Sanctions on Russia: Helping or hindering the Arctic environment?

The future of the Arctic: Alone in the cold? A sole woman walks in a park in Lviv, Ukraine. December 2012. © Mia Bennett

The future of the Arctic: alone in the cold? A sole woman walks in a park in Lviv, Ukraine. December 2012. © Mia Bennett

Many in the Arctic have vowed that tensions outside the region between Russia and the West would not affect circumpolar cooperation. After last week’s downing of Malaysia Airlines Flight 17 over Ukraine, however, the escalation of tension has threatened to spill northward, at least in the political realm.

According to Reuters, in a news conference, European Union energy commissioner Guenther Oettinger expressed, “If they (Russia) don’t decisively try to do something to prevent escalation, then there is no reason for us to help promote the growth of their industry and develop new resources for gas and oil and therefore to put this equipment on the list of sanctions.”

But could the EU seriously affect Russia’s plans for oil and gas development in its Arctic backyard? European companies like France’s Total, Italy’s Eni, and Norway’s Statoil all have investments in the region, so tougher sanctions could theoretically impinge their plans. Norway is not a member of the EU, but Norwegian Foreign Minister Børge Brende declared, “It is important that Europe stand together in this serious situation. EU’s decision to extend the measures is an appropriate and necessary step.” Norway is arguably Russia’s most important partner in the Arctic, from environmental cooperation to oil and gas development, so its decision to follow tougher EU sanctions could hit Moscow hard.

ExxonMobil and Rosneft move ahead with exploration in the Kara Sea

Still, it’s one thing to get foreign ministers to say something. It’s quite another to stop the immense, multi-billion dollar joint ventures between European, American, and Russian companies from moving forward in the Russian Arctic. This week, U.S.-based ExxonMobil, the world’s largest oil company, began towing Norwegian company Seadrill’s West Alpha oil rig to a site in the Kara Sea that is a four-day sail from Murmansk. Exxon is partnering with Rosneft in a $600 billion project to explore for oil and gas in the Universitetskaya geological formation, which lies within one of three license blocks the two companies hold in the sea. The two companies do not have as much money in the Arctic on the line as Shell, for instance, which has invested $6 billion in looking for fossil fuels in the Chukchi and Beaufort Seas with no returns so far. But overall, Exxon and Rosneft’s joint venture in the Kara and Black Seas still totals an enormous $3.2 billion, so it’s unlikely that either company is going to want to allow events in Ukraine to affect their designs.

Especially in the Arctic, exploration activities are planned years in advance given the short operating seasons. Any delay can push back plans by years, so it’s important that companies adhere as closely as possible to the planned schedule. While Exxon Mobil’s activities are not technically in violation of American sanctions, when the West’s states and companies are split, it’s difficult for it to put up a united front against Russia.

With sanctions from the West, Russia looks east

Whether or not European and American sanctions affect Russia’s plans Arctic oil an gas development, increasingly, Russia is turning eastward. The country is looking to Asia not just for export markets for its fossil fuels, but also for investors and technology providers for its Arctic oil and gas projects. Consider the Yamal LNG project under development in coastal central Siberia. China National Petroleum Corporation, with which Gazprom signed the long-awaited $400 billion, 30-year gas deal in May 2014, holds a 20 percent stake in the project. France’s Total holds another 20 percent stake, while independently-owned Russian company OAO Novatek holds the remaining 60 percent stake. In July 2014, it was announced that South Korea company Daewoo would build the nine LNG tankers that will be needed to transport the resource to and from the gas field. Japanese company Mitsui O.S.K. has already signed up to buy and operate three of these tankers. As such, Yamal exemplifies the increasing participation of China, South Korea, and Japan in the Russian Arctic oil and gas sector – participation which sanctions will not affect. As South Korea makes plans to turn into an oil hub for the Asia-Pacific, Russia could have even more reasons to send its oil and gas east along the Northern Sea Route instead of west, at least when ice conditions allow.

Problems ahead for Arctic cooperation on environment, SAR

In short, commercial interests are facilitating Arctic cooperation as geopolitical tensions freeze partnerships elsewhere. This is worrying for polar search and rescue and the Arctic environment because it’s states rather than corporations that partner on these matters. For instance, in March, events in Crimea put the planned Northern Eagle search and rescue exercise between the U.S., Russia, and Norway, on hold indefinitely. And in April, Canada, the current Arctic Council chair, boycotted the intergovernmental forum’s working group meetings in Moscow. Those meetings were over black carbon and methane, pollutants that threaten to have an increased impact on the Arctic as industrial activities in the region increase.

