Sungwon Hong,Institute of Arctic Logistics (IAL)

Prospective Cargo for NSR Transport

: From Korean Perspective

March 12th 2015, President hotel, MoscowTransport & Logistics in Arctic - 2015

Professor Sungwon Hong

Director, Institute of Arctic LogisticsYoungsan University, Busan, Korea

Contents

1. Introduction of IAL(Institute of Arctic Logistics)

2. Market Condition for NSR Transit

3. Evaluations on Korea-related NSR Transport

4. Potential Cargo Base from/to Korea

5. Stakeholders’ Position in Korea regarding NSR

6. Conclusion

2

Research project by IAL

Year Subject Funded by

2014 Sustainable use of NSR (ongoing) Ministry of Maritime and

Fisheries, Korea

2013Arctic resource development

and transportation to Asian market Korea Gas Corporation(KOGAS)

2012 Study on the Guideline regarding NSR shippingKorean Shipowners’Association

2011 Cargo transportation via Northern Sea RouteHanjin Shipping

: Yanghyun Foundation

2010 Management system of Northern Sea Route Korea Research Foundation

3Institute of Arctic Logistics

Seminars organized by IAL

Year Subjects Hosted by / Venue

2014.11.27 The 3rd International Arctic Shipping SeminarMinistry of Oceans and Fisheries,

and organized by IAL, Ulsan

2013.11 The 2nd International Arctic Shipping SeminarMinistry of Oceans and Fisheries

and organized by IAL, Busan

2011.11 The 1st International Arctic Shipping Seminarco-hosted by IAL & Ministry of

Oceans and Fisheries, Busan

2011.11The 5th Memorial Seminar for the Late Hanjin Shipping

Chairman, Cho Soohoorganized by IAL, Seoul

2011.6 Preventive Measures against Piracy Seminarco-hosted by IAL & Busan Coast

Guard, Busan)

2010.11 Seminar for the Commercial Operation on the NSRco-hosted by IAL & Hanjin

Shipping Co., Busan


2014 The 3rd International Arctic Shipping Seminar, Ulsan


2. Market condition for NSR transit

Driving Factors

1) Global oil prices falling

2) Asian LNG market

3) Decline of China’s economic growth expected

4) Russian Arctic resource development hindered by US/EU Sanctions

to Russia

5) Is NSR an alternative route to Suez canal?


2. Market condition for NSR transit

1) Current situation

One way transportation Uncertain profitability, necessity to secure return cargo

Major pattern of NSR traffic Liquid bulk transportation by price differences

Liquid bulk cargo market is currently too dynamic Competition between Middle east oil & U.S. shale gas

Impact to price of naphtha & condensate by Shale & oil sand production

Cargo owner Novatek’s spot business to Asian market sharply decreased


Market condition for NSR transit

2) Mid term prospect

Increase of Arctic hydrocarbon resources transportation(Yamal LNG Project: 16.5mil tons)

Increase of Russian domestic supply & intra trade along NSR

8[Source: James Henderson(2014), Skolkovo Energy Centre (2013)]

"Comparison of Russian gas Projects to Asian market with other global gas project"

Market condition for NSR transit

3) Long term prospect

Need to find routine cargoes for sustainable use of the NSR

①Arctic hydrocarbon resources Destinational transportation

: Liquid bulk transportation on spot market will be supplementary

② Need to find routine cargo via the NSR

: Necessity to develop general cargo transportation by container

shipping


3. Evaluations on Korea-related NSR Transportation

NSR Transit Results (Data: 2011-2013, Russian coastal trade excluded)

RussiaNorway

France

Japan

China

Korea

Thai

Singapore

Finland

Taiwan

North

Korea

Netherland

Denmark

Poland

Vietnam

Remarks: Cargo traffic in Asia(China, Korea & Japan), Two way transportation(Korea),Test shipping by vessel type


2013 NSR Transit

11

Transit type Vessel amount Cargo volume

Total 71 times 1,355,897tons

Russian intra trade & supply 43 times 237,861tons

International transit 28 times 1,118,036tons

- International transit(Laden voyage) on the NSR 19 times

* Bulk cargo: 17vessels* General cargo: 2 vessels

1,118,036tons

(82%)

