The greatest port investment opportunities revolve around three events that are happening right now: the development and use of arctic shipping lanes, the exploration and extraction of liquid natural gas from the arctic, and the dramatic growth of agriculture in the North.
Arctic Trade Routes
For the first time in recorded history, transporters have access to the no-longer-fabled Northwest and Northeast Passages. The Opening of the Northwest Passage and Northeast Passage decreases shipping distances, decreases fuel use, opens new ports and markets, and eliminates canal fees. The Northwest Passage (the 2,000 mile route above North America) and the Northeast Passage (the 1,000 mile route above Russia) are now ice free for several months of the year. Regions of the arctic are warming at a rate five times greater than the rest of the world, an excess of 2.5 degrees Celsius per decade. NASA studies show that perennial Arctic sea ice is melting at a rate of 9 percent per decade, irrevocably extending the ice-free season each year. In August and September of 2009, Beluga Shipping made the first commercial journey through the Northeast Passage. “We can use the Northeast Passage only because of the effects of global warming,”[1] said Niels Stolberg, President and CEO of Beluga Shipping GmbH, headquartered in Bremen, Germany. Two multipurpose heavy lift carriers loaded up in Ulsan, South Korea for a drop-off in Novy Port, Yamburg, Siberia. They then continued on to Archangelsk to load steel pipes destined for the private port of Onne in Nigeria. The seven week route saved approximately USD300,000 per vessel. The typical alternative would have entailed a departure from Rotterdam, Netherlands through the Suez Canal and on to Yangpu, China. Beluga expects to make the journey regularly, starting with six ships in 2010. In 2008 the first commercially viable shipping operation proceeded in the Northwest Passage. That year, Desgagnes Transarctik sent the MV Camilla Desgagnes, a cargo ship, from Montreal to Gjoa, and plans to do so again on a regular basis. Since 1900, only 100 vessels have successfully traversed the passage. Each successive decade has seen more ships than the last as the passage gradually becomes more navigable. Impenetrable sea ice along the Passages has historically affected both land and sea infrastructure investments. In 1969, oil companies sent the oil tanker ice breaker SS Manhattan through the Northwest Passage to determine if the route was economically feasible for transportation of oil. Though the vessel completed the voyage, one of the few commercial vessels to do so, it was not deemed an economic success, and the result was the Trans-Alaska Pipeline. Increasingly, sea transport is becoming the preferred method of moving commodities out of the arctic. Land-based infrastructure such as railroads, highways, and pipelines will become more expensive to maintain as the permafrost melts below them, causing them to sink or sag. Mining operations dependent on annually diminished ice roads will look to the sea for export. Container transport benefits as well. Because there are no canals, ship size becomes irrelevant, allowing ever larger ships short and convenient access. As sea ice retreats and the Northwest Passage becomes more viable each year, the impediments found in the 1969 Manhattan venture have literally melted away.
Liquid Natural Gas
New Liquid Natural Gas (LNG) fields along the Northwest and Northeast passages are natural refueling stations. It is estimated 25% of the world’s natural gas reserves are hidden in the Arctic. Sea ice melt provides a direct transportation route from one of the world’s largest new LNG reserves to the world’s largest consumers of LNG. The two largest economies for liquid natural gas are Japan and Korea respectively. One of the largest new deposits of LNG is located in Novy Port, Russia. Does this sound familiar? Beluga already established this route. Novy Port is home to less than 2,000 people, located in the far North of Russia where the Ob River meets the Kara Sea. This region’s vast natural gas deposits attract oil and gas companies from all over the globe. Each company faces the question: how do we get it out? Gazprom is planning a 2,500 km gas pipeline and rail lines, part of the Yamal Megaproject, with an expected 2030 completion date. In light of the experience of the Trans-Alaska Pipeline one quickly recognises that shipping is the more appropriate solution. At the other end of the Arctic we find Snohvit in Hammerfest, Norway. Europe’s first LNG export facility, Snohvit produces 4% of the world’s LNG consumption annually. Partially financed by the Japanese Bank of International Commerce at a price tag of USD 5.3 billion, it exports 5.75 billion cubic meters per year, mostly to Europe and America. By combining the abundance of LNG in the Arctic with newly opened shipping lanes, you can begin to form an image of an arctic passage route between Hammerfest and Japan/Korea with readily available fuel resupply stations, such as Novy Port, along the way. So we have the world’s largest emerging energy market (LNG) coupled with the world’s latest transportation revolution (Passages) coinciding with a global push toward clean energy. It is a perfect storm of economic prosperity made possible by climate change. There is one more factor that will drive this home.
