Sometime in late August, if all goes as planned, a Korean tanker will set sail from a South Korean port. Destination: Rotterdam. Nothing special about that port of call. What’s unusual is the route—above Russia, in waters once clogged with ice—which has largely melted. A vessel sailing via Russia can now make this 15,000-kilometer (9,300 miles) journey in 30 days, compared with the 40-day, 22,000-kilometer trip via the Indian Ocean and Suez Canal.
The Russians have plied these waters for years, and a few European commercial ships have tested the route. But the arrival of the Koreans, with their large merchant fleet and big ambitions, could change the game. So could China’s involvement: A cargo ship from state-owned China Ocean Shipping is headed for the northern route already.
Hyundai Glovis (086280:KS), the shipping arm of Hyundai Motor (005380:KS), plans to start a test service on the Russian route carrying oil. The pathway is open each year for about four months until October. “We want to be one of the first to develop this in order to take a leading position when the route becomes more commercially viable,” says Kim Sung Ho, an official at the Ministry of Oceans and Fisheries.
The Hyundai ship must be escorted by a Russian ice breaker: The Russians charge $17.50 per ton of liquid cargo. Glovis has chartered an ice-resistant tanker from Stena Bulk of Sweden. “This plan looks really attractive on paper, but the risks involved are far greater,” says Um Kyung A, an analyst at Shinyoung Securities in Seoul. “You need to find a cargo owner who is willing to go on this route, and you need a special type of vessel that can travel in cold temperature. All this adds up to more costs, not less.”
Then there’s higher insurance premiums and a dearth of repair facilities along the Arctic Ocean, unlike the southern route that passes Hong Kong and Singapore, according to a University of California at Los Angeles study. South Korea’s government plans to develop ports along the Arctic Ocean route in Russia and give incentives to shipping lines that use the lane, the fisheries ministry’s Kim says.
Within three to five years, the Arctic Ocean could be ice-free in the summer, according to a White House estimate. By 2050 ships may not need ice-breaking vessels in the month of September, says the UCLA study.
A third of the world’s undiscovered natural gas reserves and 13 percent of its undiscovered oil lie beneath the ice cap, says the U.S. Geological Survey. Russia is developing fields in the Arctic that could be the source of gas exports to Asian countries, and Korea wants to be involved in that trade. Russia’s NovaTek (NVTKS:RU) is building the $20 billion Yamal liquefied natural gas facility (the Yamal Peninsula stretches deep into the Arctic Ocean). Daewoo Shipbuilding & Marine Engineering (042660:KS) won an order from NovaTek in July to build up to 16 ice-class LNG tankers. “This is pretty much an uncharted area that holds potential,” says Korea Maritime’s Kim. “Resource development in Russia is one of them. Still, one needs to take careful steps.”