This year may become breaking in the Russian plans of Arctic development. The number of events and news dealing with the Arctic grow as fast as the date of new Russian claim to the UN Commission on the Limits of the Continental Shelf comes closer. In July Vladimir Putin announced a start of large scale program of cleaning of Arctic territories from thousand tons of wastes inherited from the great Soviet Empire. But another part of Soviet heritage – huge and heroic experience of conquering the High North areas, - Russia intends to use to full extent. In her new arctic strategy Russia is trying to reconstruct USSR achievements.
In the beginning of August two ice-breakers “Dikson” and “Kapitan Dranitzin” have started the expedition from Murmansk and Kirkenes to Lomonosov’s Ridge. The expedition should find final confirmation for Russia’s bid to 1,2 million sq. km of Arctic waters. With high probability the Russian claim to UN commission will be presented next year.
Magic word
Russia slowly and insistently increases presence in the Arctic, builds new and restores old infrastructure demonstrating strong commitment to national sovereignty in the strategic area. Development of Arctic gradually becomes one of the most popular topics in the Russian big policy. The word “Arctic” represents a unique password that opens doors to the very sacred corridors of power, provides huge federal investments, launches scale research expeditions and establishes incredible business alliances. Like a giant magnet Arctic attracts attention of more and more different actors whose interests previously seemed so diverse, to say the opposite. Arctic draws unprecedented enthusiasm of federal and regional politicians, military people, businessmen, scientists, journalists, travel agencies, NGO’s activists and many others. Arctic is widely figured in the titles and topics of numerous conferences, round tables, art exhibitions, film festivals and concert tours.
Russian plans in the Arctic are huge and beautiful and today one could find out more political than economic background in its development. Russian Arctic strategy very logically suits the current political configuration in Russia where mega-projects with evident geopolitical context are so well-greeted. But strong persistence and will which Russia shows in realization of its Arctic strategy promises to bring the country fantastic economic advantages and sufficient growth of political weight in global policy in the future.
In October this year President Vladimir Putin will attend the third Arctic Forum, the annual top-event which is used for discussion of the most important issues of arctic development. This year the Arctic Forum will be held in Salekhard, the capital of Yamalo-Nenets Autonomous okrug.
Having defined Arctic as a main strategic resource base the Russian state methodically moves to establishing of holistic system of components which should forever secure the national interests in this region thus giving clear answer to the concepts of internationalization of the Arctic. According to the Foundations of State Policy of the Russian Federation in the Arctic adopted in autumn 2008, the national interests of Russia include four main pillars:
• Utilization of Arctic resources for the tasks of social and economic development of the country;
• Preservation of the zone of peace and security in this region;
• Protection of ecological systems of the Arctic;
• Use of the Northern Sea Route as a national transport pathway.
End of monopoly
On the start of development of Arctic offshore resources Russia staked on the state-owned companies, the so-called “natural monopolists”, having decisively pushed away from the “Arctic pie” all private and foreign actors. According to the federal law the licenses for exploring and development of arctic offshore resources could be granted only to the companies with prevailed state ownership and at least 5-years’ experience of work in similar projects. These requirements were obviously met by only two Russian majors – Gazprom and Rosneft and today they hold licenses for development of 65 offshore fields.
For the last three years both companies invested 100 billion rubles (3,3 billion USD) for development of oil and gas offshore fields but however quite soon the federal government had to recognize that competence and investment potential of two Russian monopolists are not enough for desired fast development of the Arctic shelf. Today’s economic achievements of Gazprom and Rosneft on the shelf are rather modest and stay far from the visions of the Russian Government. In 2011 the oil extraction on the arctic shelf made 13 million tons and gas extraction reached 57 billion cub. meters. The long-waiting drilling at Prirazlomnoye field in Pechora Sea, the first Russian arctic offshore project, that was expected to start in the end of 2011 has been delayed till 2013. The inglorious end of alliance Gazprom-Statoil-Total in Shtokman project after years of loud presentations and confusing discussions showed that Russian terms of Arctic game do not meet expectations of foreign investors in the current situation on the world gas market.
The private Russian companies like Lukoil, Tatneft and TNK-BP meanwhile strongly voiced for access to the arctic shelf. From 2010 the Russian officials pronounced a necessity of liberalization the conditions of access to the arctic shelf in order to allow the private companies to work there in line with the state-controlled majors. Almost two years ago the Russian Ministry of natural resources and ecology announced preparation of federal program of exploration of continental shelf till the year 2030. In April this year the CEOs of four Russian oil companies - Surgunteftegaz, LUKoil, Bashneft and TNK-BP, - addressed to Vladimir Putin a strong demand for equal permission to the Arctic shelf. They stressed that the program of development of arctic offshore resources is hardly be realized without participation of the private capital.
