MESOP “A NEW WORLD ORDER MINUS EUROPE?” – The Warming Russian Arctic: Where Russian & Asian Business &Strategies Converge?


November 21, 2016  By Dr. Jean-Michel Valantin (THE RED TEAM )

In this new article about the current development of the warming Russian Arctic, The Red (Team) Analysis Society studies how Russia is currently devising an industrial and business grand strategy. This strategy is created through new oil and gas exploitations and the constant opening of the Siberian Northern Sea Route. These new activities are made possible by the rapidly intensifying climate change, which is transforming the Arctic into a continental attractor for energy, business, shipping, land transport, from everywhere in Asia (Jean-Michel Valantin, “The Russian Arctic meets the Chinese New Silk Road”, The Red (Team) Analysis Society, 31 October, 2016).

The Russian Arctic power of attraction can be identified from the fact that numerous Asian countries are attracted by the Russian Northern Sea Route and by the exploitation of the oil and gas deposits of the Arctic Ocean and of the Siberian ground. The production of liquefied natural gas (LNG), notably, acts as a magnet for the industrial, financial and strategic interest not only of China, India, Japan, South Korea, but also Viet Nam, Singapore and Thailand (US Energy Information Administration, (“Chapter 3. Natural Gas”, International Energy Outlook 2016”). In effect, the Asian countries’ consumption of LNG knows a regular growth, considering their will to enlarge their energy sources while diminishing their coal use (Jean-Michel Valantin, “The Arctic, Russia, and China’s Energy transition“, The Red (Team) Analysis Society, 2 February, 2015).

The massive Russian Arctic maritime and coastal development supports the deployment of an immense industrial, transportation and trade land infrastructure, through the building of railroads and the renewed use of Siberian rivers, from the Siberian coast towards Norway and Central Asia. Some of these new railways are built from Kazakhstan and Mongolia, to connect with the new railroad network that connects western China with Europe through gigantic supply chains, which are deeply interlocking the Russian and Chinese developments (Jean-Michel Valantin, “China, Russia and The New Silk Road in Central Asia: the Great Co-Empowerment”, The Red Team Analysis Society, March 7, 2016).

In other words, the warming Russian Arctic and its industrial and trade development are supporting the development of the Central, Eastern and South Asia countries, by attracting the actors of these Asian developments.

Here, we are going to focus upon the way the warming Russian Arctic is thus becoming the driver of a deep reorganisation of the Asian energy and industrial markets. We will also see how this entails the emergence of continental size maritime and land new supply-chain, while connecting it to China and “arcticised” Asian actors and interests.  At the end of the article we shall present a new feature, a brief summary of the major impacts foreseen.

The emerging Russian continental supply-chain: from the Siberian Coast to Kazakhstan … and beyond

The warming of the Russian Arctic is having gigantic geopolitical and business consequences, because the very effects of climate change are turned into an engine of the Russian power of attraction (Joe Romm, “Arctic Death Spiral Update: What Happens in the Arctic Affects Everywhere Else“, Think Progress, May 3, 2016).

In effect, the Russian political, economic and business authorities are turning this immense region into a new energy and minerals development area. Furthermore, the warming of the atmosphere and of the ocean stemming from climate change, and the relative retreat of the sea ice it entails, are used to open the Northern Sea Route, which goes from the Bering Strait to Norway along the Siberian coast, with considerable impacts on logistics and trade (Jean-Michel Valantin, “The Russian Arctic: a new Economic and Strategic Paradigm?”,The Red (Team) Analysis Society, October 12, 2016).

A first element of the Arctic Russian attractor is the building of the strong inter-connections between the off- and onshore oil and gas operations and the Northern Sea Route, through the creation of maritime and land industrial and transport infrastructures. Meanwhile, as we have seen “Russian Arctic Oil” and “The Russian Arctic Meets the Chinese New Silk Road”, there is a strong link between the energy, maritime and military offshore development of the Russian Arctic, which are the different drivers of the “Russian attractor”.

