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Sunday, October 14, 2012

Northern Development : My View

Port of Prince Rupert

The Port of Prince Rupert is the first major port on transoceanic cargo shipping lanes from Asia to North America.  This places Prince Rupert in a highly strategic location with one of the deepest ice free ports in North America a full 1 to 3 days shorter shipping time from the major ports of the Asian Markets.  The reason for that is really quite simple, the Pacific shipping lanes run from Asia to the southern coast of Alaska and then turn south.  

Prince Rupert is the very first stop on that trip.  The ports of Vancouver, Seattle, San Francisco, Los Angeles, San Diego and on into Mexico adds time to the voyage, and quite naturally, expense. The Prince Rupert Port connects up with CN Railway and container traffic is then moved from Prince Rupert's state of the art facilities through to Edmonton and into the core of our region.  From there, the cargo can be moved to the Edmonton International Airport (EIA), transferred to trucks, or it can move on down the rail lines leveraging strategic rail partnerships that can move cargo across Canada, the United States, and through rail partners on into Mexico and Central America.  By leveraging other North American rail partnerships, cargo has access from our region all the way to the Panama Canal where it can then be moved in either direction across Atlantic/Caribbean and Pacific shipping lanes, serving the breadth of the South American Continent.  This presents a clear competitive advantage for commercial interests across the Pan Pacific region as a great entry point to the Americas... hence the slogan "Port Alberta".

North American Rail
Continued development of capacity from Prince Rupert to Edmonton will be constrained, simply stated, by railway limitations.  There is only so much cargo traffic that can be moved via rail on existing tracks.  Hence, the idea of moving bitumen via rail to the Port of Prince Rupert is viable but only if other forms of cargo are displaced.  This, of course, will only happen based upon the economics of doing so.  For now, the economic case is clearly not there or we would be seeing very long trains hauling Alberta bitumen to Prince Rupert every day.  Accordingly, pipelines are all the rage and are likely to remain the preferred option for landlocked Alberta oil.

Canada / US Major Pipeline Networks
Solutions to challenges, however, are not always linear nor obvious.  Now some eyes have turned to the north, to the High Arctic.  Climate change is causing the Arctic shipping lanes to open faster, wider, and for longer periods of time.  If this trend continues, and it certainly seems likely, the Canadian perspective taken from the Arctic Bridge could gain some momentum with the port of Churchill, Manitoba being strategically placed to receive circumpolar shipping.  The extent of this economic viability has been questioned based on a longitudinal lack of interest by rail carriers due to the difficulties and expense involved with rail construction and maintenance in Arctic tundra environments.  That said, some organizations have a strong belief the Arctic Bridge can become economically viable in the near future.  What happens will ultimately be driven by economics.  But there will be some amount of strategic geopolitical thinking involved.... let's skim that a bit because it ties into the bigger picture in an interesting way.

Arctic Bridge
First, the Churchill option (i.e. the Arctic Bridge) brings obvious questions of facilities combined with the navigational challenges posed by the Canadian Arctic.  In a nutshell, the Russian Northeast Passage is far more economical for large cargo transportation for key reasons.  Namely, the depth of the Northeast Passage is far greater than Canada's Northwest Passage and second, and perhaps more importantly, the Russians simply have a lot of polar class icebreakers to open the way when the temperatures turn Arctic waters to ice.  Canada is limited to three, the Americans to one, whereas the Russians have thirteen and they're building more.

Nuclear Powered Ice Breaker Russia
In fact, the Chinese even have a polar class icebreaker called the Snow Dragon and a polar class research ship for good measure.  They'll probably build more... but why? China recognizes the vast economic advantage of shaving massive shipping distances by leveraging the Arctic.  As their economic growth continues, so too will their need to deliver ever increasing product to European countries and the trans-arctic route will save money while establishing transit routes independent of canals.  From their perspective, such an arrangement would be both economically and geo-strategically wise.  Almost, shall we say, a communist central party no brainer!

Chinese Polar Ship Snow Dragon
Arctic shipping is currently dominated by oil and gas from Russia.  Ships with reinforced "polar class" hulls and icebreaker abilities can effectively shorten the vast Asian transportation routes.  As an example, from Yokohama to the port of Rotterdam, it can be reduced from 11,212 nautical miles to about 7,825 nautical miles, which is approximately 30% shorter. While that sounds great on the surface, the cost of Arctic class ships are more than double normal cargo ships, so the economics are just not there yet from the perspective (and the balance sheets) of the shipping companies.  That said, an ice free Arctic, or more succinctly put, an ice free Russian Northeast Passage, changes the equation while shifting the importance of the Suez Canal.  This is an attractive proposition in the geo-strategic political interests of the Chinese and of others.  It also creates a rather interesting political situation for the Russians to ponder.

Just how comfortable are the Russians with the continued economic rise of the Chinese and what ramifications do they see for global security?  More particularly  how does this measure up in the Kremlin vis-a-vis Russian security and global influence?  These questions will be weighed of course, but they will also be considered by the Russians in lieu of their vast resources in the Arctic.  Naturally, the Russian Federation is working feverishly to solidify their claims in the Arctic from the Lomonosov Ridge to the Mendeleev Ridge, extensions of continental shelves... and according to the Russians, it would quite naturally be their continental shelf.  The race to make strong claims to Arctic riches is well underway... but it's not a one sided affair, and there are many competing interests.