The new Program is supposed to break the monopolism of state-owned companies on the shelf and to facilitate new private investments in geological study and economic activity in the Arctic seas. Finally, in the beginning of August this program was studied by the Government. It stipulates a necessity of drilling of 150-290 prospect wells and sufficient increase of seismic studies in the Arctic. As a result the offshore oil extraction in the Arctic should by 2030 year reach 66,2 million tons and gas extraction – 230 billion cub. m.
The discussion around the program showed that different Russian ministries have so far no common understanding about terms of access to the Arctic shelf for different business actors. The Ministry of natural resources for example offers to allow the private companies to make own geological exploration on the shelf and in case of discovery of commercially valuable fields to take part in their development in consortiums with the state-owned companies. The Federal anti-monopoly agency insists on giving an access to geological study and fields development to all companies who have at least 5-years’ experience in offshore projects.
The Program however was not finally approved by the Government and its new version is to be improved by specially established working group and presented in the beginning of October. Facilitation of activity of the private oil and gas companies might help Russia to accelerate development of Arctic resources. But the Vice-Premier of the Russian government Arkady Dvorkovich has already reported that the state control over development of offshore fields should anyhow remain strong. Dvorkovich was officially assigned a head of the working group that will present the final version of the document.
Meanwhile the private companies already demonstrate hectic activity in the Arctic. The company NOVATEK, the second biggest gas producer in Russia, realizes a large scale project of LNG production on Yamal peninsula in north-western Siberia. The project “Yamal SPG” stipulates construction of LNG producing plant, development of new port Sabetta on Kara Sea and building of own fleet of ice-class tankers. The overall investments in the project are estimated in 20 billion USD (excluding the costs of transport infrastructure) which is nearly comparable to the cost of Shtokman first phase. The project is developed in cooperation with “Total” that holds 10% of NOVATEK shares. “Total” will also own 20% of Yamal SPG. In July this year construction of new port Sabetta was officially launched and as far as in 2016 NOVATEK plans to ship first 5 million tons of LNG from Sabetta port along the Northern Sea Route. In 2018 the transportation of LNG from this port is going to reach 16 million tons and in a longer perspective – 20-25 million tons. NOVATEK and Gazprom recently signed a memorandum on construction of another LNG plant of total capacity of 20 million tons. According to Maksim Sokolov, the Minister of transport, the transportation of hydrocarbon products from Obskaya Bay via the Northern Sea Route may exceed 50 million tons.
In July 2012 The New York Times reported in July 2012 that NOVATEK is starting export of the Russian gas to Europe thus breaking a monopoly of Gazprom. According to the NYT NOVATEK signed an agreement with the German third biggest energy concern Energie Baden-Württemberg (EnBW), for supply of 2 billion cubic meters of natural gas.
Another private company Pechora SPG (former SN-Neftegaz) is going to invest $5 billion in construction of LNG plant in Nenets Autonomous okrug. The project includes development of Kumzhinskoye and Korovinskoye fields, construction of 400-kilometer pipeline in Nenets tundra to the Barents Sea and building new oil terminal in Indiga port. The first export from the terminal is going to be started in 2015. The company plans to produce 2,6 million of LNG on the first phase of the project and orients to the markets of Asian-Pacific Region. Pechora SPG has already ordered several tankers of Arctic class.
JSC “Transneft” has also included in his plans development of Indiga sea port. Transneft wants to build new oil terminal which will be accessible for the tankers of deadweight up to 300,000 tons. The terminal should in the future load from 12 to 24 million tons of oil annually.
Arctic artery
Economic expansion in the Arctic introduces absolutely new situation for the strategic Northern sea route which is going to be totally controlled by Russia. In the end of July, 2012, President Putin signed Law on the Northern Sea Route that outlines the NSR water area and fixes the rules of use of this strategic pathway. Also the Law envisages establishing of administration of the Northern Sea Route which will handle applications for the right to ship along it and charge a fee for the ice steering in its waters. The volume of cargo shipping along the NSR is quite modest today but it demonstrates stable growing from year to year. 34 ships passed the NSR during the navigation of 2011 and the cargo turnover made 820,000 tons. This year the turnover is expected to double.
Potential future cargo turnover in the Russian Arctic is hard to estimate and different experts make various prognoses about it. But almost all of them are either optimistic or very optimistic. According to Nikolai Patrushev, the Secretary of Security Council the overall cargo turnover along the NSR may reach 64 million tons in 2020 and 85 million tons by 2030.