- International transit between Europe and Asia 10 times(5 times: Korea)757,373tons

(56%)

- Ballast & Repositioning 9 times

[Source: IAL, Rosatomflot]

Institute of Arctic Logistics

Korea-related NSR Transport (2012-13)

One way transportation

Two way transportation

3 times in 2012 (Palva, Marika, Stena Poseidon)

1 time in 2013 (Propontis)

Pilot shipping on the NSR by Hyundai Glovis

Naphtha, 44 thousand tons (by Stena Polaris)

12

Gas condensate

Naphtha

Jet oil

Gas oil

Korea-relatedeastbound cargo on NSR

Korea-relatedwestbound cargo on NSR


Korea-related cargo traffic on NSR (2013)

Vessel

nameShipowner

Ice class/Type

Cargo ownerCargo/

Qty(mt)Departure Arrival

Entry toNSR

Exit from NSR

Average speed(Knots)

MarinorMarinvest Shipping

ABArc4/tanker

JSC NovatekGas condens/

58,721Murmansk Daesan

2013.08.15 16:00

2013.08.2812:00

12.8

PropontisTaskos Columbia Shipmanagement

Arc4/tanker

JSC NovatekGasoil/

108,945Ulsan Rotterdam

2013.10.0606:00

2013.09.2511:45

10.8

Stena Polaris

Stena Bulk ABArc4/tanker

JSC NovatekNaphtha/

43,854Ust-Luga Yeosu 2013.09.28

17:202013.10.11

11:3012.8

ZalivAmurskiy

PRISCOIce2/tanker

JSC NovatekGasoil/

95,988Onsan Rotterdam

2013.10.1306:00

2013.09.3017:25

12.5

Viktor Bakaev

SCF NovoshipTechnical Manag-t

Ice2/tanker

Mansel oilKerosene/

88,024Yeosu Rotterdam

2013.10.2811:20

2013.10.1409:00

14.1

Zalvi Baikal PRISCOIce2/tanker

JSC NovatekNaphtha/

79,580Ust-Luga Yeosu

2013.10.1415:30

2013.10.3001:00

15.4

HHL Hong

KongHansa Heavy lift

Arc4/

heavy liftJSC “SMM” Cranes/

1,742Ust-Luga

Rajin(N.Korea)

2013.10.25

09:30- -

Atmoda Laskardis ShippingArc4/

reefer- Ballast Busan Iceland 2013.08.14

02:50

2013.07.26

16:3018.4

Arctic

AuroraFareastern shipping

Acr4/

LNG- Ballast Ulsan Hammerfest 2013.08.18

18:30

2013.08.06

23:3011..8

[Source : Rosatomflot 2013]


Considerably influenced by Cargo owners (esp. Novatek)

Naphtha & condensate import will be decreasing (not profitable)

Need to find potential cargo on long term contract bases

Accumulation of ice navigation experience needed for

Korean shipping company through pilot shipping on NSR

14

Evaluation of Korea-related NSR transit

2013: 182 thousand tons, 3times

2012: 365 thousand tons, 7 times


2013: 293 thousand tons, 3times


2011: 64 thousand tons, 1 time

Import of Naphtha & gas condensate

Export of Korean jet oil & Gas oil to Europe


Pilot shipping on the NSR by Hyundai Glovis (Stena Polaris)

Ust-Luga

Entry to NSR

Exit from NSR

NSR Section

Yeosu

Pilot shipping

on the NSR

Sep 16(1 days)

Ust-Luga Russia

Sep 20(4 days)

Schou

Bunkering

Sep 25(9 days)

Kirkenes Ice pilot on board

Sep 28(12 days)

Entry to NSR

Oct 11(25 days)

Bering strait

Oct 21(35 days)

Yeosu


4. Potential Cargo Base from/to Korea

- Need to seek the most

promising routine cargoes ?

