North-East Passage

TEM 43/2010: Arktinen ja Itämeren kasvualue Suomen intressien polttopisteessä.

Myllylä, Yrjö (2010). The Growth area of the Arctic and Baltic Sea in the focus of Finland’s interests. 92 p. Ministry of Employment and the Economy, Regional Development 43/2010. Edita Publishing Ltd, Helsinki.

Abstract

The increasing interest of the great powers in the Arctic and the Baltic Sea region, world economic growth and rise of raw material prices, Russia’s geopolitical movement further to the North, climate change and the growth of the trafficability of the North- East Passage are background factors for a change which offers new possibilities for the economical life and employment in Northern Europe.

The report has made suggestions, which could promote the common interest of Finland as well as the whole area and in the implementation Finland could provide special skills, values and a good position in the heart of the region. The dissertation “Industrial, Logistic and Social Development of the Murmansk Region until 2025” by the author where he deals with the future of Murmansk and Northwest Russia would form the most important separate background research to be utilised.

The main conclusions are summarized below in 20 initiatives. In these the main idea and arguments are presented in detail in the actual text of the report. Statement of the report is presented in a total of 70 proposals of development: 1. Northern concept of trust – use of the concept, 2. The research and development program of Arctic transportation, energy and environmental technology, 3. Finland to participate in Aurora Borealis, a ship from which arctic research could be done, 4. An international cluster developing project together with operators in the Murmansk region 5. Baltic Sea Region, preparation of scenarios, 6. Future economic profiles of the Republic of Karelia, Arkhangelsk Oblast, St. Petersburg and the Leningrad region, 7. The Northern Dimension cluster strategy – clusters developed in Finland from the perspective of the Northern Dimension, a regional profiling, 8. Finland and Northwest Russia as part of the development of tourism in Northern Europe, 9. International language training in the undisturbed environment of the centers of touris , 10. The Russian capital in Finland, 11. New Finnish mining company in Helsinki and London Stock Exchange – business idea should be prospecting, mining rights acquisition in the Barents Region including Finland and the sale of licence rights, 12. Use of the ”Vyborg-option “ – utilisation of the position of the region in Finnish Arctic and offshore shipbuilding skills for the need of Vyborg and St. Petersburg shipyards, 13. Arctic research vessels – a new strategic opportunity, 14. Offshore technology for Arctic conditions, 15. Arctic oil fighting vessels – a platform for innovation in the Baltic Sea, a growing market, especially in the Arctic area, 16. Supply of energy-saving technology and creation of conditions for implementation, 17. Renewable energies, i.e. bio- and wind-energy co-operation, 18. Natural gas network and the development of distribution system in Finland, taking into account the transfer possibilities of wood- and biogas 19. Company Visits – in order to present the technological know-how and Finnish transportation service to people who decide on the logistic of the harbours and shipyards in Murmansk, northwest Russia and the North-East Passage area, 20. Processing of proposals 1-19 for regional projects.

The author is of the opinion that the most important thing to create an impact would be to implement proposal number 20. According to the expert feedback, in order to promote employment the most important proposals are 2., 17., and 7., 8., 11., 14. and 20.

Myllylä, Yrjö (2010). Russia’s geopolitical focus has moved to the North – the development of the Murmansk region in the light of three scenarios. Baltic Rim Economies Bimonthly Review 4/2010, 31.8.2010. Pan Eurooppa -instituutti. Turun yliopisto/Turun kauppakorkeakoulu. <BRE_4_2010_YMy >

Yrjö Myllylä wrote above mentioned publication:

”The starting point of the article is the idea that the dissolution of the Soviet Union resulted in a shift of the geopolitical and geoeconomic focus in Russia to the north. As the main oil-producing regions of the Soviet Union, such as Kazakhstan and Turkmenistan, became independent, the relative importance of north-western Russia and Siberia increased in Russia’s oil and gas production. The high prices of crude oil and natural gas products in the global market have led to the emergence of wealthy, rapidly developing pockets in remote regional economies. Oil and natural gas are Russia’s main exports, brought to Europe primarily by oil and gas pipelines, an infrastructure built several decades ago. Now, however, the situation is changing.

