TIMELY - RELEVANT - PREDICTIVE Shipping in the Arctic: Commercial Potential and Future Trends Zachary D. Hamilla ° Arctic Strategic Analyst Office of Naval Intelligence December 2010 This briefing is: UNCLASSIFIED Ge. Tao sso SSUNCLASSIFIED Overview Maritime activity in the Arctic is likely to increase with global warming ONI assesses maritime activity in the Arctic will increase only gradually over the next 10-20 years However, while remaining relatively limited, Arctic maritime activity may have nevertheless have significant local implications + Agenda — National Activity + National Interests and Strategies + Delimitation + Non-Arctic States Interests — Commercial Activity + Shipping & Trade + Oil & Gas + Fisheries, Tourism, and Research UNCLASSIFIEDUNCLASSIFIED Co Arctic Assessments National Activity UNCLASSIFIEDUNCLASSIFIED National Interests and Strategies Arctic states generally seek to avoid conflict, gain secure access to natural resources, and foster economic activity and development = Countries anticipate cil and gas extraction, mining, fishing, and shipping — Alllittoral states are pursuing Extended Continental Shelf recognition Coast guards are generally more active than navies in the Arctic, but no country has robust operating coverage or capability = Russiahas most significant capabilities with dozens of icebreakers and other civilian and military assets and polar operating experience — Russian Northern Fleet based in Arctic, but focused on the Atlantic Overall security environment is stable and armed conflict in the region is unlikely = Alllcountries are committed to legal processes and have no significant incentiveto disrupt the course of developments CANADA NORWAY. DENMARK + Arctic operations partof Armed Forces | + + Regular Arctic exercises focuson search and rescue logistics, and communication + Strategic investmentin Artic planned = Despndtr port tNarisiledy 2015 ~ © Sicestragtnene paral sips ore Navy eurerdlyonhaay UNCLASSIFIED Strategic orentationaligningto Arctic | + ~ aseabi “ = Stake NATO invent Economie activity and regulatory regime expanding = Oneadtv artical, 5m onsere New naval construction replaces ageing platforms, Less engagedin Areticissues Danish Navy responsible for Greenland and Faeroe islands patrols ~ raimetimapresencs| os Possibility of Greeniandle independence ~ esovpsaracetUNCLASSIFIED , Delimitation + UNCLOS = Internal Waters 2 Landwvard ofthe loyewater mark: oF + Within sraightbascines + Sovereigntyason land possible tihtotinnocent passage = Tero Sea + Neat. avery ahtot Raseee Innocent passage = Exclusive Economie Zone (a © 200mm NonwayEEZ + Exclusive rightsto all resources in - thewaterand seaved ways + _Paseageason igh seas = Contnena She ad on s60nm:o ai + 2500Misobath + 100NM Deomarhese + Exclusive ightstoallresourcesin canis EZ theseabed eaete = Intemational Stats Sentesee + nmocenttranst passage through by useez Gihertae rested vaters, + ‘Stats uoedteritematonal navigaton’=Identfedtrough histories use + llulissat Declaration = ay 2008 commitmentby Arctic Coean syuassenen literal stateste apply existing legal 7 frameworks to elimtatonm arse 5 UNCLASSIFIEDUNCLASSIFIED Non-Arctic States Interests + Non-Arctic states perceive mainly economic interests a in the Arctic C - Neural resources / oil and gas ST ReMCROen TC = Transportation routes — Fisheries + Historically focused on scientific and ‘economic research = Strategic realignments + Emerging poliical/poliy function starting + Non-Arotic states’ naval presence in the Arctic waters is refon, consolidation, and development likely cursory and largely limited to European states + Temporary secretariat estalshedin romso, Norway in 2007 + Mandated by charter notto address silitary or hard security topics + Observers’ roles unclear; ".. the Council determines can contribute to its work oo Penna ea ee Pe ate {end sate fons oe fue : Teens Chine South Korea pace oa *Nou-Permanent Observer 6 UNCLASSIFIEDUNCLASSIFIED Co Arctic Assessments Commercial Activity UNCLASSIFIED+ Future activity in the Arctic will be highly dependent on natural factors Drivers of Future Activity — Rate and extent of ice melt — Extent and accessibility of natural resources. + Non-environmental factors are also likely to affect Arctic activity — Transportation and resource extraction depend on global markets UNCLASSIFIED ‘Arctic Winter Ice ‘Arctic Summer Ice UNCLASSIFIEDUNCLASSIFIED “A Shortcut Across the Top of the World” + Arctic shipping routes — the Northwest Passage (NWP) and Northen Sea Route (NSR) - have been widely reported as future major international shipping lanes that could revolutionize sea-borne trade UNCLASSIFIED Forthe Northwest Passage. atypical example highlights the tansitbetween Yokohama, Jap and New York Clty: “18,800 km using the Panama Canalbut just 12,200 km using the Northwest Passage, a reduction by nearly 25 percent" (Singapore, The Straits Times, December 2008) Cooter) Pomerat ‘A Shortcut Across The Top of the World ‘Te Norase Passo90 toute Arte Ocean, provers shoe aterabve ‘oul fr some oyaaee bntreen he Noch Amercan west coast and Evrepe LENGTHOF AVOYAGE To ‘tet mor vi Sone Cana Saree va Noose Pesage {207 mos vi Sona VANCOUVER CANADA 10.262 mlorvia Panama Cans sun ye nun Seaemine vahomenst Paceage Sh JaeUNCLASSIFIED Distance + Distances do not always favor the Arctic and shipping is most likely to be routed by conventional canal routes when these are shortest = NWPis arly the shortest route between relevant ports (10% of routes), NSRis more frequently a shorter route (5% of routes) = _ Thenesthiorh Ametican EastCoast ports that wth shortest routing through the Arctic are Hampton Roads, the 11"-argest pert and Buh nearest cayoareas, Mencote argestporontheNoth Aenean ves Coss valvaye honest rough he + Inland logistics and existing trans-shipment infrastructure create conventional route “lock-i = ForNorth America, the overland land bridge’) rout rom West Coast potsisaleady cost-competive and tkely remain so = _ New larger Panama Canallocks are due to openin 2014-2018, allovingthe biggest container shipstotransitviably = Logistics cou shit overtime to account for rete routes, bu is woul take a longtime and require an extra trong market signal [Sharia Res Between Major Ports tte Manic and UNCLASSIFIEDUNCLASSIFIED Depth and Width + Northwest Passage and Northern Sea Route southern variants both suffer from depth restrictions and have known or suspected reefs, shoals, and uncharted rocks Limits ships to:25,000-20 000d on NW and possibly S0,000-0,000 nt on NR southern routes Vessels cule be ult onger er iderto reduce craft and maintain cargo capac. or euld travel ithlessthan iLioadcargo, Butoh approaches would prohntvely Increase costs + Northern route variants effectively have no depth restriction, but will suffer from greater ice severity = Ieefloes~some of which can be miles across — can cause unpredictable closure duetolce, impacting businesrelabilty = Overallicewitbepresentionge each year andfartheintothe ture OES (U) Deadweight tonnage vs. draft (m, 2009 ve [_ASE rer y PE Sromoge leuze [nun [rm pong renga ones [ap | ae fa somsneo [Ter—[ er [es [ea emerson [Tat [teen fe 0.25; 4 08 a 0s eaooosgo00 [TE m1 0.000500 [ane ne saonnsnom [25 5 eonnanom [wo [137 | 151 enntey.om9 [Tus [ a7 [a 10n,000180,000 [ee is 259,000 30,000 208 | 206 UNCLASSIFIED NGSUNCLASSIFIED ) Weather and Ice + Arctic weather will remain harsher than on existing trade routes === = evilemain an operatonaltatortrdecades,erpetalyatkey cokepains | ©) Fovand Clear Weather at Reso, = _ogna sgntean fear oft weather an nay become noveperitet i oi Reon meen cetera sgn eyed a8, [in [ave [ar oer Storms may intensity dueto increasedtemperature differentials along the ice edge = Attic weather is unpredictable and changes quickly Davewith seme fen ar] 20785 yams: aN Dor a j Pas (W) The Northwest Passage: “Ice-Free Conditions,"27 Augustand 15 September2007 UNCLASSIFIED+ Ice remains in key straits even in strong melt seasons = Vilktskiy trait, Severnaya Zemlyaon Northern Sea Route MeClure Strat and Melville Sound on Northwest Passage + Arctic will remain ice-covered most of the year ASSIFIEDUNCLASSIFIED Infrastructure + Inhospitable climate, absence of major population centers, and lack of use have led to minimal maritime support infrastructure in the Arctic, especially outside of Russia = Fewaldsto navigation buoys and beacons) andboth satelite and ground communications relayshave poor coverage in the = _ Pasteffrtstoinvestin Canadian Arctcinfastucture ave met with mited results: Russia has made progres, but mestsstillplanned + Limited search and rescue (SAR) capability — “you bring your rescue with you" = Competition