1. Commercial Transit through
the Northern Sea Route
May 15th 2012
Professor S.W.Hong
Institute of Global Logistics
Youngsan University

2. 2
Contents
1. Northern Sea Route (NSR)
2. Future Demand of Transit shipping via NSR
3. Current State of Affairs in the NSR Shipping
4. Potential Cargo & Transit for Korean Market
5. Korean Perspectives on the Arctic shipping

3. 3
Northern Sea Route

4. 4
2. Future Demand of Transit Shipping via
NSR
1) High energy demand in Asian market
2) Rising oil price
3)Russian Arctic Resource development
4) Arctic sea ice in decline due to climate change

5. 5
3. Current State of Affairs in NSR Shipping
1) Cargo traffic on the NSR
2) Transit shipping through NSR (2011)
3) Is Arctic shipping profitable ?
4) Vessel operation conditions on the NSR

6. 6
1) Cargo traffic on the NSR
5,000
5,000 (est)
4,000
(est)
3,000
3,000
2,150 2,119
2,023 1,956
2,000 1,718 1,801 1,800
1,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
Europe  Asia Asia  Europe
Major cargo
Resources •Heavy cargo(beluga,2009)
• gas condensate • Transit(drilling ship, Tug boat)
• iron ore, scrap metal •Jet oil
• non-ferrous metal
• oil products

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Future NSR cargo traffic
19Mil(2015)  64Mil(2020)  85Mil(2030)
(estimation, Ministry of Transport, Russia)
Hydrocarbon resource development of Russian Arctic
Project Product Year Cargo/MIL t Market
Varandey Crude oil 2008 20 Europe, N.America
Europe, N.America
Prirazlomnoye Crude oil 2011 6.6
Shtokman Gas condensate 2018 7.5 Europe, N.America
Kumzhin Gas condensate 2015 2.6 Pacific thru Suez
South Tambey Gas condensate 2016 7.5-15 E, NA / Pacific thru NSR
Kara Hydrocarbons 2027 N.A. N.A.
source: GECON, Mikhail Grigoriev (2011.4)

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2) Transit shipping through NSR (2011)
• Commercial transit rigorously began
• Transit : 34 times (4 times in 2010)
1) International transit : 13 times (resources)
2) Russian coastal traffic : 11 times (fish, fuel, etc)
• Ballast : 10 times
• Operation period: 4 months
• Total transit cargo volume: 820,000 ton
(Source: Rosatomflot)

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Commercial Transit through the NSR (2010, 2011)
Vessel Cargo Operation icebreaker Duration
(Average speed
22.5days
MV Nordic Barents Iron ore Kirkenes  Lyanyungang
Atomflot (12.03knot)
Non-ferrous Dudinka  Busan No escort
Monchegorsk Metal (Norilsk Nickel)  Shanhai Dudinka (Arc7)
Sep-Oct
Perserverance gas condensate 6/30-7/15
MurmanskNingbo Yamal, Taimir
(flag Singapore) (NOVATEK: 59,981t) (7.6knots)
Vladimir Tikhonov gas condensate 8/23-30(7.5days)
Murmansk  Ningbo Atomflot
(flag Liberian) (NOVATEK: 120,843t) (14knots)
STI Heritage gas condensate July/21-29
Murmansk -> Map Ta Phut(Thai) Atomflot
(Marshall Island) (NOVATEK: 60,944t) (14knots)
Sanko Odyssey
Iron ore (66,500ton)
(flag Liberian) (Eurochem)
Murmansk  Xingang Atomflot(Taimir) Aug/31-Sep/23
Stena Poseidon Gas condensate
Murmansk  Korea Atomflot Aug 30-Sep
(flag Finland) (NOVATEK: 57,814t)
gas condensate
Mariann (NOVATEK: 61,259t)
Vitino  Incheon Atomflot Sep 20-Oct11
Perseverance Jet fuel
Korea Onsan -> Le Havre 50 years Victory Aug 31-
(flag Singapore) (64,500ton)

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Test shipping of V. Tikhonov by SCF (Aug 2011)
Novatek, Gas condensate 120,843ton,
Time on NSR: 7.4days, Average speed: 14.0

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Some results of Transit shipping on the NSR
• Novatek’s export of gas condensate to Asian
market (China 5, Korea 2, Thailand 2)
• Vessel Perseverance’s transport of gas
condensate & jet oil (return cargo : jet oil from
Korean refining companies )
• Korean shipping companies’ lack of operational
experience on arctic shipping