This energy and industrial development also takes place onshore, and is pivotal in the intensification of the Russian Arctic power of attraction.Notably, in order to turn the Russian Arctic into a sustainable attractor for energy and business partners, the glacial and desolated Yamal Peninsula is industrially developed and transformed into the hub where the energy interests, the Northern Sea Route and the land network of Russian infrastructures are interlocked.

In effect, the Russian energy company Novatek is building the enormous Yamal LNG plant, aiming at producing more than 16,5 millions of tons of LNG annually (Oksana Kobzeva, “Russia’s Yamal LNG is on track and on budget, says Novatek”, Reuters, September 5, 2016). This mammoth project, developed in a glacial region, except during the short summer, is an industrial challenge: it necessitates partnerships with French Total, Chinese National Petroleum Company and the Silk Road Fund. The project has already benefited of more than 12 billions dollars from Russian Banks and 12 billions dollars from Chinese banks (Jack Farchy, “Chinese Lend $12 Bn for Gas Plant in Russian Arctic”, Financial Times, April 29, 2016). Thanks to it, Russia will become one of the main producers of LNG on the international market.

This project goes with the rapid development of the Sabetta port on the Yamal coast, located on the Ob river bay, from where LNG carriers will transport the anticipated 16,5 millions annual tons of gas, produced by the Yamal LNG plant, to their destinations in China, India, Japan, and Viet Nam, among others (Atle Staalesen, “This could soon be the world’s biggest Arctic”, The Independent Barents Observer, February 16, 2016). Furthermore, Sabetta will have to be able to handle at least a yearly 30 million tons traffic.

In the same time, Rosneft and Gazprom develop oil and gas projects in the Peninsula, especially the “Novy Port oil field” (Atle Staalesen, “Preparing the Ground for Second LNG Plant in Yamal”, The Independent Barents Observer, November 02, 2016). More than 13000 people have worked for it during the 2015-2016 winter and more than 18000 during the 2016 summer (Atle Staalesen, “Sabetta on Schedule”, The Independent Barents Observer, April 28 2016).

The Novy Port, installed at the mouth of the Ob River, complements the Sabetta port to load and unload the tankers, which navigate this giant river and its affluent throughout the Russian hinterland (Atle Staalesen, “Government opens Ob Bay for foreign vessels”, The Independent Barents Observer, January 8, 2016). The Gulf of Ob and its opening on the Kara Sea and thus on the Northern Sea Route will be kept open in winter thanks to the two icebreakers ordered by Rosneft to the Finnish company Aker Yards. These vessels will be dedicated to the constant opening of the Ob Bay, in order to ensure the permanent continuity between the Northern Sea Route and the river (Atle Staalesen, “First Icebreaker for New Arctic Oil Field”, The Independent Barents Observer, November 03, 2015).

The strategy that consists in making the Yamal project one of the drivers of the Russian Arctic attraction on the rest of the country and on Asian countries goes with the creation of a rail line between the LNG plant, the Gazprom gas hub of Bovanenkovo and Sabetta (Atle Staalesen, “Railway for Sabetta”, The Independent Barents Observer, December 22, 2015).

This railroad is conceived as a part of the planned 707 km long “Northern latitudinal passage” (see map below), which will connect the Yamal Peninsula with the Ural and Western Siberia (“Russian Railways to Complete Latitudinal Railway project to the Arctic”, Think Rail Ways, November 19, 2015). In other words, these new railroads will connect the Yamal LNG plant with the Sabetta port, and with existing railroad networks, which connect the Ural and Western Siberia with the rest of Russia, Kazakhstan, China and Europe, meanwhile also linking these regions and countries with Russia’s Northern Sea Route (Atle Staalesen, “Grand Railway Deal for Yamal”, The Independent Barents Observer, October 20, 2016). As a result, the Northern Sea Route becomes joined with the Russian and Asian hinterland, and thus acquires a continental scale.

