How Russia Is Leveraging Its Arctic Region For Global Influence

How Russia Is Leveraging Its Arctic Region For Global Influence

By Rachel Premack of FreightWaves,

For the past decade, while the rest of us weren’t looking, Russia has invested seriously in its Arctic region. Now, some 20% of the country’s GDP and 30% of its exports come from these chilly lands. Climate change has softened the landscape where critical oil and gas reserves were stuck underground, while melting ice caps have allowed tanker ships to transport that fuel across Eurasia. 

A soldier walks at a radar facility on the Alexandra Land island near Nagurskoye, Russia, Monday, May 17, 2021. (AP Photo/Alexander Zemlianichenko)

It’s a fascinating trend that’s set to get more critical in the coming decades. To learn more, we spoke with Malte Humpert, senior fellow and founder of the Arctic Institute. Our interview transcript was lightly condensed and edited for clarity.  

FREIGHTWAVES: Just to get started, who or what entities or companies or countries are currently shipping through the Arctic Ocean?

HUMPERT: By and large, it’s Russia. 

We have to distinguish between the ice-covered Arctic and the non-ice-covered Arctic. There’s always been shipping in the Arctic around the Norwegian coastline, Iceland and some shipping along Greenland in the summer, whenever there is no ice.

But what’s really happened in the last 10, 12, 15 years is that we are shipping in an area that was previously just the domain of nuclear icebreakers along the Russian coastline, or through the Canadian Archipelago, along the Northwest Passage. So, that’s really where the big change has been happening over the last 10, 12, 15 years.

Whenever they’re talking about Arctic shipping or new trends or routes, it’s really along the Russian coastline, which goes from Murmansk on the western side to Kamchatka in the far east. It is, in theory, a shortcut to connect markets in Europe and in Asia.

Arctic shipping routes mostly feature liquefied natural gas and oil tankers. No container ships yet! 

In the ’80s and ’90s, and even in the 2000s, it was really just nuclear icebreakers providing supplies to local communities, to supply some military installations. Now, we are seeing a lot of destination shipping. Russia is using the Northern Sea Route to bring oil and gas resources, some coal, some iron ore, but mostly LNG and oil from the Arctic to markets in Europe and in Asia. That’s the big volume, and that’s where Russia has been investing a lot of money into new icebreakers, into new port infrastructures, into new ice-capable tankers, LNG and oil.

We are [also] seeing some branded shipping. There have been a couple hundred voyages now. It started really in 2009 with a German company called Beluga, which was the first one to send cargo ships through the Northern Sea Route. From then, we’re seeing anywhere from a few dozen to now 70, 80, 90 voyages a year. This year we didn’t really see any, because of Ukraine and sanctions. 

(Source: GAO)

A lot of companies that did some trial voyages the last few years decided to not do it anymore.

But the biggest one is probably Cosco of China. They’ve probably been the most adventurous. They’re doing the most trial voyages to gain operational experience. And they’ve probably done 60, 70, 80 voyages in the last seven, eight years. They’re sending easily boxed cargo, like large windmill parts, or windmill blades, or some iron ore from Asia to Europe to use those quick shortcuts.

[There’s also] Maersk, which did one container ship in 2019. That was a big story, when they had a new ice-capable container ship that needed to go to the Baltics. Instead of going the traditional route through the Suez Canal, they just went through the Arctic. It generated a lot of headlines, but it was a one-off voyage.

By and large, it is Russia doing it. Russia is doing it to bring natural resources from the Arctic to Europe and Asia. 

The Arctic Ocean will probably never be a major route

The question is, long term, if the ice keeps melting and eventually you really have an ice-free summer, will eventually big liner operators be able to go through the Arctic? There’s always two sides to it.

There’s those that are saying, “No, it’s just not feasible. It’s not reliable enough. You need schedule reliability. You need that infrastructure, which are 10 to 15 major ports along the route to really make the Arctic container shipping work.”

And then others are saying, “Yes, that’s true. We won’t reform, or we won’t revolutionize the main shipping arteries of the world. But the Arctic can serve as a supplemental shipping route.”

For now, it’s really just destination shipping from the Russian Arctic to markets in Europe and Asia. And then there’s a little bit of the Canadian Arctic. The Northwest Passage probably sees 10, 15, 20 transits every year. There’s some iron ore that gets exported from the Canadian Arctic to market.

But really, Arctic shipping, what everyone is talking about, is the billions of dollars Russia is investing in infrastructure, and getting oil and gas that we previously couldn’t get to, to the markets in Europe and in Asia.

