Resource base for the Northern Sea Route cargo flow
Yamal – gas resources and LNG projects
Yamal-Nenets Autonomous District, located in the north of Western Siberia, is home to unique hydrocarbon resources – above all natural gas. The region is responsible for about 80% of natural gas production in Russia, and 10% of the country’s oil and gas condensate production.
The first commercial natural gas deposit in the Yamal-Nenets region and the Russian Arctic was discovered in 1962 at Tazovskoye. In the period from 1964 to 1969, three of the world’s largest gas fields were discovered: Urengoyskoye with estimated commercial natural gas reserves of 6.95 trillion cubic metres; Yamburgskoye, with 4.27 trillion cubic metres; and Zapolyarnoye, with 3.22 trillion cubic metres. In the 1970s, 9 more separate fields were discovered with commercial natural gas reserves of over 500 billion cubic metres each, including Bovanenkovskoye with 4.92 trillion cubic metres of gas. According to the administration of the Yamal-Nenets Autonomous District, total commercial natural gas reserves in the region are estimated at 47.3 trillion cubic metres.
In 2018, more than 600 billion cubic metres of natural gas was produced in the Yamal-Nenets region. The four largest fields in production – Urengoyskoye, Yamburgskoye, Zapolyarnoye and Bovanenkovskoye – together produced as much as 342 billion cubic metres of natural gas. Gas production in the Zapolyarnoye and Bovanenkovskoye fields is still growing. The design capacity for natural gas production at Zapolyarnoye is 130 billion cubic metres per annum, and at Bovanenkovskoye it is 115 billion cubic metres. It is worth noting that total gas production in Norway in 2018 amounted to 121 billion cubic metres.
All of the Russian gas fields mentioned above are operated by Gazprom and its subsidiaries. In 2018, Gazprom produced more than 455 billion cubic metres of natural gas in the Yamal-Nenets region, and all this gas was delivered to Gazprom’s trunk pipeline system. The second largest gas producer in Russia, NOVATEK, produced about 69 billion cubic metres of natural gas in the region, including production at the Yuzhno-Tambeyskoye gas field operated by Yamal LNG. The Yuzhno-Tambeyskoye field, with natural gas reserves estimated at about 1 trillion cubic metres, is the main gas reserve for the Yamal LNG project. NOVATEK operates five LNG projects in the region – Yamal LNG and Ob LNG on the western coast of Ob Bay; and Arctic LNG 1, 2 and 3 on the east coast (see Figure 3). Yamal LNG has been put into production. The construction of Arctic LNG 2 has started.
Yamal LNG is the name of the project for natural gas production, liquefaction and shipping, and the name of a company that is a joint venture between NOVATEK of Russia (50.1%), Total of France (20%), CNPC of China (20%) and Silk Road Fund (9.9%). The investment decision on the project was made in December 2013, and the first LNG was shipped from Yamal LNG and the port of Sabetta in December 2017 (see Figure 3). The design capacity of the Yamal LNG plant is 17.4 million tonnes per annum. By the end of 2018, three trains with an annual capacity of 5.5 million tonnes each had been completed. The first train was launched in December 2017, the second one in August 2018, and the third one in November 2018. A fourth train will be built for 0.9 million tonnes of LNG per annum using NOVATEK’s Arctic Cascade technology.
In 2018, there were 113 shipments comprising 8.4 million tonnes of LNG in total, along with 30 shipments of gas condensate representing more than 700 thousand tonnes in total.
In November 2018 Yamal Trade, in cooperation with the Tschudi Group, started ship-to-ship (STS) LNG transfer operations in Honningsvåg. STS operations from ice-class to conventional LNG carriers are designed to optimise LNG deliveries from Yamal to Europe. The STS operations are planned to be carried out in Honningsvåg until the fall of 2019, after which they will be moved to Russian waters. NOVATEK is establishing STS facilities near Kildin Island at the Kola Bay outlet in the Barents Sea.
Gas production at the Yuzhno-Tambeyskoye field is estimated to be around 27 million cubic metres per annum for a duration of at least 20 years, ensuring annual production of 17.4 million tonnes of LNG from the port of Sabetta and year-round shipments. 15 Arc7 ice class LNG carriers with a cargo capacity of 170,000 cubic metres (about 74,000 tonnes) of LNG are being built for Yamal LNG. The carriers are able to sail without ice-breaking assistance westbound all year round, and eastbound along the NSR during the summer navigation period (see Table 2).