The company Russian Railways is already committed to this project, besides the giant national Gazprom, and numerous Russian investors. The Prime Minister and the President oversee those deals themselves, because they are considered strategic projects for Russian national development, as well as for the many partners it attracts (Atle Staalesen, “These are Russia’s top Arctic Investments”, The Independent Barents Observer, March 22, 2016).

The Warming Russian Arctic power of attraction (on Asian business)

The powerful attraction exerted by the Russian strategic combination of the Arctic oil and gas extraction operations and of the development of the Northern Sea Route with its continental integration is felt throughout Asia.

In effect, the combination of access to new energy resources with the Northern Sea Route is turning the Russian Arctic into an immense attractor for energy, shipping, railroad and other business actors, and among them investors from China, India, Japan, South Korea, Thailand, Vietnam.

For example, during the eighth BRIC’s summit, hosted by India in Goa, more than 20 bilateral deals were signed, among them the acquisition by Oil India Ltd of 23,2 per cent of Vankor Neft, the Rosneft controlled company in charge of the exploitation of the Vankor oil field in Siberia.

At this occasion, the two heads of state talked about the opportunities opened by the exploitation of the Arctic oil and gas, summed up in a common declaration stating that:

“In order to further strengthen our bilateral cooperation in the oil and gas industry, the Russian side expressed its interest in attracting Indian companies to participate in joint projects on the development of the Arctic shelf » (Atle Staalesen, “A Role for India in Russian Arctic”, The Independent Barents Observer, October 18, 2016 and  President of Russia, Russian- Indian Talks).

This Indian interest in and attraction for Northern Russia and the Russian Arctic is no less than the one felt by South Korean government and business. The South Korean involvement in the Russian Arctic is expressed, among others, by the shipping of two chemical reactors ordered by the Pavlodar oil plant in Kazakhstan to Hyundai Industries (“First Chemical reactors shipped to Kazakhstan from South Korea”, The Astana Times, 26 July 2016). The supply-chain has been organized by shipping the two reactors from South Korea to Sabetta through the Northern Sea Route, then loaded on barges navigating the transcontinental Ob River to Pavlodar, in Kazakhstan.

South Korea has also officially asserted its interest in an Arctic cooperation with Russia during the first bilateral summit on Arctic issues. This summit took place in Murmansk, the home harbour of the Russian icebreakers fleet, on 17 June 2016. Indeed, South Korean industrial, shipping and business actors are most interested in the access offered by the Russian Arctic to Central Asia as well as by the much shorter trip to Europe than through the Red Sea and the Suez Canal (Lee Haye-Ah, “South Korea turns to Arctic for new biz opportunities”, Yonhap News Agency, 17 June 2016).

Prior to South Korea’s moves, Vietnam and Russia agreed to develop partnerships between Petrovietnam and Gazprom Neft to explore together the Arctic Pechora sea to find oil and gas, while the Russian company “tentatively agreed to buy 49%” of Vietnam only refinery (Andy Tully, “Russia reaches oil and gas agreement with Vietnam”, Oil, April 07, 2015).

As we can see, the Russian Arctic is attracting different Asian powers, and none wants to be left behind the current Arctic race for resources (Michael Klare, The Race for What’s Left, 2012).

Indeed, the Russian Arctic attractiveness is also felt by Japan. For example, the Japanese ambassador for the Arctic stated in March 2016 in Moscow, the interest of its country for an economic, as well as scientific cooperation with Russia, especially about research on climate change and for the Yamal LNG project. At this occasion, the Russian gas company Novatek, owner of the Yamal LNG plant, has suggested to Japan investors to explore the possibilities offered by its new Yamal project, named “Arctic LNG”, in the Gydan Peninsula (Anna Andriovana, Elena Mazneva, “Japan makes Arctic gas Move with $400 million Yamal LNG Loan”, Bloomberg, September 2, 2016). This takes place in a context defined by growing Japanese imports of Russian oil and LNG (Wrenn Yennie Lindgre, “Energising Russia’s Asia Pivot: Japan-Russia Relations, Post Fukushima, Post-Ukraine“, Norwegian Institute of International Affairs, 4/2015).