Russia has used Arctic routes in 2022 to still move liquefied natural gas into Europe 

FREIGHTWAVES: Is there a certain amount of uproar that happens when a Western European shipping company, like Maersk, engages in Arctic shipping? It seems like there’s a difference in the response from the public depending on who ships on the Arctic. 

HUMPERT: Anyone can go onto the Northern Sea Route. All you need is to get a permit from the Northern Sea Administration. I mean, that door is wide open. It’s not that hard to do. You need some icebreaker escort.

What’s interesting to look at is, how is Europe behaving in terms of sanctions? [2022] saw a record level of Russian Arctic LNG flowing from the Russian Arctic into the EU. 

While on one hand, you stopped the import of pipeline gas, now they’re receiving record levels of LNG. That comes from the Arctic and uses Arctic shipping.

A crew member attaches a Russian national flag as the ice breaker moves along the frozen Moskva River with the Kremlin in the background during snowfall in Moscow, Russia, Tuesday, Jan. 12, 2016. (AP Photo/Alexander Zemlianichenko)

So, Arctic shipping definitely ties into the geopolitics of what’s going on right now. I think a lot of companies decided that it’s not worth it, the optics or the environmental risk to ship in the Arctic. By and large, it’s Russian LNG and oil. There’s a couple of bulk carriers, just like large items that need to go into the Arctic or come out of the Arctic. 

But 99% of Arctic shipping is really there to support Russian oil and gas development, or the export of those resources.

It’s not easy to ship in the Arctic, especially when it is dark 24 hours a day in the winter

HUMPERT: There’s been very few transit voyages where someone is like, “OK, I need to get something from point A in Europe to point B in Asia.” It will take a few months a year where that voyage into the Arctic might make economic sense. But, at the same time, it requires a lot of logistics. A lot of planning, ice pilots and special certification for the crew. You need to abide by the Polar Code. That brings a host of challenges with it that the crew needs to be certified, and you need to have a special ship, or ice class. You can’t dump your wastewater.

Shipping in the Arctic is still, it’s not the Mediterranean. It’s not the Atlantic. It’s still very challenging, especially in the winter, when it’s 24-hour darkness. It is still very specialized shipping.

It’s also a very pristine environment. A few hundred ships a year represent a significant challenge, and danger to the Arctic environment.

That’s why things like the Polar Code have been put in place to make sure that there are some safety mechanisms; vessels are specifically built and certified for operating in ice and ice-infested waters in the Arctic.

The Polar Code is serious business … but it has some loopholes 

FREIGHTWAVES: What are some of the specifications of the Polar Code? What are some of the most challenging or maybe surprising factors that comes along with shipping in the Arctic as an ocean carrier?

HUMPERT: The Polar Code was established under the International Maritime Organization. And it requires ice pilots on board. You need to have specific crew training, specific survival gear. You need to have ice classes. That’s more based on domestic Russian certification. 

For the Northern Sea Route, there are different categories, depending on if the ice conditions are light, medium or heavy. You need to have either a specific ice class for the vessel, or you need to have an icebreaker escort you through ice conditions that you are not allowed to navigate independently.

Of course, there’s politics as well. There have been instances in the last few years where vessels that are not supposed to be where they are, in terms of ice conditions, are navigating by themselves, because the Russians turn a blind eye to that. There have been instances now where vessels don’t abide by the Russian rules, and they should have a higher ice classification.

The question is, how much of that is because ice conditions are really getting easier and easier because of climate change? Or is it Russians ignoring the rules for economic expediency, and want to push along oil and gas exports?

60% of Russia’s Arctic fuel goes to Europe, and the other chunk goes to Asia 

FREIGHTWAVES: And right now, where is Russia shipping on the Northern Sea Route? Are they exporting only to China? Are they still exporting to Europe? What does that look like right now?

HUMPERT: We have a number of oil and gas projects in the Arctic. The biggest one is Yamal LNG on the Yamal Peninsula, by the Russian company Novatek. They export about 20 million tons of LNG every year. 

Some of that flows to Europe, and some of that flows to Asia. This year it’s probably 60% Europe, 40% Asia. In terms of Asia, most of that goes to China. In previous years, a bit more went to Japan. 

In terms of Europe, a lot of it goes to France, Spain, Portugal, Belgium, countries that actually previously had not really received any Russian gas. Now they are importing Russian LNG.

There is the Novy Port/Arctic Gate by Gazprom Neft. That is also oil that flows to Europe. 

Now there’s going to be a big new terminal called Vostok Oil, which was announced a few months ago. It’s on the Gydan Peninsula. The forecasts say that that’ll be 25 million tons by 2025, and then a hundred million tons by 2030.