Economic interest in northern regions has increased as the growing world economy demands more energy and the resources in existing oil and gas fields are being depleted. The Arctic region is rich in oil and natural gas. The rising prices of raw materials are making the exploitation of Arctic natural resources more profitable than before. These regions are located northeast of Finland. What role will Murmansk’s northern location have in the new, rapidly developing transport system? What impact will the fact that the Murmansk Region is located relatively close to key market areas – the European Union and the increasingly important eastern coast of the United States – have on the development options for the region? How will other geographical factors, such as an ocean port that is ice-free the year round, affect the development options available to the Murmansk Region? What effect will the change have on the development of industry and logistics in the Murmansk Region and how will it affect social trends there?

The business structure of the Murmansk Region consists not only of activities related to national defence but economic activities typical to high-resource regions in general: extraction and pre-processing of natural resources, particularly mining and the related ore processing, apatite mining and the fishing industry. The mining and metal-processing industry, which is very important to the region, has found its way to a new global market, but tough competition is forcing production plants to reduce their workforces as well as modernize their technologies. The rationalization of industry has resulted in outmigration, particularly from communities relying on a single industrial

The major projects in energy production, for example, and their time schedules will impact on the development of the Murmansk Region. For example, the schedule for the opening of the Shtokman gas field and the Murmansk or Indiga oil pipeline project can be linked to the driving forces. The author has examined the development of the Murmansk region in the light of three scenarios until 2025. The scenarios are based on the Delphi method and the three Delphi panels which were Murmansk Panel, Moscow Panel and the International Panel. Scenarios 1 and 2 represent the extremes in or the limits of the most probable scenario for the development of the Murmansk Region not leading to an actual economic disaster. Shtokman gas field is in operation in Scenario 1. Scenario 3 represents an unlikely but still possible deep regression in the world economy and a slump in the oil price.

Scenario 1 – ‘Market forces and democracy are strengthening and values developing’

Scenario 1 is summed up in the comment of one of the international participants in the panel, which presents the following main vision and key actions: The Barents region will be as active as the Persian Gulf, exporting oil and gas. The region will become a base for offshore operations, with global importance over the next 200 years. There will be a large amount of spin-off activity. All this, however, will require changes in Russian legislation. Exclusion of foreign actors from investments, which is currently the greatest obstacle, must be eliminated to allow free movement of capital.

Scenario 2 – ‘Authoritarianism is increasing and a regulated economy prevails’

Here, the development will be slower than in the previous scenario. Taking advantage of favourable trends in the world economy, Russia will attempt to launch the Shtokman operations and other large energy projects on its own. The projects will start slowly and have less impact on the development of the region than in Scenario 1.

Scenario 3 – ‘Problems are accumulating and the oil price is sinking’

In this scenario, all or some of the wild card events considered possible but unlikely by the participants in the panel will occur. The scenario is largely built on the assumption that the price of oil will fall; this will be preceded by an increasingly authoritarian trend in society. The price of oil may plummet because of a slump in the world economy, a crisis or sudden peace in the Middle East or a pandemic disease. Other wild cards may also emerge, such as an environmental disaster or youth riots, but these will be limited and can even provide an exit from a crisis.

In the vision for the most likely future operations the Shtokman field would be started up in 2020-2025 provided that international capital and technology from international enterprises, for example, would be available for the region. It is very likely that the population will be smaller than today. Materialization of investments in Shtokman will change the course of the population trend, at least locally. In a probable scenario, communities relying on large-scale mining or metal-processing industries alone will not be able to maintain their population bases at the current level, even if the volume and value of their production is higher than today.

