HOUSE SPECIAL COMMITTEE ON WORLD TRADE AND STATE/FEDERAL RELATIONS March 23, 1995 5:10 p.m. MEMBERS PRESENT Representative Ramona Barnes, Chairman Representative Gail Phillips, Vice Chairman Representative Eldon Mulder Representative Gary Davis Representative Bill Williams MEMBERS ABSENT Representative Jerry Mackie Representative Gene Kubina OTHER HOUSE MEMBERS PRESENT Representative Eileen MacLean Representative Carl E. Moses COMMITTEE CALENDAR Presentation: Northern Sea Route by Dr. Orson P. Smith, U.S. Army Corps of Engineers; Alan F. Walker, Arctic Associates International; Dr. William Sackinger, Professor Emeritus, University of Alaska Fairbanks; David Orr, Northern Sea Route Coordinator, Department of Commerce and Economic Development; Drs. Andrey and Tatiana Proshutinsky, Russian meteorologists. WITNESS REGISTER ORSON P. SMITH, PE, PhD. Coastal Engineer/Oceanographer Civil Works Branch United States Army Corps of Engineers Post Office Box 898 Anchorage, Alaska 99506-0898 Telephone: 753-2632 POSITION STATEMENT: Presenter, Northern Sea Route ALAN WALKER Arctic Associates International 3437 Meander Way Juneau, Alaska 99801 Telephone: 790-3636 POSITION STATEMENT: Presenter, Northern Sea Route WILLIAM M. SACKINGER, PhD., P.E. President and Chief Executive Officer OBELISK Hydrocarbons (Alaska) Ltd. Post Office Box 80591 Fairbanks, Alaska 99708 Telephone: 479-6808 POSITION STATEMENT: Presenter, Northern Sea Route DAVID ORR, Coordinator Northern Sea Route 596 Northeast Amanda Place Hillsboro, Oregon 97124 Telephone: (503) 693-8476 POSITION STATEMENT: Presenter, Northern Sea Route ACTION NARRATIVE TAPE 95-6 SIDE A Number 000 The meeting of the House Special Committee on World Trade and State/Federal Relations was called to order by Chairman Ramona Barnes at 5:10 p.m. Members present at the call to order were Representative Barnes, Phillips, Williams, and G. Davis. Members absent were Representatives Mulder, Mackie and Kubina. The meeting was teleconferenced to Anchorage and Oregon. CHAIRMAN RAMONA BARNES stated there was a quorum present. Number 035 Representative Mulder arrived at 5:12 p.m. Number 040 DR. ORSON P. SMITH, Project Manager for the study of the Northern Sea Route for the United States Army Corps of Engineers, stated the route is a marine passage from the Atlantic to the Pacific Oceans, via the Arctic Ocean north of Russia, the Bering Strait and by various routes many along the coast of Russia with other possibilities across the center of the Arctic Ocean. The route offers distances between the Atlantic and the Pacific, 35 to 60 percent shorter than traditional routes through the Panama and Suez Canals. The Northern Sea routes have been established since the 1930s, but until recently Russia, whose territories border the region, closely guarded it from foreign ships. Mikhail Gorbachev, then General Secretary of the Soviet Union, signaled Russia's willingness to open the route for international for commercial shipping in 1987. Some international shipping has taken place since, but the dream of a busy, new passage between the markets of one basin and sources of supplies on the other remain a goal for the future. The Alaska Department of Commerce and Economic Development asked the Corps of Engineers to investigate Alaskan port improvements related to the state's strategic position on the Northern Sea Route. The United States Congress appropriated $300,000 in 1993, to begin the study and appropriated another $300,000 the next year to complete the work. Number 110 DR. SMITH added that the University of Alaska assisted with a review of Russian capabilities to monitor and forecast Arctic conditions and a summary of the highly variable climatological factors which affect the cost of shipping. Two Russian scientists, Drs. Andrey and Tatiana Proshutinsky, were instrumental in this effort. Number 130 DR. SMITH continued on to say preliminary forecasts indicate that non-ferrous ores have the best prospects for Alaskan exports. The ore terminal at Skagway has exported lead and zinc ore from a mine in Faro, British Columbia, to Europe, in years past. That terminal is owned by the state of Alaska. The efficiency of this operation is constrained by the shallow approach to the terminal, the presence of ice, and the concerns for whales' summer migration along this coast. The Alaska District is in contact with port operators at Skagway and the Red Dog Mine terminal and with the Alaska Industrial Development and Export Authority to investigate port improvements at these sites. Number 170 DR. SMITH stated that preliminary forecasts for the entire Pacific Rim indicate the possibility of a substantial increase in commodity flow, via the Northern Sea Route in future decades. The forecast will be tested by the ship transit simulation program, but appears now to be large enough that shipments could extend beyond the optimum climatic conditions of August and September. Shipments beyond this best season are certain to require ice-breaker escort along most of the route. Unalaska appears to be a good port for marshaling east-bound Northern Sea Route convoys. DR. SMITH added that the Corps will publish its Northern Sea Route Reconnaissance Report in June. The report will recommend site-specific feasibility studies of port improvements that appear economically justified. Anon-federal sponsor must agree to provide the Corps with 50 percent of the cost for these studies to proceed. The report will also recommend efforts by others, which could enhance the commercial prospects for Alaskan businesses. This study may lead Alaskan leaders to consider such options as the following: 1) Augmenting relations with trading partners in the Arctic and Europe, perhaps the programs of the Alaska Department of Commerce and Economic