At the time, the Chair of the Arctic Council and Canada’s Minister for the Arctic Council, Leona Aglukkaq expressed, “Canada is proud to show leadership on the world stage through its chairmanship of the Arctic Council. As a result of Russia’s illegal occupation of Ukraine and its continued provocative actions in Crimea and elsewhere, Canada did not attend working-group-level meetings in Moscow this week. Canada will continue to support the important work of the Arctic Council.” But by boycotting these meetings, Canada was actually not supporting the work of the Arctic Council, especially in the environmental domain. Without international cooperation between Russia, the biggest Arctic country and the one moving forward the most quickly with Arctic oil and gas development, and the rest of the Arctic states, including Canada, oversight of the ever-increasing extractive industries will weaken.

There’s one glimmer of hope for the Arctic environment, though, and that’s if European (and American) sanctions are strong enough to manage to delay exploration and production in the Russian Arctic due to the lack of technology and knowledge transfer. In that case, sanctions would achieve Greenpeace’s goal, which is to delay (if not altogether ban) drilling in the Arctic. If this happens, it would be just another strange twist in how events in distant lands like Ukraine can affect the future of the Arctic environment.

Full steam ahead for Asian icebreakers in the Arctic this summer

R/V Araon and USCGC Healy last summer. Photo: U.S. Coast Guard/BM2 Lekich.

R/V Araon and USCGC Healy last summer. Photo: U.S. Coast Guard/BM2 Lekich.

The United Nations Convention on the Law of the Sea (UNCLOS) governs many of the activities on and below the world’s oceans, including scientific research. On the high seas, which are the global commons of mankind and belong to no country, states may conduct marine scientific research “exclusively for peaceful purposes and for the benefit of mankind as a whole” (Article 143). While much of the research that countries are carrying out on the high seas likely has global benefits, it also generates benefits for individual countries, too. This is especially the case when studies pertain to natural resources. But it also holds true regardless of the topic of interest, since the mere practice of science in the circumpolar north helps to legitimize countries’ claims to have a voice in northern affairs by showing them to be responsible and concerned Arctic actors. It is also a visible display of technological might and prowess, for only a select few countries in the world can send an icebreaker to the Arctic.

Icefloe reports that this summer, seven non U.S. icebreakers will undertake expeditions in Alaskan and Arctic waters. UNCLOS gives countries the right to conduct scientific research in other countries’ extended economic zones, though coastal states can deny permission if they believe that the research could “introduce harmful substances in the marine environment” (Tim Daniel of the law firm Kendall Freeman provides a good overview of how UNCLOS regulates marine scientific research here.)

Although the U.S. has not ratified UNCLOS, the government largely adheres to it under customary international law. Accordingly, the government has granted permission to these seven international expeditions to conduct research in the U.S./Alaskan EEZ this summer. Two expeditions are from Canada, one from Russia, one from Sweden, and one each from China, Japan, and South Korea. The newly created Alaska Platform of Opportunity includes more information about the expeditions taking place in the waters surrounding the state.

Asian Icebreakers in the Arctic

The Chinese expedition on board the country’s icebreaker Xue Long may attract the most media attention for obvious reasons. The story of the “Snow Dragon” in the Arctic is a compelling one and also plays on many people’s fears of a rising China in the region (what British geographer Klaus Dodds has termed “Polar Orientalism”). In 2012, as the Chinese icebreaker sailed to the North Pole, the Siberian Times anxiously announced, “China’s Snow Dragon conquers the Arctic.” It’s not just the media and the average person who are suspicious; even the Norwegian Coast Guard reportedly shadowed the Chinese-owned, Ukrainian-built vessel during its headline-making expedition in 2012.

But it would also be wise to watch the Korean and Japanese expeditions this summer. Previously, I blogged about last summer’s Canada-Korea-USA Beaufort Sea Geoscience Research Program 2013, when scientists from the three countries conducted research while sailing on the state-of-the-art Korean icebreaker Araon, which means “All-Ocean” in Korean. According to the NWT Research Database, the program’s goal was to “acquire geoscience knowledge about the outer shelf of the Beaufort Sea with intent to address knowledge gaps related to thawing of subsea permafrost and gas hydrates.”

Methane hydrates: a natural collaboration between Asian and Arctic states

Gas hydrates, or more specifically methane hydrates or clathrates, exist in the world’s continental margins and in permafrost. Thus, this potential energy sources forms a natural area of collaboration between countries like energy-hungry Japan and South Korea, which have no conventional hydrocarbons of their own but, being coastal states, do have continental margins, and permafrost-laden Alaska and Canada. Methane hydrates are a promising future source of energy, since natural gas can be theoretically extracted from them. Yet they are also a potentially dangerous source since the accidental release of methane through drilling activities could be disastrous for the atmosphere. The EPA notes that methane has a 20 times greater impact on climate change than carbon dioxide over a 100-year period.