In order to optimise LNG deliveries from Yamal LNG and Arctic LNG 2 westbound and eastbound, NOVATEK and its partners plan to construct permanent LNG transhipment hubs on the Kola Peninsula and on Kamchatka.
Arctic LNG 2
Arctic LNG 2 is the second of NOVATEK’s LNG projects to be put on stream in the Ob Bay area of the Kara Sea (see Figure 3). Arctic LNG 2 is a joint venture between NOVATEK, Total and the Chinese companies CNPC and CNOOC. As of May 2019, NOVATEK had sold 10% of the shares in the project to Total and had agreed to sell 10% to CNODC (a subsidiary of CNPC), and 10% to CNOOC.
Salmanovskoye (Utrenneye), with total natural gas reserves estimated at 2 trillion cubic metres, is the main natural gas resource for the Arctic LNG 2 project. The project envisages constructing an LNG plant on the east coast of Ob Bay with three trains with an annual capacity of 6.6 million tonnes each (19.8 million tonnes in total), using gravity-base platforms.
NOVATEK has started construction of the Kola Yard – the LNG Construction Centre at Belokamenka on the west coast of Kola Bay. The LNG transhipment hub could also be located there. The LNG Construction Centre will build GBS and facilities to manufacture topside modules for Arctic LNG 2.
In May 2019, NOVATEK announced the development of the Ob LNG project. The company plans to build a new plant in Sabetta near Yamal LNG (see Figure 3). The project is based on the resources of the Verkhnetiuteyskoye and Zapadno-Seyakhinskoye fields located in the central part of the Yamal peninsula. The two fields’ reserves are estimated at 157 billion cubic metres of natural gas by SEC. Ob LNG is to consist of three trains using NOVATEK’s Arctic Cascade technology with a capacity of 1.6 million tonnes of LNG per annum each; or 4.8 million tonnes of LNG per annum in total. With the final investment decision for the project due in 2019, the first and second trains can be commissioned in 2022, and the third one in 2023. Ob LNG was not counted in the Rosatom forecast of cargo flow volumes to be shipped along the NSR in 2024
Coal and metals from Taimyr
Norilsk Nickel and Dudinka
Norilsk Nickel is a major producer of nickel, copper and palladium. The company’s Polar Division develops copper-nickel sulphide deposits on the Taimyr Peninsula with remaining reserves estimated at 2.16 billion tonnes, proven and probable ore reserves estimated at 690 million tonnes and an estimated production life of 80 years.
Ore mined at six active mines on Taimyr, totalling more than 17 million tonnes per annum, is delivered to the Norilsk and Talnakh concentrators, and then the copper and nickel are sent on to the Copper Plant and Nadezhda Metallurgic Plant for smelting. Furthermore, copper blister is refined and processed at the Copper Plant in Taimyr and the final products, more than 300 thousand tonnes of copper, are shipped to the market via Dudinka port (see Figure 4) and the NSR.
In August 2016, the obsolete Nickel Plant – the company’s oldest smelter and refinery opened in 1942 – was shut down, and nickel concentrate smelting capacities were expanded at other Norilsk Nickel plants in Taimyr, the Kola Peninsula and Finland. Since then, nickel converter matte from Nadezhda Metallurgical Plant has been shipped from Taimyr via the NSR to the Kola Peninsula for processing at Kola MMC plant in Monchegorsk.
Norilsk Nickel operates six Arc7 ice class 18,000 deadweight tonne Arctic Express vessels (see Table 2): five container ships that deliver the output products of the Copper Plant (mainly copper) and Nadezhda Metallurgic Plant (nickel converter matte) along the NSR, mainly from Dudinka to Murmansk; and the oil tanker Enisey that transports gas condensate from Dudinka to European ports. In 2017, the Norilsk Nickel Arctic fleet made 66 voyages (including 12 directly to European ports) and transported 1.3 million tonnes of dry cargo and 160,000 tonnes of gas condensate.
In March 2017, Norilsk Nickel enlarged the transfer terminal facilities at the port of Murmansk and increased the container handling capacity to 1.5 million tonnes per year.