Development, the University of Alaska, and the Northern Forum; 2) Pursuing the Federal interest, through cost-sharing port projects with the Corps of Engineers; or 3) Stimulating applied research and development, which might shift some of the present focus of the United States Arctic Research on environmental concerns to matters affecting the future of commercial shipping in the Arctic, such as climatological factors affecting shipping cost, the design of arctic cargo ships, and the design of shallow-draft supply vessels to serve rural Alaskan communities. Number 190 The Department of Environmental Conservation (DEC) has asked the Corps study the possibility of extending the navigation season along the Kuskokwim and Yukon Rivers, and has requested another study on ways to improve the supply system for coastal communities of arctic Alaska. The President's 1996 budget includes funds to begin investigation of Kuskokwim River navigation. Proposed studies of the Yukon River and the Arctic Coast have not been funded. Number 210 ALAN WALKER, Arctic Associates International, said a viable shipping route through the Arctic has drawn the interest of mariners and arctic nations for over 600 years. He said he would like to address one point of view and offer a recommendation for Alaska's role in development of commercial expansion into the Russian Arctic. There is no question that the Northern Sea Route offers distances between Pacific and European ports which are significantly shorter than traditional routes. However, many shippers may be reluctant to venture into full scale Northern Sea Route operations until uncertainties regarding infrastructure availability, pricing and contract enforcement, general business practices within Russia, insurance costs and standardization of vessel ice classification and inspection are addressed. Number 219 MR. WALKER said he believes that Alaska should be involved or risk being left behind when the market economies of this route become a reality. Opening a year round transpolar route would be extremely difficult and probably cost prohibitive at this time. Last year, a Canadian and U.S. ice-breakers conducted a joint scientific mission into the deep arctic. In the Fall, they crossed the Arctic from the Bering Strait to 90 degrees N. and finally existed via Fram Strait, east of Greenland. This was the first surface vessel transit of the Arctic Basin from the west to the east. Although successful, the difficulty in accomplishing this transit should not be underestimated. Years of planning and extensive ice management support throughout the voyage helped these ships reach the deep arctic and safely return; these were the two most powerful icebreakers in Canada and the U.S. MR. WALKER said similarly, a more traditional coastal route from the Pacific to Europe, on a year round basis, would take significant infrastructure improvement. We have the technology today to build icebreakers and cargo vessels capable of year round transit, but at significant cost. Accepted estimates for traditional designs range up to 150,000 SHP for icebreakers capable of year-round commercial Northern Sea Route operation. He said he doubts that any government will presently underwrite such a venture, nor would corporate dollars be ventured on such high risk project. MR. WALKER noted that the ultimate goal should not be to design larger and more powerful icebreakers and ice capable cargo vessels, but to utilize technology to avoid as much ice as possible. Given the vast natural resources available in Siberia and the desire for western goods and technology, there should be numerous opportunities to establish regional projects. Number 290 MR. WALKER said he would propose a venture between Alaska and regional governments in Eastern Russia for the shipment of raw logs to Alaskan mills. Portions of Russia contain significant forest reserves, far greater than exist in North America. Many parts of Russia are in need of hard currency, western investment and technology. Alaska with cooperation of the federal government, can provide the necessary management and development technology to utilize Russia's vast natural resources in an environmentally sustainable manner. MR. WALKER remarked that several issues would need resolution. In the past, raw logs from most of Russia were prohibited from import by the U.S. Department of Agriculture. The stated concern was lack of pest control. This could be addressed by onsite inspections in cooperation with U.S. Forest Service personnel or other appropriate officials. Number 320 MR. WALKER explained identification of shipments from Alaska or the West Coast also play a key role. If desired cargo, such as fish products, construction materials or manufactured goods were identified, this would reduce shipping costs by eliminating deadheading of vessels. Raw logs milled to finished lumber could be utilized to construct modular arctic structures for use throughout Alaska and Siberia. Certainly, Alaska companies would be poised to take advantage of U.S. economic expansion into Eastern Russia; a role that seems appropriate given our status as the only arctic state in the nation. Number 369 DR. WILLIAM SACKINGER, President and Chief Executive Officer, OBELISK Hydrocarbons (Alaska) Ltd., commented that the Northern Sea Route has seen limited usage by non-Russian vessels so far. The alternative would be to consider a transpolar route rather than the coastal route. The reason for considering both routes is the distance. We know that the cost of shipping is really depending on the number of days between the two ports involved. The distance is shorter on the polar route, but delays caused by ice can cost you more in the long run. The shortest distance is the polar route. Number 400 DR. SACKINGER