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Alaska's Arctic Update: 'New Arctic Realities--The Path Forward'.

In October 2017, WTC Anchorage conducted the 6th edition of the annual Arctic Ambitions Conference in Anchorage. This conference is the only annual conference in Alaska focused on the commercial aspects of Arctic development. More than forty local, national, and international speakers discussed their views, experiences, and visions of commercial development of the region. Some of the discussed subjects were infrastructure development, energy and resources development, tourism, and technologies, both existing and coming. The information presented at the conference helped Alaskans outline recent Arctic trends, learn about some of the projects, and meet their colleagues from various industries involved in Arctic development.

2018--The "New" Age of Discovery

Receding ice cover of the Arctic Ocean opened access to vast natural resources and has enabled maritime navigation in the region. The accessibility of the resources created opportunities that some researchers compare to the Age of Discovery. The Arctic region contains abundant reserves of oil, natural gas, and minerals. Global commercial interest in the region is mainly based on extraction of these resources. With the current US administration's favorable position on natural resource development, this year's conference theme was New Arctic Realities--The Path Forward.

There are different assessments representing the size of Arctic natural resources. One of them estimates that more than a quarter of the world's natural resources are located within the Arctic. Of the world's remaining undiscovered fossil fuels, it is estimated that Arctic contains 13 percent of oil, 30 percent of natural gas, and 20 percent of natural gas liquids. Alaska, the only Arctic state in the United States, is viewed as one of the key storehouses of natural resources in the Arctic region. As Governor Walker mentioned in a recent speech, should Alaska be viewed as an independent country, it would be the eighth most mineral-rich nation in the world. For example, Alaska's coal deposits are estimated to be 17 percent of the world's entire coal reserves, copper reserves are 6 percent, gold reserves are 3 percent, and the list goes on. Alaska is home to some major resource development projects: Red Dog Mine is one of the world's largest zinc mines and Prudhoe Bay Oilfield is the largest oilfield in North America. That said, most of the state's natural resources remain untapped.

Tapping Arctic Resources

Several factors are significantly slowing exploration of the resources and other economic activities in the Arctic, despite the above-mentioned increased accessibility. The Arctic is a remote region, it features a harsh environment, economic activities in the Arctic demand extreme physical and financial efforts, and the region lacks infrastructure. In Alaska's case, local companies identify additional problems: the lack of local skilled labor and the long lead time for project permitting. Even though the obstacles for Arctic development are similar, each of the Arctic nations approaches them in a different way. Norway, for example, implemented a joint national industry project--a centralized database of companies providing technologies for Arctic and cold-climate development projects. Norwegian cold-climate know-hows and solutions are being actively promoted around the world through their government offices. Russia is actively investing billions of dollars into its Arctic ports infrastructure and currently has sixteen deep-water ports along the Northern coastline that are capable of serving large ocean vessels. Alaska doesn't have a deep water port in the Arctic yet; however, the Port of Nome was tentatively considered to become one by the US Army Corps of Engineers. The Russian icebreaking fleet is, by far, the largest in the world with forty icebreakers in service (some of them nuclear-powered) and eleven in production. The United States has only two operational icebreakers with three more being planned. Asian countries such as China, Korea, Singapore, and Japan closely follow the progress of Arctic development. For these nations, the Arctic region is a source of natural resources, an alternative transportation route to European markets, as well as a major market for their own technologies. For example, Daewoo Shipbuilding Company of Korea is currently working on the order of fifteen ice-class LNG (liquid natural gas) tankers that will serve Russia's Arctic LNG projects. According to Japan's Arctic Ambassador, Kazuko Shiraishi, Japanese companies were involved in the design, procurement, and construction areas of the Russian Yamal LNG project and in the offshore exploration project in Greenland. In Alaska, a Japanese company, Sumitomo Metal Mining, owns and operates Pogo Gold Mine.

The Arctic is seen as a part of the new Chinese Belt and Road Initiative. The Chinese Silk Road Fund currently holds 9.9 percent share of the Yamal LNG project, while the China National Petroleum Company holds 20 percent of this project. It is also expected that China-Norway and China-Finland relations will grow significantly in the near future and will result in increased cooperation and investment in the Arctic. As a matter of fact, Chinese President Xi visited Finland before his official visit to the United States, which included a stop in Alaska on his way back.

Once extracted, Arctic energy and mineral resources have to be transported to the markets that will utilize them. Most of the Arctic resource development projects are export projects, and the major consumers of natural resources in the world are Asian countries.