for scarce budgetary resources wth other SAR regional needs = Canadian government study 2007 jldged SAR effectiveness 81 48%in the eastern Arctic and.69.20%inthe Northwest Teritries ‘measured against current needs forineidentsin the Arctic. the study concluded that "a 504% level of service is typically acceptable + Shipping industry requires basic infrastructure to sustain successful, resilient operations = Murmansisthe ony malorportin the cle UNCLASSIFIEDUNCLASSIFIED Routing, Reliability, and Insurance + Container shipping industry employs a hub-and-spoke model with most ships loading and offloading along the way to maximize time, cargo volume, and network routing efficiency = Arctic outeshaveno major trans-shipmentor regional hubs along the way mtin effeieney and lexbity = May yeld single shpetrans savings but systemic loss duetonetwork disruption + Business planning demands predictable environmental conditions to ensure efficient scheduling, routing, and endurance of cargo, often months in advance = Shipsusing he Arctic routes wllface signcan unpredictably fiom yearto year and within a single season overthe next decades = ajr shipping companies wil probably requirea minimum of eight weeks of ul ice-free conditions "nota cube’ with abutter of wo ‘weeks on ether side before planning regular or substanfaluse ofthe Artie seaianes ~ Impact ofenvironmental condtions on cargo mustbe predictable since mich cargo shippedin standard containersis sensiiveto temperature, inching extreme cold companies wilneedto be ableto rly on a certain fomperaturerange before commiting thelr argo tothe Arete route + Insurance relies on risk profiles generated from historical statistics; no such risk history exists for Arctic shipping, making insurance development complex and costly = Major shipping companies are very unlikely to use Arctic shipping routesif insurances not available or prohibitively expensive (W) Unexpected Ice and Enduring Fog, Baffin Bay, 08/2010 UNCLASSIFIEDUNCLASSIFIED Destinational Shipping + Destinational shipping depends on natural resource development + Moving cargo to Arctic population centers, = Trae key to shrink or growin ine th development f population centers ~ Could seeintialboostto selectpots a8 some ait- based cargo supply shitstomattime + Moving extractive equipment into the Arctic and natural resources out of the Artic. = Depends on the extent and development ofl, gas, ‘andmineral resources — Depends on globalmarket prices remaining high over ‘an extended period UNCLASSIFIEDUNCLASSIFIED Oil & Gas + TheArctic may account for 5.3% of proven global oil reserves and 21.7% of proven gas reserves, but estimates remain highly speculative = USGS:*... sparse data, high geologicuncertanty, ‘substantial petroleun-resource potential, and technical barriersthatimpede exploration TBARENTSPLATFORM 630 4408 ul brrte ot {raso~ ses Ber gee nd development = MostilielyinUS. zone; most — = feclalyi Russian zone eran Tomes AAR + Energy extraction is ee Gaoa ie REE highly problematic in pee Ae < foseneece et ice-diminished Sec erat 4 environments with er so high costs and risks = USGS estimates represent Potentslundiscoveredresources l Fegardless ofpresence ofseaice hs fordepth ofwater + Decisions on investment in Arctic energy extraction take place in a global energy context + Likely to draw more protest Y from environmental activists 5 % ay groups than onshore and o & non-Arctic drilling ST . | - o Sou an77 al ares ot 5 ies peamtae mane gennspule tla = 4107 GCF oor Ne PC ocusaren 7 UNCLASSIFIEDUNCLASSIFIED Oil & Gas + Few producing oil or gas fields offshore in the Arctic today, but many exploratory wells + Positive industry responses to recent/planned lease auctions in Baffin Bay and off eastern Greenland, and in the Barents Sea off Norway + Very long infrastructure and implementation timelines are widely recognized Oy eres ore) UNCLASSIFIED 18UNCLASSIFIED Potential for Resource Conflicts + The vast majority of likely natural resources in the Arctic, including oil & gas, are in areas of already established and undisputed sovereign rights (on land, territorial sea, and exclusive economic zones) + Armed conflict or a “scramble” for Arctic resources is unlikely given lack of competing claims eauVAeNTriao 10% egle UNCLASSIFIEDUNCLASSIFIED Potential for Resource Conflicts + The vast