stated that the practical methods for minimizing the costs of the ice breaking transport include: 1) Operating in convoys, with a large, high-horsepower icebreaker in the lead, a convoy with perhaps ten ships, all of which are ice reinforced but with medium-sized power plants; and 2) Choosing the shortest possible route. Number 430 DR. SACKINGER continued by saying in his opinion, the shipping to and from Europe, over the Pole, using ice-strengthened ships, can be a technological reality. The economics of shipping through the existing canals would be affected, however, the rates and the profitability of the existing shippers through the canals would be reduced. And initially-favorable economics of trans-arctic shipping could be negated if rates are reduced by the major shippers through the canals. This is a complex economic dynamics, and accurate advance predictions may be very difficult to accomplish, until such economics is done. However, no one will construct and operate a new, special-purpose shipping line on the trans-arctic route, because of the undefinable economic risk, and the high cost of economic failure. Number 480 DR. SACKINGER concluded by inviting the committee to an International Northern Sea Route Program (INSROP) based in Norway and sponsored by Japanese, Norwegian and Russian interests. The first three years of research will be presented at the INSROP Symposium Tokyo 95, in October. Number 494 DAVID ORR, formerly with the Alaska Department of Commerce and Economic Development, said that Alaska took a leading role in working with some the northern countries to try to expand the commercial operations along the Northern Sea Route. Half of the effort had already been accomplished on a year round basis. For almost 15 years now, Russia has had the western half of the route for the transport of metal ores and supplies. His goal was to try to expand the commercial operation between the North Atlantic Basin and the Pacific Basin. In just two years, they were able to expand the operations to 11 months of the year and were on the verge of announcing after centuries of trying that we could operate the route year round. The state of Alaska also took the lead in obtaining federal funding for reconnaissance studies by the Corps of Engineers. Number 570 MR. ORR strongly encouraged the committee to provide for funding to keep things moving along the lines they had originally intended. Mr. Orr said he believes the wood product sector has a lot of merit. TAPE 95-6 SIDE B Number 014 MR. ORR commented that people in the Northwest, Alaska and Canada are really ripe on being able to compete new transportation routes. We have been too far away from markets outside the Pacific Rim and that's the case for some of Alaska's minerals. It's certainly the case for Alaska's fisheries. The first $200,000 the Alaska Legislature appropriated, went to a very good cause and a great deal of federal; money was brought in. Number 052 REPRESENTATIVE EILEEN MACLEAN went on record as supporting the Northern Sea Route. It's too expensive to transport materials and goods from Seattle. So the Northern Region has started test trial runs from Canada. We can transport fuel from Canada all along the northern coast. Number 091 REPRESENTATIVE GAIL PHILLIPS asked if Dr. Sackinger had made a presentation to the Northern Forum. DR. SACKINGER said he had not made a presentation recently, it was about a year and half ago. REPRESENTATIVE PHILLIPS said it was very important that the Northern Forum be kept abreast on this. She asked Dr. Smith about what kind of money would the state need to give the Department of Transportation budget to match. Number 110 DR. SMITH said the original budget was around $3.2 million and its been reduced to $100,000, and this puts the number of construction projects in jeopardy. Its not necessarily related to the Northern Sea Route, but for port developments that are scheduled for construction. The two projects in jeopardy are the continuing construction of a breakwater at Kodiak and erosion-control measures at Bethel. REPRESENTATIVE PHILLIPS asked Mr. Walker about standardization of vessel ice classification. Number 125 MR. WALKER stated that currently there are various classifications among countries around the world. that rate their vessels on the strength of their vessels, their capabilities and where it can safely operate to protect the environment, carry certain cargoes. What this would do is facilitate transit of foreign vessels through the Northern Sea Route through domestic waters and coastal waters of Russia sop that they would accept someone else's classification. Presently its a hodge podge. Number 160 CHAIRMAN BARNES said that she had heard there is an excess of icebreakers in Canada, that they are selling for shipping. MR. WALKER answered that there are commercial ones. The Canadian government has for years operated an extensive ice breaking fleet for the re-supply and for convoy duties in Eastern Canada and for re-supply of the Canadian arctic villages and the assistance to commercial enterprise, much as we do in the Great Lakes. Our fleet has dwindled down to two with a third one to be constructed in the U.S. The Canadian fleet is about eight now of the state-owned vessels. They are in a terrible financial situation also and are looking to commercialize some of their operations. Number 185 MR. WALKER said the United States has two icebreakers in its entire fleet, both in the Coast Guard. CHAIRMAN BARNES thanked the presenters. CHAIRMAN BARNES introduced a resolution through the Rules Committee. Number 230 ADJOURNMENT There being no further business to come before the House Special Committee on World Trade and State/Federal Relations, CHAIRMAN BARNES adjourned the meeting at 6:12 p.m.