- Necessity of Analysis

for outbound cargo

- Long term contract

: Reliability of delivery

(Arctic Resource)

- Spot Biz : Occasionally

- Any off-season cargo?

Outbound cargo from Korea Inbound cargo to Korea


Cargo Base between Korea and EU

Analysis result of 2011 IAL’ research project (Hanjin)

Cargo analysis based on containerization rate and NSR Tariff

Promising cargo: coal, oil, LNG, steel scrap, motor vehicle, chemical, oil product

IAL’s Research Methodology

Bottom up approach- All cargoes by code

Transit cargo approach- Type of cargoes that have already been transported via NSR

Vessel track analysis- Two way vs One way


1) Bottom up approach

Top 10 cargoes

between EU and Korea

Motor Vehicle

Electric equipment

Boiler & Machinery

Fuel Oil & Energy

Iron, Steel & Plastic

Cargo base analysis by

HS or SITC code

KoreaEU

Motor Vehicle

Electric Equipment, TV, VTR

Machinery

Vessel

Optical, Medical, Inspection Tool

Plastic & Plastic products

Fuel, Energy

Iron & Steel

Rubber & Rubber products

Organic Chemical

Machinery

Fuel, Energy

Electric Equipment, TV, VTR

Motor Vehicle

Optical, Medical, Inspection Tool

Medical Products

Iron & Steel

Organic Chemical

Inorganic Chemical

Plastic & Plastic Products


Top 10 imports from EU(2013, over 200 thousand tons)

Passenger car 180thousand tons

60% of Korea imports

Pork 114 thousand tons

39% of Korean imports

Main imports are natural

resources

Food such as wheat, corn &

pork are imported

Each cargo will be analyzed

[Source: trass.kctdi.or.kr]

Name Amount(thou $) Weight(ton)

Naphtha 2,841,859 3,038,531

Crude oil 2,395,032 2,835,388

Wheat 208,934 735,519

Corn 222,782 647,885

Lumber 257,064 380,224

Organic compound 1,546,671 280,582

Coal 43,274 252,822

Scrap 177,041 239,284

Other chemical products 1,343,835 226,654

Other plastic 931,875 226,516

Other textiles 294,030 213,539

Gas 175,592 206,461


Top 10 Exports to EU(2013, over 200 thousand tons)

[Source: trass.kctdi.or.kr]

Name Amount(thou $) Weight(ton)

Other oil products 2,503,904 2,531,192

Vessel 5,739,850 1,774,723

Light oil 844,430 923,067

Alloy steel plate 948,971 877,980

Synthetic plastic & its products 1,640,098 637,080

Passenger car 5,736,779 578,572

Auto parts 3,616,008 439,833

Other general machineries 3,738,525 410,394

Organic & inorganic

compound874,125 336,599

Polyester 434,929 279,287

Steel plate 195,329 260,019

Synthetic fiber 338,756 209,028

Polyethylene 190thousand tons

Steel product (steel bar/section steel) 180 thousand tons

Rubber tire & tube 160thousand tons

Passenger car, truck, tire and auto parts are over 1.2 million tons

Various oil and chemical products are exported

Each cargo will be analyzed


2) Transit cargo approach

21

Naphtha: ‘Negative’ in the long term(production increase in Korea)

Gas condensate: ‘Negative’ (supply from U.S.)

LNG: ‘Positive’(Mid term/long term)

Jet fuel: maintaining present level

(difficult to increase)

Metal Scrap: Negative

(Supply and demand sufficient in

East Asia)

Iron ore: ‘Negative’ (short term)

(Lower iron ore price)

General cargo: ‘Positive’ (carrier’s pilot test)

Liquid Bulk Dry Bulk & General cargo


3) Vessel Track Analysis Analysis of navigation routes of ice class vessels

Economic feasibility of ice class vessel operation

Cargo type, vessel type, market demand & supply

22

Nordic Odyssey(Bulk Carrier)

Singapore 9/12

10/18 Daesan 10/23

10/26 Taiwan 10/28

12/28 Thames 12/29

01/07 Ust Luga 01/16

Mailiao

03/07 Ulsan

Arctic Aurora(LNG Carrier)

