CURTAINS FOR THE NORTHERN SEA ROUTE?

A major fallout from Russia’s move to pariah status because of the Ukraine invasion amounts to a further undermining of the vaunted Arctic shipping route. Take-up was already very slow, with only limited bulk fl ows attracted to the route and these were primarily driven by commodities sourced in the Russian Arctic – transit volumes from East Asia have never moved beyond trial shipments.

It seems certain that the Arctic Council, (headed by Russia, but with five NATO members plus potential NATO newcomers Finland and Sweden), is currently dead and resuscitation looks difficult, to say the least.

It is unlikely that major container lines will risk high volume services through this politically sensitive route, so the only real beneficiaries will be bulk commodities sourced within the region.

Aside from well-known arguments concerning seasonality, vessels size constraints, lack of supporting infrastructure, etc., which already limited the true potential, there was seen be real opportunities for LNG sourced within the region for shipment to Europe and Asia. These developments were predicated on the technical and financial involvement of the major oil companies. Since February, Total, BP and Shell have all announced a withdrawal from Russia and it is very unlikely that, if they return, they will prioritise these more ‘difficult’ projects.

There is a transport cost advantage for some trades in using the potential route between Asia and Europe, but practical difficulties have limited interest here. The outcome of the current conflict will determine the real potential. If Russia continues to be blacklisted by the rest of the world, only gas and bulk trades to China could be targeted. If the situation is resolved, there may be some recovery in interest, but commercial companies will remain extremely cautious about significant investments. It is difficult to see real progress being made.