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Implications of Transit shipping on the NSR
1) Transit shipping of Russian Arctic Resources to
Asian Market
- Arctic resources for revival of Chinese northeastern
region
2) Promotion of Russian Arctic Resource to the Asian
Market
• Case 1 (2010): SCF tanker ‘Baltica’(117,153ton)
- Gas condensate from Vitino (Russia) to Ningbo (China)
• Case 2 (2011): SCF tanker ‘Vladimir Tikhonov’
-Gas condensate (120,843ton) from Honningsvaag (Norway) to Man Ta
Phut(Thailand)

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Implications of Transit shipping on the NSR
3) Vessel operations by experienced Russian & Nordic
shipping companies (Norway, Sweden, Finland,
Denmark)
4) Most of Cargoes transported through NSR mainly
limited to Russian Arctic Resources (Gas condensate
iron ore, etc)
5) Activation for international transit shipping ?

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3) Is Arctic shipping profitable ?
Fuel price
Icebreaker service
Insurance
Return cargo

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Tariff for Icebreaking service
• Is tariff negotiable ?
• Current market price
• The more cargo traffic flows on the NSR , the higher
possibility we pay less than ever

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Maximum rates for icebreaker services (2011.6.7)
№ Nomenclature of cargo
Unity Rate
1 General cargo
Roubles per ton of nominal gross mass
1.1 Cargo, transported in standard containers 1048,0
of container
1.2 Non-ferrous metal Roubles per ton 2050,0
1.3 Converter matte Roubles per ton 1905,0
Products of mechanical engineering and instrument-making
1.4 Roubles per ton 2464,0
including equipment and parts thereof
1.5 Vehicles, cars and their parts Roubles per ton 2576,0
1.6 Articles out of metals of industrial purpose Roubles per ton 1747,0
1.7 Others Roubles per ton 1048,0
2 Bulk cargo Roubles per ton 707,0
3 Bulk liquid cargo Roubles per ton 530,0
4 Timber cargo:
4.1 Round lumber Roubles per ton 118,0
Saw-timber and other products of timber, woodworking,
4.2 Roubles per ton 148,0
pulp and paper industry

17. 4. Potential Cargo & Transit :
Korean Market

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1) Cargo traffic between Asia and Europe
 Cargo traffic increases since 2008 crisis
 Cargo traffic over 100 mil ton between Asia 3 & EU
140
MIL
120
100
80 China
Japan
60 Korea
Total
40
20
0 Eurostat(MT)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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1) Cargo traffic between Asia and Europe
 Promising cargo transportation
 Korea imports crude oil & export oil products
NSR EU   EU
Product(2009)
SITC Containeriza Tariff
(unit: Mil Euro)
tion ratio ($) Japan China Korea Japan China Korea
24 Cork and wood 6.1 3.9 451 148 236
27 Crude fertilizers 23.6 23.5 222 310
333 Petroleum, crude oil low 17.6 141
Coal, coke and
32 briquettes
low 23.5 138
334
Petroleum products 0.5 17.6 1,195
+335

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1) Cargo traffic between Asia and Europe
 Export & import of Chemical & iron product is salient
 Road vehicles difficult due to high NSR tariff
EU   EU
Containeri NSR
Product(2009)
SITC zation Tariff
(unit: Mil Euro)
ratio ($) Japan China Korea Japan China Korea
51 Organic chemicals 19.9 23.5 2,344 2,351 888 1,750 2,904
57 Plastics in primary forms 19.9 23.5 473 2,347 617 289 583
Chemical materials
59 and products
19.9 23.5 784 1,149 548
52 Inorganic chemicals 19.9 23.5 266 625
78 Road vehicles 22 85.8 3,749 8,188 12,230 2,902 3,330
67 Iron and steel 1.3 58.1$ 2,120 1,023 1,857 1,115
source: eurostat, External intra-EU trade-statistical yearbook, 2010 edition

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1. Crude oil and related cargo
2. Iron and steel
3. Petroleum products/chemical
Potential Cargoes product
by using NSR 4. Coal
5. Wood and its products
6. Road vehicles
7. Fertilizers

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2) Potential Cargo: Korea’s import from Russia
Import increase of Russian coal, crude oil & natural gas
source : kita.net(MT)
item 2009 2010
Coal 4,719,780 8,557,320
Crude oil 3,693,571 6,726,704
Natural gas 1,016,914 2,932,807
Petroleum and its products 1,457,799 1,172,735
Steel waste & scrap 534,672 781,451
Steel ingot & its semi processed products 472,078 592,245
Pig iron & sponge iron 472,078 592,245
Fish(fresh, refrigerated, frozen) 212,369 262,711
Aluminum 246,031 197,057
lumber 384,128 185,203
Processed log 88,292 165,884
Pulp & waste paper 120,302 156,488