The companies VostokUgol and Severnaya Zvezda are developing coal mining projects on the Taimyr Peninsula. Severnaya Zvezda operates Syradayskoye coal deposit on Taimyr east of Dikson. The deposit is estimated to have 5 billion tonnes of coal reserves. The company plans to reach production of 10 million tonnes of coal per annum.
VostokUgol’s Arctic Mining Company carries out geological exploration in Lemberovskiy area of the Taimyr coal basin (Taibas), which has resources estimated at 1.8 billion tonnes of coal. The first coal from Taimyr was shipped along the NSR in May 2016. In December 2016, the Arctic Mining Company discovered the Malolemberovskoye field. The company plans to launch commercial production at the field in 2019 and reach a production level of 7 million tonnes per annum by 2022.
VostokUgol plans to build an industrial railway line from the coal mines in Taibas to the east coast of the Yenisei Bay and construct the deep-sea terminals Chayka and Bukhta Sever near Dikson (see Figure 4) with a total capacity of 30 million tonnes per annum for shipping coal from Taimyr along the NSR.
Northern Latitudinal Railway
The Northern Latitudinal Railway is a project to build and modernise railway lines from Obskaya station in Yamal eastwards to Salekhard, Nadym, Noviy Urengoy and Yamburg, thus connecting the capital of the Yamal-Nenets Autonomous District and industrial cities with the Russian railway network. The railway may also continue eastwards to Igarka and north to Dudinka on Taimyr.
Northern Latitudinal Railway 2 is a project to build a 173 km-long railway line from Bovanenkovo (Gazprom has already built the Obskaya-Bovanenkovo railway) to Sabetta. This project may be realised in 2021-2023. According to Rosatom’s estimates, with the opening of the Bovanenkovo-Sabetta line, 8 million tonnes of railway cargo may be shipped via the NSR per annum (see Table 3).
The Northern Latitudinal Railway project is a cooperation between Russian Railways and Gazprom.
Ice Silk Road
The Ice Silk Road is a Chinese-Russian initiative which was developed in connection with China’s Belt and Road Initiative. In July 2017, the presidents of China and Russia signed the ‘China-Russia Joint Declaration on Further Strengthening Comprehensive, Strategic and Cooperative Partnership’, which sees strengthening of Russian-Chinese cooperation in the Arctic region and the development and use of the NSR as key areas of practical collaboration between China and Russia. The Ice Silk Road is aimed at strengthening connectivity within Eurasia and thus increasing transit cargo flows via the NSR (see the next chapter below).
With the implementation of the above-mentioned announced projects in the Russian Arctic, we can see that outbound cargo flows of fossil fuels (LNG, oil and coal) produced in Yamal and Taimyr along the NSR may reach a level of 130 million tonnes per annum by 2035-2040. Other minerals, inbound construction and supply materials, railway cargoes delivered to and from Arctic ports, and transit cargoes will add to these volumes.
Business opportunities for Northern Norway
Maritime cargo hub with railroad connection to Europe
The shipping of cargo between Southeast Asia and Northern Europe though the NSR represents an interesting economic development opportunity for Northern Norway, as the route has already shown the potential to significantly reduce sailing time, costs and environmental emissions compared with shipping via the Suez Canal.
Increased freight to and from Northern Europe via the NSR could have a significant impact on Northern Norway if some of that freight is transhipped at one or more designated ports in the region, linked directly to an efficient railroad connection between the port(s) and European markets.
From a Norwegian perspective, the port of Kirkenes has the most suitable geographical location for cargo arriving via the NSR. There is an ongoing process at a local/regional level, involving Finland and stakeholders in China and elsewhere, to lay the best possible foundation for developing Kirkenes as the western cargo hub for the NSR. These efforts are based both on developing a new cargo port with large capacity and the ability to handle a variety of cargo types, and a railroad connection to the Finnish and European network in Rovaniemi. If combined with the implementation of plans in Finland and the EU to construct a railroad tunnel from Helsinki to Tallinn under the Baltic Sea, it could become a time- and cost-saving transport route to and from Europe via the NSR, Northern Norway and Northern Finland.
Future shipments via the NSR and Northern Norway and Northern Finland might consist of a variety of sorts of cargo, but the analysis of the possibility of developing Kirkenes port for this purpose has primarily considered the potential for containerized cargo.