How Resources Get from Here to There

Two existing transportation routes through the Arctic are the Northern Sea Route (NSR) that goes around Russia and the Northwest Passage (NWP) that goes around Canada. In theory, there is another route, the Transpolar Sea Route that crosses the North Pole. It is the shortest link between the Pacific and Atlantic oceans, but it is not currently navigable and may never become such. As Arctic ice decreases, the NSR and NWP are becoming increasingly important to world's economy. The NSR is centrally administered by the Russian government and its major customers are the Russian companies that are involved in major projects within the Russian North. Even though the current number of transit passages though the NSR is not very high (nineteen vessels in 2016), the cargo traffic to and within the route reached 7.5 million tons in 2016 and mainly consisted of supplies and construction materials for Russia's Arctic projects such as a giant LNG project on the Yamal Peninsula. Yamal LNG is one of the biggest LNG projects in the world: at full capacity it will potentially supply 16.5 million tons of LNG to customers in Europe and Asia. In December last year, Novatek, the lead developer of the project, announced that the first LNG shipment from Yamal was ready to leave Port of Sabetta to China via the NSR. Novatek also plans to build the second Arctic LNG project by 2023 and construct an LNG terminal in Kamchatka to transfer LNG from ice-class LNG carriers to conventional carriers for further distribution in Asia. In August 2017, a Russian ice-class LNG carrier, Christophe de Margerie, transported a shipment of LNG from Norway to South Korea via the NSR in nineteen days without the escort of an icebreaker. This was 30 percent faster than the conventional route via the Suez Canal. In September 2017, a Chinese cargo vessel delivered construction equipment from China to Saint Petersburg, Russia, via the NSR, which was the first Arctic commercial shipment of its kind between China and European Russia. These examples demonstrated the economic potential of using the NSR by large-capacity vessels.

NWP sails through Canadian waters and, currently, is not being utilized commercially to a similar degree as the NSR. Even though the Canadian Arctic is rich in natural resources, there are no large resource development projects that would utilize the NWP and the region lacks icebreaking capabilities, safe navigation, and infrastructure in general. The Port of Churchill is the only Canadian deep-water port in the Arctic that provides access to the Canadian mainland (the other deep-water port is on Baffin Island). Among the recent news regarding the NWP was the story of Crystal Cruises, a US cruise ship company, completing two Arctic cruises in 2016 and 2017. The cruise ship, Crystal Serenity, carried 1,700 passengers and crew. It is the largest cruise ship, so far, to sail this route. Both cruises originated in Seward, Alaska, and traversed to New York via the NWP in thirty-two days. Even though the cruise tickets ranged from $20,000 to $120,000, the first cruise was full and the second one was at 90 percent capacity. According to the company, Arctic cruises will not occur in 2018 but will resume in a year or two along the same route with a smaller vessel. Among other factors, these Arctic cruses proved to be of economic importance to Nome, Alaska, one of the ports of call, where ship's passengers spent a day. In July 2017, a Finnish icebreaker, Nordica conducted the Arctic 100 Expedition from Vancouver, Canada, to Nuuk, Greenland, traversing the NWP in twenty-four days. The significance of this meteorological expedition was the fact that it was the earliest seasonal transit of the route.

Another example of the NWP usage also relative to Alaska is a telecommunications project. A major portion of the subsea cable by Quintillion, an Anchorage-based company, will be laid along the passage. The fiber optic cable system will eventually connect Tokyo and London. As of October 2017, the first phase of the Quintillion project was completed connecting Nome and Prudhoe Bay with additional branches to several other Northern Alaska communities.

Mutual Cooperation among Arctic Nations

Heads of the Arctic nations agree that the region is a territory of mutual cooperation, stability, and peace. Recent political disagreements between Russia and the Western countries did not compromise international relations in the Arctic, and the regional collaboration continues. An important intergovernmental forum for Arctic dialogue is the Arctic Council. The Council consists of eight Arctic nations, Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States; thirteen non-Arctic nations (observers); as well as several intergovernmental, non-government, and indigenous peoples' organizations. Since 2017, Finland chairs the Council and will maintain this role until 2019. Finland's stated priorities as the chair of the Arctic Council are environmental protection, communication networks and services, meteorological cooperation, and education.

On the economic development side, the Arctic Economic Council, a non-government organization that facilitates business-to-business activities across the region, works hard on establishing market connections between the Arctic nations. The US members of the Arctic Economic Council are representatives of Alaska companies who share their business experience and local knowledge with other international business leaders.

Alaska companies are experienced in working in the North and possess unique technologies and expertise that could be used elsewhere in the Arctic region. The time is right for Alaska to get involved in international development of the Arctic. Such involvement will result in economic benefits that could help the state to overcome the current economic stagnation. Alaska's resources are abundant and lay within geographic proximity to major buyers of these resources in Asia. In addition, China, Japan, and Korea are Alaska's largest trading partners and have a long-standing history of doing business with the state. WTC Anchorage continues its Arctic Ambitions program and works on helping Alaska companies to successfully compete for business and investment in the Arctic.

By Alex Salov

Alex Salov is the Business Operations Manager of World Trade Center Anchorage and has been working at the Center since 2004. He holds a master's degree in global supply chain management from the University of Alaska Anchorage. Salov also teaches Japanese at the University of Alaska Anchorage.
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Title Annotation:International Trade
Comment:Alaska's Arctic Update: 'New Arctic Realities--The Path Forward'.(International Trade)
Author:Salov, Alex
Publication:Alaska Business Monthly
Geographic Code:0ARCT
Date:Feb 1, 2018
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