Topographic features of the Arctic showing ridge features

The Russians, quite naturally, say the extensions are theirs but Canada, Greenland, Denmark, and the United States all have their own interpretations.  The stakes are considerable as some estimates indicate about 90 billion barrels of oil and 1.7 trillion cubic feet of gas exist in the Arctic.  Hence, every circumpolar nation is working hard to establish their claims.  Above all other considerations, one thing is undeniably certain, when nearly a quarter of the remaining hydrocarbons on the planet exist in the Arctic, you can be sure the major powers will not sit on the sidelines.

Map of Arctic Oil Reserves
All of this will be settled as Arctic development moves forward, in the meantime, as alluded to earlier, the Chinese are likely to continue developing their Arctic capacity and will likely be joined by other countries that were never even thought of as Arctic nations... places dominated by palm trees and warm weather.  But more on that in a later post.  So much more is open for discussion in the Arctic and there will be a myriad of interesting policies with global implications for circumpolar nations in the coming years.

I have been spending more time in the Arctic establishing contacts to create what I call an alluvial influence zone that stretches from Alaska through Canada and on to Greenland, Iceland, Denmark, and Finland.  It's my belief that what happens in the Arctic over the next few decades will have enormous importance to Canada.  But here's a twist, I think it will be quite important to Alberta.  I believe that because we are positioned as Canada's gateway to the Western Arctic.  Our influence in the Arctic may become as important to our Province as the oilsands.  The oilsands are vast, but they are also finite.

This won't happen overnight, but it will happen.  It's also important to keep in mind that the Arctic, while holding vast hydrocarbon wealth, also has enormous resources of minerals, ore, and rare earth elements... not to mention diamonds.  This is not limited to oil and gas, the vast array of Arctic resources is staggering.

Those who create the strong relationships in the Arctic will be in a position to prosper as Arctic economic development grows.  As the easy to get resources are consumed, the harder to secure resources in the Arctic will become increasingly important.  This is a lesson not lost on the circumpolar nations nor on companies like ExxonMobil who are in the Arctic laying the foundation for their strategies.  Shell is already drilling in the Chukchi Sea with three wells going to above TD (total depth) during this drilling season.  Those wells will be completed at the start of the next drilling season.

Shell's Kulluk Drilling Rig in the Chukchi Sea
From way down south in Devon, Alberta... I can see the Northern Lights and they are sending a shining signal of opportunity.  I look a few miles down the road and see the largest major airport that happens to service the Canadian Western Arctic.  I see Devon well positioned to deliver a business park that can capitalize on the development of the Arctic and our positioning at the footsteps of the Western Arctic Gateway.  I can see the realization of a twinned of Highway 19, new business infrastructure that capitalizes on the growth in the Capital Region, the oilsands, and the Arctic.  I can see value added business growth that adds high paying skilled jobs to our workforce, and in all of that, I can see Devon grow, become more successful, and generate the kind of lifestyle and revenue base that will allow residents to have all the things they dream of... things like an indoor swimming pool!

I also recognize that we have to continue our work of laying the foundation for growth, which we are doing.  In parallel, I am establishing relationships that will facilitate our ability to sell into a powerful expanding growth market with a uniquely positioned municipality on a number of levels.  I see huge success for Devon and the best part is, the foundations have been built... this won't take long.  I've been working on developing and expanding our Arctic relationships for a number of years now.  I believe that we have a chance to carve out a role in the development of the Arctic by virtue of our position on the doorstep of Western Canada's Arctic Gateway and by virtue of being there way ahead of our neighbors.  Where the Arctic has not even crossed the minds of our neighbors, I have been meeting with government officials from the NWT, Yukon, Alaska, Greenland, Denmark, Iceland, Finland, and the United States.

One of the messages given to the meeting of the second Arctic Imperative Summit by President Grimsson of Iceland was not to ignore the Arctic.  He said that over the last eight years the United States Government had sent a high level delegation to visit Iceland precisely zero times while the Chinese had been there six times in the same period.  Just a few days before his arrival in Alaska, the Chinese Polar Class Ice Breaker Snow Dragon visited Iceland.

Groat with Iceland's President  Grimsson
At the second Arctic Imperative Summit I met with the President of Iceland, the Lt. Governor of Alaska, the Senator from Alaska, the Foreign Minister of Greenland, Ambassadors from other Circumpolar nations like Finland... and of course, the leaders of several indigenous corporations who will have a powerful voice in Arctic development.  These circumpolar leaders along with corporate leaders like URS Flint, ExxonMobil, and the Carlyle Group, along with think tank leaders from the Brookings Institution and the Hoover Institute all know one very important fact about Alberta....  they know Devon is geo-strategically positioned on the doorstep of the Western Canadian Arctic Gateway!

Groat with Alaska Lt. Governor Mead Treadwell 
I looked around the room and could find no elected officials from Canada.  I could, however, find the Chief of Canadian Defence Staff, representatives from Northern Economic Development, senior fellows from Carleton University, and economic analysts from our embassy... but no elected officials.  As luck would have it... I plowed the way at the Arctic Imperative Summit.  Others can play catch up next year.  But for now, the one thing circumpolar leaders know about Alberta besides our oilsands wealth... is a guy from Devon, Alberta!

Groat with Corporate and Municipal Leaders

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