Despite these risks, Japan has been researching methane hydrates since 1995. The Japan Oil, Gas and Metals National Corporation estimates that methane hydrate reserves could equate to a 100-year supply of natural gas for the country. In 2003, a research team involving Japanese and Canadian scientists, among others, successfully produced 470 m³ methane gas at the Mallik site in the Mackenzie Delta north of Canada (source: MH21).

Map of methane hydrates, which exist around both Japan and Korea and also in the Arctic, making for natural collaboration between the two areas. Map from Wikimedia Commons.

Map of methane hydrates, which exist around both Japan and Korea and also in the Arctic, making for natural collaboration between the two areas. Map from Wikimedia Commons.

Neither Japan’s National Institute of Polar Research nor South Korea’s Polar Research Institute has any additional information about their respective icebreaker cruises this summer, so it’s difficult to specify what research the scientists will be carrying out apart from the brief descriptions given on the Icefloe website. Researchers working on Japan’s Mirai will examine geology, coring, and bathymetry mostly from a point directly north of the Bering Strait. Scientists onboard South Korea’s Araon will study oceanography in the Chukchi and Beaufort Seas.

More details from the expeditions will hopefully emerge later this summer. Regardless of the work being undertaken, Japan, Korea, and China will likely benefit symbolically from their presence in the Arctic. UNCLOS Part XIII explains, “Marine scientific research activities shall not constitute the legal basis for any claim to any part of the marine environment or its resources.” Yet by sending icebreaker expeditions every year to the region, the Asian countries – observers in the Arctic Council since May 2013 – enhance their claims to Arctic stakeholdership. They are not making territorial claims, but they are building their Arctic identities all the same. Japan, Korea, and China may not have land in the north of 66º, but they still have a presence, and they are certainly capable of running tight ships on the Arctic Ocean year after year.

China-Russia gas deal creates Arctic winners and losers


Photo: Vicki Watkins/Flickr

The $400 billion, 30-year China-Russia gas deal signed in Shanghai on May 21 has sparked a lot of excitement about hydrocarbons in the Russian Arctic and sub-Arctic. Under the agreement, which had been in the works for a decade, Gazprom will supply China National Petroleum Corporation (CNPC) with 38 billion cubic meters of gas annually beginning in 2018. The deal fulfills Russia’s goal, as outlined in its Energy Strategy to 2030 (in English), to increase exports to Asia. By 2030, the strategy envisions that eastern-bound exports of oil will constitute 22%-25% (as opposed to the current 6%), and gas 19-20% as opposed to the current 0%.* Much of this gas will be delivered through a new pipeline that Gazprom is constructing from the Siberian gas fields of Kovykta (Irkutsk) and Chayanda (Yakutsk) to the Chinese border. A couple of other pipelines will also need to be built, as this handy map from the Washington Post illustrates.

Reflecting the hype surrounding the potential for Russian energy exports to the east, bookings for the Sakhalin Oil and Gas conference, happening later this year in Yuzhno-Sakhalinsk, are already four times what they were last year. It may be these resources in sub-Arctic areas like Sakhalin that are developed thanks to the China-Russia gas deal – not yet the ones in the offshore Arctic. As Elizabeth Buchanan writes over at the East Asia Forum, the deal “allows for the delay in Sino–Russian exploration of offshore Arctic energy reserves — a challenging and environmentally hazardous endeavour, which will require more time to develop the necessary technology. In the meantime, the large gas reserves in Eastern Siberia and the Russian Far East can sooner be brought onstream.” So perhaps the biggest consequence of the China-Russia gas deal is increased development of sub-Arctic oil and gas fields in the Russian Far East in the short term while setting a precedent for cooperation between the two countries that can be expanded to the Arctic in the long term.

With its still-booming economy, China is hungry for not just Russia’s oil and gas resources, but those of the wider Arctic region, too. Several state-owned Chinese oil companies have interests in Arctic hydrocarbon development. CNPC has a 20% stake in the Yamal project, which is in the Arctic. Once Yamal is up and running, during the summer months, gas will be transported east along the Northern Sea Route to Asia (in ice-class 7 LNG tankers to be built by South Korean company Daewoo). In winter, the LNG will travel west to Europe. CNPC is also partnering with Rosneft to explore three fields in the Barents and Pechora Seas. And in Iceland, China National Offshore Oil Corporation (CNOOC) is partnering with the country’s Eykon Energy to explore the Dreki oil field off the island’s northeast coast.