There is a lot of volume of the oil already being transported around the Northern Sea. In the 1980s, ’90s and 2000s, that would be between 2 and 4 million tons of cargo that would flow along the Northern Sea Route. Now we’re around 32, 33 million tons. All that increase has come in the last four or five years. The forecasts are 80 to 100 million tons by the end of the decade. So, we’re still looking at a threefold increase in terms of tonnage between LNG and oil.

Arctic oil production is replacing other resources for Russia

FREIGHTWAVES: It seems like Arctic shipping has been pretty important for Russia’s energy industry, and really making them even more of an energy exporter than previously.

HUMPERT: Probably not more. They have to replace other capacity. There’s a lot of oil and gas resources in other parts of Russia that have been producing for many decades, and they’re running out. A lot of future oil and gas resources lie in the Russian Arctic. If you look at the US Geological Survey study that everyone cites from 2009, which looked at oil and gas resources across the entire Arctic, 80% of those resources are located in the Russian Arctic. [AUTHOR’S NOTE: For those who are not familiar with this particular survey, it’s pretty interesting. It estimates that 30% of the world’s undiscovered gas and 13% of its undiscovered oil is in the Arctic.]

For lack of a better term, Russia is the gas station. The future of that gas station definitely lies in the Arctic, and Russia wants to make sure it keeps exporting oil and gas.

Previously it couldn’t get to those oil and gas resources, because it was frozen, and building pipelines in the tundra is very technically challenging and expensive. But now they have a shipping route, and they have the technology, and they can get to the oil and gas that previously was inaccessible.

That’s where Arctic shipping comes in for Russia being really important. The combination of climate change, oil and gas resources, and the Northern Sea Route opens a whole new logistics chain for Russia.

China and Russia are becoming closer than ever, thanks to the Arctic!

FREIGHTWAVES: And how does Arctic shipping strengthen the relationship between Russia and China?

HUMPERT: Well, China is a big investor in Russian Arctic energy projects. They are the recipient of a lot of LNG that flows into China. This year, China is receiving about 25, 30% of the LNG produced at Yamal LNG.

They have a lot of long-term 20-year, 30-year projects. [China is] gobbling up all the LNG being produced anywhere around the world. The Arctic is no exception there. China is really focused on long-term energy security, and receiving all the LNG that they can. That’s the same for the Russian Arctic.

A lot of people focus on the Northern Sea as a potential shipping, export, container shipping route for China. That’s really theoretical. There’s still too much ice. It’s not reliable enough. For China, really, the benefit of the Northern Sea Route and its connection with Russia is the receipt of LNG and oil.

Russia is now the largest oil provider for China, ahead of Saudi Arabia. It’s a lot closer to go from the Russian Arctic to China than it is to go from Saudi Arabia through the Strait of Malacca and Singapore and the South China Sea.

Apparently Western Europeans do not care about the optics of receiving fuel that might endanger the Arctic (even before Russia’s war)

FREIGHTWAVES: At what point is it bad optics for, say, Europe to be importing energy that was moved on through Arctic shipping? Even before the Ukraine war.

HUMPERT: Well, I mean, I don’t particularly think that sovereign countries really cared about that. Germany clearly didn’t care about being super energy reliant on Russia. I think for some individual companies it probably played a role. I mean, there have been companies that said they would not invest in oil projects in the Arctic. But, by and large, it was a lot of the big majors. I mean, Siemens, Linde, Total, Bakers.

All the major companies that work in oil and gas, either construction or servicing, or the production of oil and gas, were all involved to various degrees. Exxon was in the Russian Arctic, because a lot of oil and gas resources are there. 

Now with sanctions, most of them or all of them have actually exited those projects. Russia right now is struggling to replace some of the technology and some of the financing that they lost over the last 10 months with new partners. They’ve looked to the Middle East. They’ve looked to the UAE. China has stepped up. They’re trying to build turbines and gas concentrators, and all the high-tech stuff that is required in the liquefaction of natural gas. They are looking to build it domestically. 

From an environmental perspective, there were not too many qualms on the part of companies. And now with the sanctions, it’s just a general, “We can’t really do business with Russia anymore.” You’ve got to cut the cord and get out of there, and most companies did. 

It is always the interesting facet of this, that previously France and Spain and Portugal and Belgium did not really receive any Russian gas, because there is no pipeline from Russia that goes to France, or from Russia to Spain. It was more Germany and the Eastern European countries. 

But now, France and Spain and Portugal and Belgium are importing significant amounts of LNG, which they previously did not. 

