, as far as oil and gas are concerned, by pipeline. To the extent goods are transported into Alaska from outside, the volumes are limited mostly because of the relatively small population, estimated in 2008 to be about 690 000.  Little or nothing is transported by sea through the NWP.

The Passages in Comparison

Which mode of transport will become the leading in the Euro-Arctic area is a rather open question. As far as oil and gas are concerned the choice is between shipping and pipelines. Gas is the dominant resource in the Russian Arctic, especially offshore. How it will be transported also depends very much on the location of the principal markets. If these markets are mainly in Europe and Asia pipelines are likely to be the favored mode of transport. Oil and gas for markets outside Europe and Asia will be sent by ship.


    Arnfinn Jørgensen-Dahl, 2010, Arctic Transport Routes and the Resources of the Arctic, CHNL.©