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2) Potential Cargo: Korea’s export to Russia
source : kita.net(MT)
item 2009 2010
Motor cars and other motor vehicles 482,960 1,151,779
Acetal resin , polyether & epoxy resin 144,818 112,726
Petroleum oils and oils obtained from bituminous
43,244 101,875
minerals (other than crude); preparations
lime, cement & building materials 154,194 60,083
Vessel, boat & floating structure 45,354 59,234
Polymer Ethylene (primary product) 117,448 47,034
Poly stylene (primary product) 67,110 46,634
Miscellaneous edible products and preparations 55,740 44,559
Parts and accessories of the motor vehicles 126,878 39,848
Polymer of vinyl chloride or of other halogenated
44,366 34,968
olefins, in primary forms
Flat-rolled products of iron or non-alloy steel,
39,586 32,625
clad, plated or coated

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3) Promising cargo (in case of using NSR)
Gas condensate (Import)
Russian raw materials (import)
Steel products (export)
Heavy cargo (export)

25. 5. Korean Perspective on the
Arctic shipping

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Korean Government’s Arctic Strategy
(Ministry of Land and Maritime Affairs, Korea)
1) Long-term
- Participation in Arctic resource development &
Maritime transportation (since 2008)
2) Mid-term
- Development of ice classed vessels
: Arctic expedition by research icebreaker ‘Araon’(2010)
- Ice navigation crew training (2012)
3) Short-term
- test shipping (2012)

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Korean Activities in the Arctic shipping
1) Korean shipping companies
- Study on the economic viability of the arctic
shipping
2) Korean shipbuilders
- building offshore facilities (Ice class LNG carrier,
platform, floating units, drilling ship, etc)
3) Korean research institutions
- Economic analysis of NSR & Suez Canal
- Analysis on the resource transportation

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Korea-Norway Cooperation in Arctic shipping
• Norway’s extensive experience and knowledge
in Arctic shipping
• Maritime cooperation in Arctic shipping
• Business opportunities through NSR
- Commercial business : raw materials
- Project business : offshore facilities

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Busan in Northeast Asia
3-hour Flight Radius
20％ of World’s GDP
25％ of World’s Population
33% of World Container Volume
Logistics Hub
Largest Manufacturing Base
3rd Largest Economy

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North & New Port
6 Terminal Operators 4 Terminal Operators
(20 berths) (18 berths)

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2011 World’s Top 10 Container Ports
Busan shows the highest growth rate!!
(Unit : 1’000 TEU, %)
T/Put Growth Rate
31,500
29,938 15.0%
30,000 14.0%
13.4%
24,404 22,570
25,000 11.7%
11.3%
10.0%
20,000 9.3%
16,175 8.9%
14,686 14,400
15,000 13,020 11,900
12,800
6.0%
5.3% 5.0%
10,000
3.0%
5,000
0 0.3% 0.0%
Source: Busan Port Authority (BPA)
31

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Potential of Busan port
• Logistics Hub of Northeast Asia
• Located near the Main Trunk Route of eastern part of NSR
• Best logistics Service (5th world Container Port)
• Provision of Ship repairing service
• Provision of fuel supply
• Distribution center for ship supply
• Oil Hub Port (Ulsan) located near Busan Port
• World’s best shipbuilders located near the Greater Busan area
• Governmental support

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Ulsan Port  Liquid Logistics Hub
of Northeast Asia
Korea’s No 1
Liquid cargo port
• Liquid cargo traffic (Korea’s No 1)
(handling 35% in Korea)
• Cargo traffic(World’s 17th, 2010)
China
• Import of Crude oil , No 1 in Korea
(52%) Seoul Korea
• Car production (World’s No 5) Busan Ulsan
• Largest Reservoir tanks infra in Japan
Korea
• Exports and imports (2011) (export:
70.4 bil $, imports:81.2bil$)

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Ulsan Port’s 59 liquid cargo berths

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World’s major liquid logistics port
Unit : K ton
Antwerp : 40,482
Rotterdam: 209,400
Amsterdam : 36,106
• Antwerp
• Rotterdam Ulsan : 136,362
• Amsterdam
Ulsan
• Houston
• South Louisiana • Singapore
Houstin: 125,491 Singapore: 176,262
South Louisiana: 132,075
Source : Ulsan Port Authority, 2010

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Thank you !