However, as we have seen in “The Russian Arctic meets the Chinese New Silk Road” it must be noted that China has taken a significant lead on the other Asian countries in the Russian Arctic.

Chinese companies and financial actors are heavily committed in the Yamal LNG operation and other projects (Atle Staalesen, “More Chinese money for Yamal”, The Independent Barents Observer, 7 January, 2016). This involvement keeps on deepening, through massive Chinese investment in the development of the new Archangelsk deep water port, in order to make it a major maritime hub of the Northern Sea Route (Atle Staalesen, “Chinese money for Arkhangelsk rail and port”, The Independent Barents Observer, December 10, 2015 and “Chinese mega-deals in Yamal LNG”, The Independent Barents Observer, May 02, 2016).

The building of the port will be accompanied by the construction of the Belkomur railway line, which will link the harbour to the mining areas of the south of the Ural, as well as to the existing railway network including the trans-Siberian that connects Russia to China and Europe (Thomas Nilsen, “New mega port in Arkhangelsk with Chinese investments”, The Independent Barents Observer, October 21, 2016).

Hence, it appears that it will soon be easier for Russian oil, gas and mining companies to transport their products to Archangelsk, and from there, to, for example, China. Meanwhile, Chinese trade, as well as other countries shipping and trade companies, will be able to use the Russian maritime and railways infrastructures to reach the Russian, Central Asia and Europe markets (Atle Staalesen, “New tankers for Arctic field”, The Independent Barents Observer, December 23, 2015).

The exponential “Russian Arctic power of attraction”

As we have shown, the development of the “Russian Arctic power of attraction” is largely based on the geophysical changes wrought in the Arctic by anthropogenic climate change (Jean-Michel Valantin, “The Planetary Crisis Rules (1)“, The Red (Team) Analysis Society, 25 January 2016). This “power of attraction” is grounded in the Russian capability to exploit not only its oil and gas deposits in the Arctic region, but also to combine it with the implementation of the Northern Sea Route infrastructures with transcontinental land linkages. It goes with a strategic vision that turns the immense Russian continental situation into a space needed by its Asian Partners to access Russia as well as to each other, while answering their growing needs in energy and commerce.

Furthermore, Russia thus obtains to be identified as such a solid and reliable partner that  developing and securing deals with it becomes worthwhile. For example, we have the LNG deals, which are signed for long periods of times (Michael Klare, Rising Powers, Shrinking Planet, 2008 and The Race for What’s Left, 2012). In other words, Russia positions itself as “the necessary partner” for Asian countries in search of energy, commercial, and political stability, in a period of wide geopolitical and geophysical instability (Charles Emmerson, The Future History of the Arctic, 2010). In effect, the way Russia industrially develops the current geophysical changes happening in the Arctic literally creates the need of its Asian partners to access the Arctic, or, as Central Russia, Kazakhstan, Mongolia, to be accessed from the Arctic.

In other terms, the development of its Arctic region helps the Russian political authorities and business community to become “the necessary partner” at a continental scale. This creates a “business partnerships positive feedback loop” because the more investors are attracted to the Russian Arctic, the more the Russian Arctic becomes attractive for business and investment actors, reinforcing the “Russian Arctic power of attraction” on businesses, notably but not only shipping and land transportation companies.

It now remains to be seen how the combination of the intensifying climate change and of the “Russian Arctic power of attraction” is perceived in Northern Europe countries, in the Arctic Council and in Canada, and how the links between these new geophysics and geoeconomics are currently developing.

To be (soon) continued.