Simple calculation of plans and prospects which now and then are announced by the oil and gas majors, shipping companies and political persons just boggle your mind. In addition to 50 million tons of LNG planned to be shipped from Obskaya Bay by NOVATEK and Gazprom the terminal in Varandey operated by Lukoil in Pechora Sea is able for shipping of 12 million tons of oil. Sufficient surplus to turnover along the NSR is promised to be given in the beginning of 2013 when Prirazlomnya oil platform will start full-scale operation in the Pechora Sea. The platform is able to extract up to 8 million tons of oil from the shelf. Gazprom who owns Prirazlomnaya has already started negotiation with Sovkomflot, the biggest shipping company in Russia about transportation of oil and LNG along the NSR.
Another impulse to cargo flows for the Northern Sea Route could be given by the project Belkomur, the planning 1155-kilometers railroad that has to connect the Polar regions of Urals and Komi with the sea ports of Arkhangelsk, Murmansk and Northern Europe. In case of its realization the fast growing industries of these regions could bring to the northern sea ports up to 15 million tons of potash fertilizers, coal, timber and metals. The integral part of this project was construction of deep-water area of Arkhangelsk commercial port in the White Sea. But today the federal government more inclines to the cheaper variant of the project because the amount of investments necessary for its implementation seems too high. Total cost of Belkomur project was estimated in 400 billion rubles. In February this year when visiting Permsky Krai Vladimir Putin has in general supported the project but mentioned that it needs additional study. The Ministry of transport rather skeptically evaluates the prospects of this project in its current concept though it has been included in the Strategy of social and economic development of the North-West Federal Okrug and the Strategy of Railroads Development. The Ministry recommends to optimize the project and to limit it by development of only “southern part”. That means that the cargos from Komi and Urals regions may in the future go to Murmansk sea port instead of Arkhangelsk. High probability of changing the Belkomur geographical vector was confirmed by the recent meeting of the representative of governments of Komi and Murmansk regions held in Murmansk in July where the regional officials discussed a necessity of coordination between Belkomur development and modernization of Murmansk sea port. The new parameters of Belkomur are likely to be announced in September. The transport link from Perm and Komi to the northern seas should be ready before 2015 because by this year the volume of transportation of potassium salts produced by “Uralkaiy” will increase from 11,5 to 16 million tons. By 2018 “Uralhim” will add to this amount another 2 million tons per year.
In a longer perspective the Arctic ports could be connected by railroads which will make exploitation of the NSR even more efficient. For example the administrations of Yamalo-Nenets Autonomous Okrug, Khanty-Mansiysky okrug and Tymen’ region are preparing a scheme of realization of the project “Northern Latitudinal Passage” envisaging construction of railroad connecting the capital of the YaNAO Salekhard with Igarka and Dudinka sea ports. Development of hydrocarbons in the Nenets Autonomous Okrug makes possible in the future construction of the railroad between Indiga sea port and Syktyvkar, Komi Republic. Construction of railroad between Indiga and Sosnogorsk is also a part of the Strategy of Development of Russian Railroad Transport till 2030.
All economic forecasts give inevitable and fast growth of transportation along the NSR demanding coordination between different transport and logistics companies in the region. First step in this direction could be establishing in 2012 of joint administration of the Northern Basin which should unite the administrations of Murmansk and Arkhangelsk sea ports.
Oil and gas operations and sea navigation in the Arctic should get reliable and sovereign system of monitoring of climate, weather and ice conditions. This is going to be provided by the Federal Space Agency Roskosmos that plans to make the space system of hydro meteorological monitoring “Arctica”. The program cost is estimated in almost 70 billion rubles. This is notable that for this system Roskosmos decided to refuse from realization of 16 other space projects envisaged by the Federal Space Program including interplanetary voyages to Venus and Mercury. The first phase of this system is expected to be ready in 2015.
Russian ice-breaking fleet is the most powerful in the world. Today the Northern Sea Route is served by six nuclear-powered ice-breakers: “Rossia”, “Taimyr”, “Vaigach”, “Yamal”, “Sovetskiy Soyuz” and “50 Let Pobedy”. Most of Russian oil and gas majors have own ice—breaking fleet able to operate in the Arctic seas and makes ambitious plans for its development. “Norilsk Nikel” operates by six ice-breaking container ships built by Nordic Yards Wismar (Germany). “Lukoil” owns 10 ice-breaking tankers, multifunctional ice-breaker “Varandey” and ice-breaking tugboat “Toboy”. “Gazflot” has two multipurpose ice-breaking transport vessels. Sovkomflot exploits two multipurpose ice-breakers and builds two new ice-breakers that are expected to be launched in 2013. As it was mentioned above own plans for building the ice-breaking fleet have such companies as NOVATEK and Pechora-SPG.