Hamburg is the largest European port for commercial cargo arriving from China. In 2016, the port received 11 million tonnes of cargo and 1.55 million containers from China including Hong Kong, while 8 million tonnes and 996,000 containers went in the opposite direction. In contrast, the combined turnover of all Norwegian ports was 617,000 containers on international voyages.
Based on an estimated average weight of 9.2 tonnes of cargo in each container, it is estimated that the total import of containerized cargo from China to Germany, Finland, Sweden, Denmark and Norway – all within a favourable distance of the NSR – was 2.26 million standard units in 2016. On an average daily basis, this would be 6,200 containers.
In the event of 10% of China’s exports to these Northern European countries being shipped via the NSR to Kirkenes port for transhipment during an estimated 222-day sailing season, it would amount to 1,018 containers per day – or one vessel with 4,000 containers every five days. Trains would transport the containers onwards, which would require eight fully-loaded trains to depart southwards from Kirkenes each day.
If we include freight from South Korea, Japan and Taiwan in our assessment, the number of freight trains per day rises to 10. Then the need for directional balance through the freight of transit cargoes and empty containers in the opposite direction must be addressed. It could double volumes both on the railroad and in the port of Kirkenes, creating the basis for 20 freight trains per day – or one train almost every hour during a 7.5-month sailing season on the NSR.
The container trade between China and Europe is expected to grow significantly in the future. If the forecast for 2040 is used as a basis, and the freight figures above are left unchanged, the future share of Chinese containers to Europe via the NSR and Kirkenes would be "diluted" to 3-4% of the total Chinese container trade to Europe.
The above basis for estimating the potential for Chinese containers via the NSR should be viewed as conservative. Furthermore, it does not take into consideration the potential for increased freight traffic along the NSR from melting ice. This could make all-year navigation possible in some years from as early as 2030 and would pave the way for regular shipping lines for containers and other types of cargo.
These freight volumes spread across one or more ports in Northern Norway would have a significant impact on the regional economy and employment. The Kirkenes assessment indicated at least 600 new jobs in the port and directly associated transport infrastructure, while the indirect impact might be more than twice that figure. In comparison, Narvik handles an average of 15 arriving and departing trains per day. The port and railroad employs, directly and indirectly, around 2,100 people in the region.
Liquefied natural gas
The NSR also represents an opportunity for petroleum activities on the Norwegian Arctic Shelf and in Northern Norway, as favourable distances might contribute positively to shipping and environmental costs when delivering to some ports in Southeast Asia during the sailing season.
The gas condensate fields Snøhvit, Askeladd and Albatross are operated by Equinor and co-owned by Petoro, Total E&P, Neptune Energy and DEA. Located 140 km northwest of Hammerfest, together they form Snøhvit Project. It came on stream in 2007, connected by a pipeline to the Snøhvit LNG export terminal on Melkøya at Hammerfest. With further development of the project, including putting the Askeladd field into production by the end of 2020, Snøhvit should remain in production until at least 2055.
When it went on stream, Snøhvit held 266 billion cubic metres, while by the end of 2017 remaining reserves were 207 billion cubic metres (1.7 billion barrels of oil equivalent).
Melkøya is the only LNG processing facility in Norway. LNG tankers export the output, and in 2018 4.7 million tonnes of LNG were shipped from Hammerfest to the spot markets in Europe and Asia. On average one tanker leaves the terminal every ten days and the NSR has already been used and tested for export to the Asian markets by a few of these tankers.
Exports of crude oil from the Norwegian Arctic Self are also rising. The Goliat oil field is situated 85 km northwest of Hammerfest and 50 km southeast of the Snøhvit gas field. It is operated by Vår Energi and co-owned by Equinor. Recoverable reserves are estimated to be 174 million barrels of oil and 8 billion cubic meters (6.9 million tonnes) of gas.
The field came on stream in March 2016 using a floating production vessel (FPSO) with a capacity of almost 100,000 barrels a day. The oil is offloaded to shuttle tankers with a capacity of 120,000 tonnes and shipped directly to the export market.
Equinor is engaged in the Johan Castberg field development project covering the Johan Castberg, Havis and Drivis fields, which it owns together with Vår Energi and Petoro. They are located 240 km northwest of Hammerfest, at a distance of about seven kilometres from each other, approximately 100 km north of the Snøhvit field, 150 km from Goliat and nearly 240 km from Melkøya. Combined, the fields contain an estimated 558 million barrels of oil and 2-7 billion cubic metres of gas.