I now have FOMOOA: Fear Of Missing Out On Arctic

FREIGHTWAVES: It’s interesting looking at this Arctic shore as a key part of Russia’s quest for maybe not global dominance, but still being important on the global stage. I feel like I don’t often think of the Arctic shore as part of any country’s coastline. But given the fact that ice caps are melting …

HUMPERT: You make a very good point. I mean, the Arctic plays a completely different role in the national identity and the economic importance in the psyche of Russian people. I think maybe the only other country with that is the Scandinavian countries. 

But if you ask someone in the U.S. in Alabama about the Arctic, they don’t know what you’re talking about, because Alaska is 500,000 people, and contributes less than 1% to the GDP of the U.S. Oil supply has been declining. You have cheaper oil and gas available in the Lower 48. There is really not that much of a need to build icebreakers. Russia has a fleet of a dozen nuclear icebreakers. The U.S. has one conventional icebreaker, and another half one that’s always broken.

An icebreaker in the St. Clair River in Michigan. Brrrr. (AP Photo/Paul Sancya)

The economic importance is a lot less. I mean, if you take Alaska away tomorrow, the U.S. is going to be fine. Well, you take away the Russian Arctic, Russia’s not going to be fine. It generates 20% of its GDP above the Arctic Circle. And that number is probably going to just increase.

Russia isn’t just investing into Arctic shipping. It’s investing into an Arctic military.   

HUMPERT: That’s why they’re investing large amounts of resources into revitalizing old military bases, building new ones, building runways, and building large radar installations. We saw the explosions on the Nord Stream pipelines two months ago, three months ago. That’s exactly the kind of thing that Russia wants to not have happen to its own investments in the Arctic.

That’s why there is a ring of military bases, and forward-looking radar, and S300 and S400 missiles and aircraft — because they know that the Arctic is hugely important for economic development.

On Tuesday, they approved another billion dollars to build two more nuclear icebreakers. That’s just something they do on a Tuesday. While in the U.S., it took 10 years to have the Coast Guard contract one conventional icebreaker that won’t be ready before the end of the decade, because it has to be built domestically, and the U.S. hasn’t built an icebreaker in 35 years.

So, it’s totally understandable why Russia is investing that much money and effort and political capital. Putin is there whenever they launch a new nuclear icebreaker or they open a new military base. Putin is there for the photo op. And it caters to an element of Russia, the Russian empire, Soviet Union, the Arctic, the Arctic frontier. In the U.S., you don’t really have that psyche.

In Canada, 10, 15 years ago, Prime Minister Harper did that a little bit. He would become a little bit more nationalistic when he would talk about the Arctic, and how the Arctic is part of the Canadian heritage, and the Arctic is Canada, Canada is the Arctic, and so forth. But again, no one cared. Of course I’m exaggerating here, but you don’t have 20% of your GDP being generated above the Arctic Circle.

In this handout photo taken from a footage released by Russian Defense Ministry Press Service on March 26, 2021, a Russian nuclear submarine breaks through the Arctic ice during military drills at an unspecified location. (Russian Defense Ministry Press Service via AP)

I mean, purely from a logistical aspect, what Russia has been able to do the last 10 years is really, really impressive. You can be for it, you can be against it. You can say the environmental risk is not worth it. We should stop producing oil and gas, and the geopolitics of it. But just looking at it from the infrastructure in the Arctic, and building the ships needed to get the oil and gas out of there, and doing it all in 24-hour darkness in the Arctic, it’s really, really impressive.

It takes a lot of effort, a lot of money. And people were skeptical, but Russia is doing it. And Western Europe and Japan and China are customers of what Russia is producing and exporting in the Arctic.

For the US and Europe, the solution is probably not ‘drill, baby, drill’

FREIGHTWAVES: Yeah, it seems like Russia’s competitive advantage. Canada and other countries also have access to these resources, theoretically. But Russia’s really the one that is investing the most into this, and seeing the most benefit from this massive shoreline that it has with the Arctic Circle.

So, should the U.S. be taking this more seriously? What do you think would be the approach from the U.S. or Europe that counteracts this, or that takes potential Arctic resources more seriously?

HUMPERT: Well, I mean, the question is, should we? Personally, I’m glad we’re not drilling for oil and gas in the Arctic. 

I think what the U.S. and Europe should do is just generally be more aware that the Arctic is opening up, that it is becoming a navigable ocean. Within 20 or 30 years, for at least six months out of the year, it’ll be more like a blue-water navy-type environment. There needs to be more forward-looking and long-term planning to see, how can we operate in the Arctic? How can we contain threats in the Arctic? How can we avoid conflict in the Arctic? 