Findings and recommended political actions – A need for innovative activities: Profitable exploitation of the natural resources in and around the Murmansk Region will require development of infrastructure and the systems for producing the resources. This highlights a need for a consensus and partnership between local and federal actors governing the infrastructure with regard to sharing the benefit from investments in the region. Finding economically lucrative solutions plays a key role in investments that will bring cost savings in transport technology, for example. Finding new, lucrative transport and production solutions for the high-cost Arctic region stresses the importance of innovation activities, particularly the creation of a network of research institutes and enterprises in the fields of transport and logistics, energy production and the mining and metal-processing clusters. Thus far, local enterprises have sought innovative solutions for transport technology and logistics in a centralized manner from abroad, e.g. from Finland.

Murmansk will form an important logistic gateway from north-western Russia to the world, enabling transport of natural resources and processed goods to the world market. The development of the logistic gateway will mostly depend on trends in the world economy as well as the prices of raw materials, such as oil and minerals.

The structure of business life in the Murmansk Region in the future can be markedly different from the present situation, even if the current structures of industries, particularly the metal-processing and mining industries, retain their central role in the region’s economy. Future business will require a workforce and an infrastructure adapted to Arctic conditions and communities.

Yrjö Myllylä

Managing Director, Doctor of Social Sciences

RD Aluekehitys Oy”

Literatures

Myllylä, Yrjö (2010). The Murmansk region’s growing importance in the energy economy and logistics creates opportunities also for Finnish companies. In the book: Kuusi, Osmo & Hanna Smith & Paula Tiihonen (eds.) (2010). Russia 2030 based on contracts. Publication of the Committee for the Future 6/2010. 170-180. <http://web.eduskunta.fi/dman/Document.phx?documentId=vy14010113558959&cmd=download>

Myllylä, Yrjö (2010). The Development of Murmansk Region in the light of three scenarios. In the book: Nysten-Haarala, Soili & Katri Pynnöniemi (eds.) (2010): Russia and Europe: from mental images to business practices. Papers from the VII International Conference of Finnish Russian and East European Studies and other writings. Kymenlaakson ammattikorkeakoulu, University os Applied Science. Research and Reports, Series B, N. 65. 61-79. <https://yrjomyllyla.wordpress.com/2012/08/03/the-development-of-murmansk-region-in-the-light-of-three-scenarios/>

Myllylä, Yrjö (2008). Industrial, Logistic and Social Future of the Murmansk Region – Summary of the Doctoral Dissertation by Yrjö Myllylä. 64 p. Publications of the Ministry for Foreign Affairs of Finland 3/2008.
Sponsored by Cargotec, Aker Arctic Technology, Finstaship, Lapland Chamber of Commerce, Municipality of Salla, Barents Group Ltd and Management & Transportation Experts Matrex Oy <https://yrjomyllyla.wordpress.com/2013/08/02/rd-publication-to-promote-exports-industrial-logistic-and-social-future-of-the-murmansk-region-until-2025/>

Myllylä, Yrjö & Oleg Andreev & Vesa Rautio (2008). Where are the hubs and gateways of development? Developments in Murmansk Oblast. 182-199. In Rautio, Vesa & Markku Tykkyläinen (eds.): Russia’s Northern Regions on the Edge. Kikimora Publications. University of Helsinki.

Myllylä, Yrjö (2007). Russia tries to control the transport routes of its own products itself. Baltic Rim Economies, expert article 158. 21.12.2007. <expert_article158_62007>

Myllylä, Yrjö (2006). The future of the Murmansk Oblast assessed by three Delphi panels. Fennia 184:1. 53-73. <http://ojs.tsv.fi/index.php/fennia/article/view/3732/3523>

Myllylä, Yrjö & Oleg Andreev (2005). The Development of the North-West Russia and Delphi method – evaluation of the industrial, social and logistical developments in the Murmansk Oblast. Nordia Yearbook 2005. Nordia Geographical Publications Vol 34:4. p. 37-48. Publications of the Department of Geography, University of Oulu and Geographical Society of Northern Finland.