majority of likely natural resources in the Arctic, including oil & gas, are in areas of already established and undisputed sovereign rights (on land, territorial sea, and exclusive economic zones) + Armed conflict or a “scramble” for Arctic resources is unlikely given lack of competing claims eo UNCLASSIFIEDUNCLASSIFIED Potential for Resource Conflicts The vast majority of likely natural resources in the Arctic, including oil & gas, are in areas of already established and undisputed sovereign rights (on land, territorial sea, and exclusive economic zones) ‘Armed conflict or a “scramble” for Arctic resources is unlikely given lack of competing claims “uaa secon ‘ono ‘oom ‘xrenoen contac, a UNCLASSIFIEDUNCLASSIFIED , Environmental Opposition + Arctic offshore oil and gas development is likely to draw more protest from environmental activists groups than onshore and non-Arctic drilling + Affects strategic planning, public image, regulatory environment, public relations, etc. An Example of Environmental Activism at Work: areenpeace Shuts Down the Stena Don Oil Rig 0n 31 Ausust 2010, environmental activists boarded the Stena Don oilzig off the west coast of Greenland, shutting down operations [A spokesperson for the activists announced success: ‘Tin on te Greenpeace ship BSFERANZA, where. at 6am this morning, We Iaunched three boats, evaded the Danish Navy, and the police surrounding the Stena Don drill rig to occupy it with a bunch of climbers ‘The Danish Navy large pateol ship protectthe drill ig, as was the ESV AEDDEREN was present to {7 DON service support ship. ‘The activists planned to remain suspended from the rig in tents “fora very long time” to prevent drilling, but they abandoned their positions afterless than 48 hours due to severe winds and seas up to18t. The activists were ten anested by Greenlandic poli ‘The drilling company reported the even a brief delay could prevent them from finishing the season's work before severe winter Weather pel ee aa Oe ee andive forced a shut down of operations until summer 2011 22 UNCLASSIFIED+ Majority of commercial-scale Arctic fishing occurs in Barents and Norwegian Seas — 10% of global catch (2002) + Fisheries have shifted north with warming temperatures; additional shifts northward likely + Fishermen will follow the fish = Implications for regulatory ‘enforcementand search & rescue INCREASE IN SPECIES DIVERSITY, 2010-2050 UNCLASSIFIED UNCLASSIFIED Fisheries POLAR/ARCTIC COD GREENLAND CODUNCLASSIFIED + Arctic tourism has expanded significantly in the past 5-10 years and is likely to continue to grow = Norvayisthe area of historical greatest tourism, but Greenland tourism me has alse expandedrecently Ba : * tour ; in soci . a + *Risk-engaged” tourists are interested in seeing relatively dangerous things Pe cos See ee ere Cen ead Oot ie eau Co are ei od ‘An Example of Tourists in Danger: Chpper Adventurer Runs Aground in the Northwest Passage On 27 Ausust 2010, the CLIPPER ADVERTURER ran agroundin the Northwest Passage with 110 tourists and 18 crew members aboard the CEO of the company, who was aboard at the time, said “We were an a sinsleline track here that indicated we had 69 meters of water diveetlv under us when we found ourselves on ar0ck ~ a Canadian Coast Guard ship, the closest aid. took two days to reach them, There ‘were no major injuries and all passengers andrew returned safely. 24 UNCLASSIFIEDUNCLASSIFIED Science + Land and sea research focuses on climate change, marine science, and hydrographic and geologic mapping - + Svalbard is a center of Artic Sere sma 010 research and at least 20 nations have research facilies on the archipelago £10 Nations witha research presenceon Svalbardinclude : Germany, aly. China, and india 5 + Maritime research will ort 1 probably grow with continued RESEARCH paseance emphasis on climate change = Hysrographic activity ma sow ee following evaluation of Extended clereetnetl, Continental shelfresearch 25 UNCLASSIFIEDUNCLASSIFIED Questions + Agenda Concepts and Context — Commercialand Scientific Activity + Definitions and Concepts + Shipping + Delimitation + O18 Gas — National Interests and Strategies + Fisheries + Arctic States + Touism + Non-Arctic States Iiltary Investments and Activities (U Unexpected lee and Enduring Fog, Baffin Bay, 08/2010 ZAC HAMILLA, ONI~ zhamile@nmie nay. UNCLASSIFIED