A lot of that is being done now. I think the U.S. has been waking up to it. They reorganized the 3rd Fleet. They’ve held exercises above the Arctic Circle. There was the Trident Juncture, which was a big NATO exercise a few years ago. They did an exercise off the coast of Iceland maybe two, three years ago. The Coast Guard is getting its new icebreaker, hopefully plural. Supposedly they’re going to build six of them. But, that’s at least 15 years away.

They are doing things, but it’s really hard to find the resources to spend that kind of money when the Arctic is not currently that important to you. When you just finished two wars in Iraq and Afghanistan, and you have terrorism, and you have whatever else is going on in the world, it’s very hard to think about 2030 or 2050.
That’s where Russia and also China are better, because they’re not a democracy. They don’t need to cater to the two-year election cycle and figure out what the immediate priorities are. They’re able to think long term.

But, in general, I mean, the Arctic is opening up. For better or worse, there’s going to be economic activity. There’s hopefully not going to be military conflict in the Arctic. But, the way things are evolving with Russia and future discord or conflict with China, you can never exclude that it could become a theater for conflict.

Cleaning up oil spills in cold water is really hard, which is one of many reasons why Arctic shipping is not great for polar waters

FREIGHTWAVES: Really quickly, or maybe not really quickly, I have one last question. What does Arctic shipping do to its ocean?

HUMPERT: Well, I mean, it’s definitely not good. 

We already had a bunch of near misses of accidents. We had a couple of cruise ships run aground in the Canadian Archipelago a couple years ago. We had a couple of near misses along the Northern Sea Route, where oil tankers ran into each other, luckily without puncturing the double hull. There was, according to the Russians, no loss of oil or whatever.

But the more activity you have, the risk goes up. The question is loss of limb and life. That’s why, under the Arctic Council, we have the search and rescue agreement, because the Arctic is really remote, and we have more and more cruise ships going up there. How do you get 2,000 people off a cruise ship when the entire island that you’re visiting has less people than that? There’s a lot of concern about the risk to people when they venture out in the Arctic.

Of course, you can look at the Exxon Valdez accident in Alaska 25, 30 years ago and what that did. Cleaning up oil in the Arctic is a lot more challenging than in more temperate water, because the oil becomes a lot more viscous, a lot more thick, like a heavy paste. So, how are you going to get it off, and where are you going to put it?

You’re 10,000 miles away from anywhere. The Arctic environment is obviously very pristine and very untouched in a lot of areas. Because it’s so cold, if there were to be an oil spill, it would be dissolved a lot less quickly, because everything, in colder temperature, everything happens a lot slower than in more temperate water.

In an ideal world, you’d say, “Yeah, let’s leave the Arctic the way it is, and let’s not go up there and drill for oil and gas.” But that’s not happening, obviously. What we can do is put the regulations in place to keep it as safe and as pristine as we can. But it’s probably just a matter of time until we will see accidents. The more heavy industrial activity you have, you’ll see an accident.

The Arctic is offering a preview of how much our lives could transform thanks to climate change 

FREIGHTWAVES: Well, great. Thank you so much again for taking the time to talk with me. Anything else I didn’t ask about, or anything else you think would be important? I mean, I’m sure we could talk about this for a long time. But anything else that comes off the top of your head?

HUMPERT: I think we covered it. For me, it’s always important, because I read so many headlines about the new Cold War in the Arctic, or the rush for Arctic resources, or the new super shipping highway — it’s not like that. There is a lot happening in the Arctic, and it’s very, very fascinating. 

But we’re not on the route for World War III in the Arctic. We’re not going to replace the Suez Canal. Russia is not going to become the next Saudi Arabia in the Arctic.

But it doesn’t need to be, right? The Arctic previously was frozen, and now it’s melting because of climate change. And so, it really is the first region where climate change is altering the economic realities and the landscapes. There’s some positives, and there’s some negatives. It’s never just black and white. Some local, indigenous communities are really struggling. Others may have new economic opportunities because of tourism or shipping or whatever is going on.

The Arctic is offering a preview. It’s warming at four times the rate as the rest of the planet. Challenges that are maybe 20 or 30 years away in other parts of the world are already happening in the Arctic today, because the ice is melting. Without climate change, you and I, we wouldn’t be having this conversation right now, because the Arctic would still be frozen.

It’s this nexus of climate change, economic opportunity and geopolitics. It all comes together in the Arctic, over resources, over shipping, over geopolitics. And it’s the first region where climate change is literally altering the map of the world. You can go through the Arctic now for two, three, four months a year in a normal ship. And 20 years ago, that was not possible.

Tyler Durden
Sat, 01/21/2023 – 07:00

Share DeepPol
Generated by Feedzy