Agricultural Trade Routes
Scientists expect northern agricultural yields to increase due to global warming. Global warming will gradually erode agriculture in southern climes as plants max out of their temperature ranges. While this may prove devastating for mid-latitude nations, it is projected to be a boon to developed nations in the north, in particular the farmland in Canada and Russia. Luckily, you don’t need to wait for climate change to warm the fertile regions of Russia. The rush for grain has begun. Russia, already the world’s third largest wheat exporter, is on track to double their agricultural exports in the next 10-15 years to 50 million tons annually. The cost of Russian farmland is extremely low, and much of it remains fallow. Recognising this, agricultural investors are flocking to Russia. Swedish Company Black Earth Farming has bought up 300,000 hectares of Russian farmland since 2006. Saudi Arabia, Korea, Japan, and China are purchasing farmland in order to supplement their own lack of agricultural production. South Korean company Hyundai Heavy Industries obtained 10,000 hectares of Russian farmland in 2009 to grow 60,000 tons of maize and beans by 2014, all of it for export to South Korea. Asian nations are already investing in Russian ports as the two regions pursue a grain corridor. Sojitz Corporation and Itochu Corporation, two Japanese companies, want to buy land in Siberia. To do so, they will have to build ports, and this year they began talks with Russia to do so. They hope to develop a port in the Russian Far East to export 1 million tons of wheat annually, only 1/50th of Russia’s projected 2020 capacity. Mitsui, the largest grain trader in South-East Asia, has shown an interest in developing a grain terminal at the port of Vladivostok for export to Japan. Marubeni Corporation is also increasing its shipments to Japan from Vladivostok as well as Khabarovsk. Only one thing can stop Russia from achieving its agricultural potential – a lack of ports. Russian grain exports are already at capacity through Estonia, Latvia, and the Black Sea. Novorossiysk shipped 2.5 million tons in the first three months of 2009, a fourfold increase from the first quarter of 2008. The Azov Sea ports of Yeisk, Taganrog, Azov, Temryuk, and Kavkazare are also processing at capacity.
New Locations for Port Development
Which ports will service this emerging Arctic market? Existing ports, particularly those located in the Arctic, have a great deal to gain from the coming thaw. Three existing northern ports include Murmansk in Russia, Churchill in Manitoba, Canada, and Hammerfest, Norway. However, all ports have access to these routes, particularly Eur
opean exports going to Asia. The concept of an “Arctic Bridge”, with a hub in Churchill, was proposed by Canadians in the early 1990s. In 1997 this port of 1,000 souls was sold to Denver-based OmniTrax, a major railroad operator. In 2004, OmniTrax entered into talks with the Murmansk Shipping Company to promote the Arctic Bridge concept. The Canadian Wheat Board (CWB) exports nearly 400,000 tons of wheat each year through Churchill. Much of that wheat is exported to China, where the CWB has maintained an office since 1994. In 2007, OmniTrax accepted their first import, a shipment of fertilizer from Murmansk. This concept of connecting heartland agricultural production to Northern ports through rail lines represents major infrastructure needs that have yet to be met. Partnering with hinterland infrastructure suppliers, port developers have the most to gain from the Canadian and Russian agricultural boom. New port developments are the most exciting opportunities resulting from climate change. To date, there is not one grain export terminal in the Far East. Dmitry Rylko, general director of the Moscow-based Institute for Agricultural Market Studies (IKAR), said “the lack of a dedicated grain export terminal in the Russian Far East – whose ports ship mainly steel, coal and oil products – was the main impediment to large-scale, export-oriented farming projects in the region.” Meanwhile, Canada plans to create a deep water port from the existing port at Nanisivik. America is looking at locations in Alaska. In Russia, Ambarchik is a small port with possibilities on the East Siberian Sea which is now navigable during the ice-free days of August and September. Building a railroad north to this region, similar to the one that feeds Churchill, would be shorter than heading to Novosibirsk or Nakhodka, and shipping is less expensive than rail transport.
Conclusion
Port development opportunities along the Northeast and Northwest Passages are wide open. Sometime within the next two decades, total sea ice melt could leave Passage lanes ice-free year round. Ports that enter the planning stage now will be perfectly positioned to benefit from the transportation boom when it reaches full bloom.
In summary, there are six reasons to pursue arctic port developments:
The accelerated thawing of perennial sea ice creates viable shipping routes along the Northwest and Northeast passages, decreasing distances traveled and eliminating canal fees.
Liquid natural gas deposits found in the newly opened Arctic are increasingly coveted by sea and ground transportation as public concern over energy efficiency mounts. Sea transport is increasingly the most desirable method of extracting this natural resource. Ships can also be converted to use LNG as fuel, creating natural refueling locations along the Passages.
Russia expects to double its grain production in the next ten years, and the only hindrance to that expectation is the limited capacity of existing export ports. Warmer temperatures mean increased agricultural production in the northern hemisphere, particularly in Russia and Canada, increasing agricultural yield.
The economic demands of Asia, in particular China, Japan, Korea, and India, create new markets easily accessed from all developed nations through arctic routes.
Avoiding canals allows unlimited vessel capacity and size.
The culmination of all of these events is taking place in parts of the world where ports are either non-existent or woefully unprepared for the traffic they will soon see, creating the opportunity for the right investor to dominate this emerging market.
The time for financing port development along arctic trade routes is unprecedented, historic, and potentially quite lucrative. Now is the time to start investing in arctic port development.