The fields will be jointly developed as part of the Johan Castberg field development project, due to come on stream in 2022 with similar production numbers and transport arrangements as Goliat, and with an estimated production period of more than 30 years.
Goliat, Johan Castberg and any similar future field developments on the Norwegian Arctic Shelf might benefit from use of the NSR if the ports receiving the oil produced there are located in Southeast Asia.
In 2017, Norwegian and foreign vessels delivered 980,000 tonnes of fish and shellfish to fishing ports in Northern Norway. Cod and other species in the cod family amounted to 700,000 tonnes, while pelagic fish (herring, mackerel, etc.) amounted to 203,000 tonnes.
Around 45% of the Norwegian cod quota is processed, mainly as dried fish, clipfish or salted fish. During the last 10 years, the processing of fish fillets has dropped significantly in favour of exporting fresh or frozen round fish (headed and gutted).
The Norwegian pelagic fish catch, dominated by herring and mackerel, is mainly exported. In Northern Norway, most of the pelagic fish is sold to buyers in the county of Nordland, while there are no supplies in the county of Finnmark. Most of the pelagic fisheries take place in the south of Norway; of a total of 1.3 million tonnes delivered to Norwegian ports, only 15% of this volume went to Northern Norway.
In 2017, Norway exported a total of 488,000 tonnes of seafood to Asia. Frozen mackerel amounted to 172,000 tonnes (35%), while frozen capelin, cod, pollock, herring, redfish and Atlantic salmon amounted to 125,000 tonnes (26%) combined.
By comparison, fresh Atlantic salmon and trout amounted to 120,000 tonnes – or 25% of exports.
Frozen Norwegian fish exported to Asia is mainly shipped by sea. The combined total of 300,000 tonnes sent to the Asian market might therefore create future opportunities for the use of cold stores and transhipment at ports in Northern Norway for export via NSR.
Norwegian mineral export to Asia are currently quite modest, but after iron mining restarts in Kirkenes in 2020 and copper mining begins in Kvalsund near Hammerfest in 2021-2022, those operations could potentially benefit from use of the NSR in the event of exports to the Asian markets.
Iron ore from Kirkenes and from Russian mines in the Murmansk area has previously occasionally been exported through the NSR to China, proving that the shipping lane is also suitable for dry bulk cargoes.
At peak production in 2014, the Sydvaranger Gruve iron mine in Kirkenes shipped 2.5 million tonnes of iron concentrate in 36 vessels – or one shipment every 1.5 weeks.
The Nussir copper mine in Kvalsund is expecting to ship around 5,000 tonnes of copper concentrate per month.
Transit cargoes from Northern Finland
In Finland, the transport authorities have produced various assessments of the transport potential from industrial sites in Finnish Lapland to Kirkenes port by a new railroad link from Rovaniemi. The latest assessment estimates a combined annual volume of around 2.6 million tonnes of cargo, consisting mainly of phosphates (1.54 million tonnes) and iron ore (300,000 tonnes) from the Sokli mines at Savukoski. Another 250,000 tonnes of copper and nickel concentrate could be added from Kevitsa at Sodankylä, giving a total of 2 million tonnes of minerals from Finland. This would be roughly equivalent to the output of iron ore from Kirkenes and make a significant contribution to both an Arctic railroad and port turnover in Kirkenes.
To get an idea of the impact of mineral transport by rail between Rovaniemi and Kirkenes, one can compare with similar traffic on the Ofoten railroad between Sweden and Narvik. Here, one fully loaded train carries 6,800 tonnes of iron ore.
550,000 tonnes of iron ore from Finland to Kirkenes could generate around 80 trains. If the same weight is used as a basis for the shipping of phosphates, one could add 220 trains per year. Combined, this comes to 300 trains, and with some additional freight Northern Finland could contribute on average one freight train every day of the year. This would generate significant extra shipping through Kirkenes port, even if the extent would be subject to the size of vessels being used.
It should be noted that in the event of phosphates from the Sokli mine in Lapland being shipped via Kirkenes, they would not be sent on to the Asian markets but would instead be shipped to Yara’s production facilities in Norway. This would have no negative impact on the basis for an Arctic railway and cargo handling in Kirkenes. However, it does mean that there is currently quite limited potential for Finnish transit cargoes to go to Asia via Kirkenes and the NSR.