Melkoya 09/17

10/5 Brazil 10/08

10/31 Melkoya 11/02

11/27 Turkey 11/28

12/16 Melkoya 12/18

12/23 Lituania 12/25

12/31 Melkoya 01/02

01/23 Brazil 01/26

02/02 Point Fortin 02/03

02/28 Quintero 03/01

Going to Las palmas

09/29 Netherland 10/02

10/07 Ust Luga 10/09

10/14 Denmark 10/17

10/21 Kokkola 10/23

10/24 Port Talbot 10/24

12/04 Canada 12/22

01/07 Barcelnona 01/15

01/29 Kamsar 01/30

Going to Canada


Propontis(Tanker)

Arctic Aurora(LNG carrier)Destinational transportation from Norway to Brazil, Turkey, Lituania

23

Melkoya 9/17

10/05 Brazil 10/08

10/31 Melkoya 11/02

11/27 Turkey 11/28

12/16 Melkoya 12/18


12/31 Melkoya 01/02

1

2

3

4

5

6

7


Melkoya 09/17

10/5 Brazil 10/08

10/31 Melkoya 11/02

11/27 Turkey 11/28

12/16 Melkoya 12/18


12/31 Melkoya 01/02

01/23 Brazil 01/26


02/28 Quintero 03/01

Going to Las palmas01/23 Brazil 01/268


02/28 Quintero 03/0110

Potential cargo of Korea in Arctic Trade

Incheon

Daesan

Ulsan

Yeosu

Busan

Promising cargo

Seoul

Pohang

Iron ore(Pohang), coal, steel scrap(Incheon), chemical products, fertilizer

Import

Steel products (Pohang), finished vehicle (Ulsan), heavy cargo

Export


Oil trading (Ulsan Port : Tank Terminals)

Name of the TerminalStorage Capacity

(10,000 bbl)

Jeongil Stolthaven Ulsan 748.8

Vopak Terminals Korea 172.8

Taeyoung Industry 157.8

Odfjell Terminals Korea 197.4

Horizon Taeyoung Korea Terminals 146.2

North East Tank Terminal 125.2

Hyosung Onsan Tank Terminal 15.7

Onsan Tank Terminal 61.6

G-Hub(SK Gas) 308.3

Hyundai Oil Terminal 163.6

TOTAL 2,097

[Independent Tank Terminals]

The Port of Ulsan has several world-famous petroleum companies


Potential industry/cargo through NSR

Shipbuilding

• Ice class vessel

• Offshore plants

Heavy cargo

• Marine equipment,

offshore plant facilities

etc.

Marine service

Articles for ship,

Bunkering, ship repair

Automotive industry

• Transportation of finished

vehicle to European market

Resources

• Import: Gas condensate,

Naphtha, iron ore, LNG, coal

• Export: Jet oil, diesel oil


Yamal Arctic LNG Carrier by DSME

Package Section Vessel type Remark

Package I Asia~N/Europe SPB Megaline

Package II N/Europe~Yamal SiteIcebreaking

SPB

New

shipbuilding

Package I

• 8 vessels fixed

Package II

• Year round navigable vessels, (2 vessels fixed)

Package by route of Project transportation

Heavy cargo transportation by Megaline(Yamal LNG Plant)

28

Arc-7 Class carrier for special cargo

Ice class vessel for Heavy cargo transportation (Megaline)

29

Case 1. Departure from Korea via Bering Sea

: Vladivostok (T/S Customs) → Yamburg Port or Novy Port (T/S Operation to River Barge)

→ River Jetty → Trailer → Pavlodar

Vladivostok

Yamburg PortNovy Port

NovosibirskOmsk

Pavlodar

Busan

Deep Sea

Legend

River

Heavy Cargo Transportation by UnicoLogistics


5. Stakeholders’ Position in Korea

Government’s Strong Support

Logistics Company’sViewpoint

(Shippers’ Approval)

Shippers’ Viewpoint(On time Delivery,

Safety)