However year-round exploitation of the Northern Sea Route is critically dependent to the nuclear powered ice-breakers that can provide economically profitable speed in the ice – 10-12 knots while the speed of ice-class tankers normally does not exceed 2-4 knots. But also critical is the age of Russian ice-breakers that are going to be taken out of service between 2014 and 2025. Understanding the challenge the Russian Government adopted the program of modernization of ice-breaking fleet which was started this year. Before 2020 Russia will build three nuclear-powered ice-breakers of 60 MW capacity and six diesel-electric 25 MW ice-breakers. Each of new vessels could be exploited for 40 years.
Along the Northern Sea Route Russia plans to open 10 search-and-rescue stations. First of them is to be opened in August in Dudinka. Two others are planned to open next year in Murmansk and Narjan-Mar and all ten should be ready by 2015. Each center will employ 60-80 specialists. The Ministry of Emergencies also reported about establishing of special alignment of 18 rescue aircrafts that will be located on the Arctic airdromes.
Dialogue from a position of strength
Russia in its Arctic strategy demonstrates adherence to the principles of peace, mutual security and dialogue. This is rather symptomatic that the most dignified meeting place discussing Russian arctic policy was called “Arctic Forum. Territory of Dialogue”. But not less symptomatic is that this dialogue with the closest neighbors Russia prefers to maintain being sure in own strengths. When Arctic becomes a territory of active international shipping it may seem a vulnerable from the military point of view. Economic expansion is supported by renovation of Russian military power in the Arctic.
From 2007 Russia recommenced patrolling air space in the Arctic. In May this year the commander of air forces of western district General Igor Makushev announced that Russia starts re-activation of Arctic military airfields which stayed laid up from the Soviet times. No need to say that this does not mean deployment of full-scale military bases but main runways, radars equipment, control tower services will be restored. These measures will allow using them as staging airfields.
Last autumn the Ministry of Defense announced plans of establishing of two arctic airborne brigades. In the beginning it was reported that these troops will be located on the territory of Arkhangelsk and Murmansk regions but in July this year the Commander-in-Chief of ground forces Colonel General Vladimir Chirkin said that the decision about dislocation of arctic brigades is not yet made. According to General Chirkin the Arctic brigades could be placed in the existing military camps in Pechenga, Kandalaksha, Yamalo-Nenets Autonomous okrug or even in Yakutia.
The year 2012 gives a start to the new federal program “State Border of the Russian Federation till 2020” which gives special attention to Arctic. In its framework in the Arctic areas there will be established 20 frontier points to provide total control over the state borders in the High North. Each of them will control a territory of 300 kilometers. This task is especially urgent for Russia which border in the Arctic stretches for 20 thousand kilometers. Today as it follows from the words of the head of federal frontier service Vladimir Pronichev around 2,5 thousand kilometers of the Northern Sea Route is not controlled by radar aids.
In 2012 Russia started modernization of the coastal guard fleet aimed at protection of arctic sea borders. In particular, the program stipulates provision to the coastal guard of new patrol vessels that did not happen during the last 20 years. The shipyard in Zelenodolsk started construction of new border watch vessel that in the future should substitute the old coastal guard vessels unable to operate efficiently in the icy waters. The new vessel has deadweight 2,5 thousand tons. It will be able to pick up a speed of 20 knots and to operate autonomously in the arctic conditions up to 60 days.
Russian sovereignty in the Arctic is strongly guaranteed by the Northern Fleet that until now has no competitors in the military power in the High North. Today it includes 6 strategic submarine cruisers, 16 multipurpose nuclear submarines, one aircraft carrier, three cruisers, two destroyers, five big and six small submarine chasers, three fleet ballistic missiles ships, seven mine-sweepers and five landing ships. By 2020 Russia will build eight new submarines of Borey project equipped by Bulava missiles and 10 multipurpose subs.
Titanic efforts that Russia undertakes in the Arctic in the conditions of uneasy economic and political situation could seem excessive and inadequate to the set goals. But obviously Vladimir Putin being anxious about recent disorders in the society is hardly looking for the ways of national consolidation. In his public statements Putin more and more often applies to the patterns of the Soviet Union which crash he called the biggest geopolitical catastrophe of 20th century. «We are the nation of winners, said Vladimir Putin in his electoral speech; - this is written in our genetic code”. Later on the ceremony of inauguration Putin stressed: «Today we are entering a new stage of national development. We will need to solve the issues of fundamentally new level, quality and scale. Nearest years will be decisive for the fortune of nation for the decades ahead.»
In one of his recent statement Putin applied to the regional ombudsmen to think about new ideas that could consolidate the nation and exemplified a well-known formula “Soviet people as a new historic entity” as a good pattern. The President willingly uses soviet rhetoric appealing to proven ideological tricks and forms aimed to rally people in the face of high patriotic objectives.
Russian game in the Arctic is spinning up. It is quite possible that if the Arctic plans and visions of the Russian state will come true very soon the world will see in the High North the shining façade of regenerated empire.