Chinese linkages between energy, defense, and the north

Reflecting the linkages between energy security, defense, and the Arctic for China, earlier this month, a Chinese military think tank issued its 54,000-word Strategy Assessment 2013, which has a definite focus on the Arctic, among other regions. I haven’t been able to locate the assessment online, but this article from China News (in Mandarin) by reporter Tao Shelan sums up its polar content. While Tao’s entire article is worth reading or running through Google Translate, one particularly important section explains the Arctic’s geoeconomic potential for China:

“China is located in the northern hemisphere and has an important strategic interest in the Arctic related to the sustainable development of the national economy and national security. The rich oil and gas resources in the Arctic and convenient shipping conditions for ensuring sustainable economic development in China are important. The future of the Arctic is expected to become China’s important energy supply base overseas. China will follow the equality and mutual benefit, cooperation and win-win principle, countries with Arctic energy cooperation. China is concerned about the potential impact of accelerated melting of Arctic ice on the global economy and trade. The Arctic route may constitute a huge impact on China’s future maritime shipping, hope and pragmatic cooperation with Arctic countries, mutual benefit and win-win.”

It may be win-win, but with many analysts thinking China got the better end of the deal in negotiations with Gazprom, some countries will win more than others.

China: No fear of pipelines to Russia

China: No fear of pipelines to Russia.

China: No fear of pipelines to Russia. Photo: Brian Cantoni/Flickr

With its long, eastward facing coast and land borders with multiple hydrocarbon-producing countries, China’s ability to pursue numerous oil and gas options gives it an immense amount of flexibility and leverage in negotiating deals. Vladimir Portyakov, deputy director of the official Institute of Far Eastern Studies in Moscow, stated in an interview with the Christian Science Monitor, “It’s an issue of national security for China. Sea routes for oil and liquefied natural gas are vulnerable. Much better to have it directly delivered in pipelines from a neighboring state.” China, however, is likely acting more out of a desire to simply diversify its sources of oil and natural gas rather than shift away from maritime transport of hydrocarbons.

Regardless, China’s deal with Russia shows its continued faith in building pipelines to Russia and through the restive autonomous province of Xinjiang to Turkmenistan, Kazakhstan, and Uzbekistan (map) despite the geopolitical insecurities inherent within these fixed infrastructures that make many smaller European countries uneasy. Just as China invests more in pipelines, countries like Lithuania (100% reliant on Russian gas imports) are seeking to move away from them and instead build LNG import terminals such as Klaipėda on the Baltic Sea.

And for Russia, the gas deal exemplifies the energy sector’s pivot to Asia, which is happening for both political and geographic reasons. One, as noted above, many countries in Europe are increasingly viewing Russian gas supplies with wary eyes, even as they remain highly dependent on them. Two, the fields in western Siberia that supply Europe are being depleted. As the Russian energy strategy explains (p. 75), the “depletion of the main gas deposits in the Nadym-Pur-Taz district of the Tyumen Region” has led to the “necessity of developing new gas-producing centers on the Yamal Peninsula and continental shelf of the Arctic and Far Eastern seas, in the Eastern Siberia and Far East.” Russia has to look to Asian countries to buy the gas from these areas – not Europe. Luckily, China is not too worried about building pipelines to Russia, unlike much of Europe.

Consequences for North American hydrocarbon exports

The Russia-China gas deal also affects prospects for North American oil and gas exports. China’s deal with Russia could put downward pressure on LNG prices in East Asia, where they are generally the highest in the world. Unlike oil, which is sold on a global market, the market for LNG is regional. The deal between Gazprom and CNPC is rumored to be between $10 to $10.50 per million Btu, which is almost 25% cheaper than the current $13 spot price in Asia. As Reuters suggests, the relative bargain that China won from Gazprom means that other countries like Japan and South Korea, which are also interested in Arctic LNG and even gas via pipelines to Russia, might not have to pay as high prices. This could spell bad news for Canada and the U.S., which are eager to capitalize on high Asian gas prices by exporting their surplus gas. Unlike Russia, their resources are trapped. They can’t easily lay pipelines across the wide Pacific Ocean.

Canada has conditionally approved the Northern Gateway pipeline, which would send oil and gas from Alberta across British Columbia to Asia – but it will likely never actually get built in part due to indigenous and environmental protest. And in the U.S., although the federal government has been issuing more permits lately to allow the export of natural gas to countries with which the U.S. does not have a free trade agreement, these projects, such as the Jordan Cove LNG liquefaction terminal in Oregon, won’t be up and running until at least 2017.

The winners: Asia – and maybe the Arctic

At the end of the day, it looks like China – and Asia – are the winners. Russia has to settle for accepting a relatively low price for its gas – the same price that Europe pays on average. North America will have to settle for the crumbs if they ever manage to build the pipelines and LNG export terminals necessary to export their overflowing resources east across the Pacific.

In the near term, the Arctic environment may also be a winner. With the attention of China and other investors now on East Siberia and the Russian Far East, the Gazprom-CNPC gas deal could see some Arctic offshore projects put on hold. Then again, one should never underestimate the ability of China to juggle multiple projects at once – by all means necessary.

*Note: Since Russia already exports natural gas to Japan and South Korea from Sakhalin, I am not sure why the report’s current figure for natural gas exports to East Asia is 0%.