Ship owners’ Viewpoint

(Difficulty of securing cargo)

Limitation to Active Use of NSR


Prospective cargoes of Korean stakeholders

32

Oil Product

PetrochemicalsMarine Plant

Gas Condensate

Machinery(electronic

goods)

Cargo owners/Logistics companies

Petrochemicals

Marine Plant

Gas Condensate

Steel

Automobile

Automobile components

Ship owners

Cargo owners interested in machinery transport (ex. electronic goods)

vs. ship owners interested in steel products & car transport


Reasons why shipowners/cargo ownersavoid navigation on the NSR

33

Safety of Vessel

Navigation

Difficulty of On-time Delivery

Uncertain Profitability

High Tariff &

Insurance

Difficulty of Routine

Navigation

Cargo owners

Uncertain Profitability

Difficulty of routine

Navigation

Securing Vessel

Space/Cargo owners’ Refusals

Shipowners

Cargo owners : Safety of navigation

Shipowners : Uncertain profitability & securing vessel space


2) Stakeholders’ Position in KoreaKorean Government’s plan (Dec, 2013)

(Maritime Logistics part)

Port incentive 50% exemption of domestic port dues for the vessels via NSR (Jan, 2014)

Partnership between shipper and shipowner Organization of consultative body to share NSR information and build

cooperative relationship among government, shippers, shipowners and

research institutions

Crew training for Arctic shipping

Strengthening of cooperation with Arctic coastal countries


35

Economic feasibility of NSR

shipping(Return cargo)

Securing routine cargo(Lack of cargo information)

Safety of Navigation(Sea ice condition, ice chart)

Prior preparation(destinational shipping, NSR information)

Korean Shipowners’Position

Concern for on-time delivery

Reduction of logistics cost

Safety and risk management on

the NSR

Wait and see attitude

Korean Shippers’ Position


Logistics company & Shipbuilder

Interest in NSR shipping, need for more information on NSR

Profitability of NSR uncertain compared to Suez & TSR

36

The steel cutting ceremony for Hull

No. 2418, DSME’s first LNG carrier

in the Yamal project (Sep 29 2014)

This vessel is the world’s first

icebreaking LNG carrier

DSME’s first LNG carrier in the Yamal project


6. Conclusion

One way transportation

Liquid bulk transportation by price differences(arbitrage)

Cargo owners’ profitability?

Liquid bulk cargo market too dynamic

37

Hydrocarbon resource(liquid bulk), mineral resource from Arctic region

Securing of routine cargo on the NSR(e.g.: destinational transport/Yamal, general cargo by container ship)

Economic feasibility analysis

Joint cooperation between ship owners & cargo owners for invigorating NSR

Increase of cargo traffic on NSR will be good for all the stakeholders

1. Market condition for NSR transportation

2. Cargo analysis


Challenges

38

1) Shipping company/Shipper

Profitability still uncertain

Securing routine cargo for NSR shipping

On-time delivery and safety of NSR shipping

Exact information regarding NSR shipping & Arctic trading

2) Government

Cooperation between shippers and shipowners

Crew training for Arctic shipping

Ship financing for preparing ice class vessel

3) IAL-CHNL Joint research

Bilateral efforts to invigorate usages of the NSR through the sharing of information and experiences in the maritime transportation via the NSR

Assessment of economic feasibility regarding NSR shipping

Korean stakeholders


Challenges

39

Maritime transport to facilitate the Northern Sea Route

- Joint efforts for sharing information and experiences in the maritime

transportation via the NSR

: Arctic business opportunities, Ice class vessel chartering, NSR operation

experience, sea ice condition, icebreaker capability, tariff, etc

Organizing seminars, conferences & workshops

Strengthening cooperation to establish maritime infrastructures to facilitate

commercial shipping on the NSR

International cooperation


Thank you

Sungwon Hong,Institute of Arctic Logistics (IAL)

Documents

general cargo transportation

ial hanjin shipping

spot market

korearelated nsr transport4

prospective cargo

container shipping

nsr transit1 current

ial ministry of oceans