(CNN) -- The decision to grant permanent observer
status to China and five other nations by the Arctic Council meeting in
Sweden Wednesday reflects the heightened interest by some of the world's
most powerful economies in an area rich in oil, gas, minerals, fish and
new transport possibilities.
For new observer nations
China, Japan and South Korea, shorter shipping routes to Europe through
Arctic waters could open up prospects of new energy supply options later
this decade, such as liquefied natural gas (LNG) from Russia's Yamal
Peninsula in northwest Siberia.
It could also lessen
China's dependence on oil and gas shipped from the Middle East, which
must pass through the Southeast Asian chokepoint of the Strait of
Malacca. Allied to China's interest of getting oil and gas delivered
from new pipelines across Myanmar and Central Asia, the potential of the
Arctic trade routes loom large in China's strategic thinking.
Five years ago, the U.S.
Geological Survey (USGS) described the vast Arctic continental shelf as
potentially the "largest unexplored prospective area for petroleum
remaining on Earth." A new U.S. Arctic policy unveiled by the Obama
administration last week cites that 2008 study, which estimated that
about 13% of the world's undiscovered oil and 30% of its undiscovered
gas lies north of the Arctic Circle.
In a 2012 update, the
USGS put the mean undiscovered estimate of recoverable oil in Russia's
Arctic provinces alone at 28 billion barrels, plus about 27 trillion
cubic meters of gas.
China is keen to be more
than just a customer for this Russian oil and gas. In February, the
heads of China's three state-controlled oil and gas majors -- China
National Petroleum Corp (CNPC), Sinopec and China National Offshore Oil
Corp (CNOOC) -- met one of Russia's most influential players in the
energy sector, Igor Sechin, chief executive of state-owned oil company
Rosneft. The following month, Rosneft struck a deal with CNPC, giving it
access to Arctic resources.
The Arctic Council, made
up of the United States, Russia, Canada and the five Nordic nations --
Norway, Sweden, Finland, Denmark and Iceland -- was set up in 1996 to
coordinate policy in a resource-rich but environmentally sensitive part
of the world. Before Wednesday's decision there were already six
observer states: the UK, France, Germany, Poland, Spain and the
Netherlands.
Now the permanent
observers are being joined by China, Japan, India, South Korea,
Singapore and Italy, meaning that all of the key Asian economies now
have a seat at the Arctic table, even though they will not have a vote
on the Arctic Council. The European Union, the other major body seeking
observer status, had its application affirmed but "deferred," a rebuff
that is likely related to an unresolved dispute with Canada over the fur
seal trade.
Both China and India
already have polar research stations in the northern part of Norway, as
do most of the other observer nations.
The Arctic's importance
has gained extra strategic and economic significance as melting ice in
the polar region strengthens the feasibility of nations to use the
Northern Sea Route (NSR) across the top of Russia and the Northwest
Passage through Canada's Arctic archipelago. Canada claims the passage,
which links the Pacific and Atlantic Oceans, runs through its internal
waterways. The U.S. and other countries contest this, maintaining it is
an international strait.
For China, the main
transportation focus is the NSR, which runs along the northern coastline
of Siberia from Novaya Zemlya to the Bering Strait. It is open only for
about five months of the year, from late June to November or early
December, and requires icebreakers to cut a path through the Arctic ice
for specially strengthened oil and gas carriers.
But the route cuts as
much as three weeks from shipping times between Europe and Asia. For
example, Murmansk to China's Ningbo port near Shanghai is 13,000 km via
the NSR, compared with 22,000 km via the Mediterranean Sea, Suez Canal,
Indian Ocean and Strait of Malacca.
In August to September
last year, China sent its one and only icebreaker Xue Long (Snow Dragon)
on a successful two-way test run of the NSR. It plans to add a second
icebreaker to its fleet in 2014-15.
Over the past two
sailing seasons, Russian oil and gas companies have tested the route for
gas condensate and LNG shipments. In June 2011, Novatek, Russia's
biggest non-state gas company, sent 60,000 tons of gas condensate from
Murmansk to the Chinese port of Ningbo aboard the MV Perseverance on a
three-week voyage. At the end of 2012, Russian state-owned gas giant
Gazprom sent a 66,000-tonne cargo of LNG from Statoil's Hammerfest
terminal in Norway to the Japanese port of Tobata between November 7 and
December 5. The route was cleared by three Russian icebreakers.
For now, the NSR is
still very much in a test phase. According to the Centre for High North
Logistics, an Arctic-focused information center based in Kirkenes,
Norway, 46 vessels used the NSR in 2012, carrying about 1.26 million
tons of cargo. That was an increase of more than 50% from 2011.
China envisages
exporting consumer goods aboard container ships to Europe and receiving
LNG cargoes via the NSR. Novatek, for example, is building a new port at
Sabetta on the Yamal peninsula to service the LNG trade to Asia, with
expectations of first gas in 2016 and exports of 15 million tons a year
by 2018.
The NSR's shortcomings
are considerable: a short sailing season, the cost of hiring
icebreakers, the operational hazards of extreme northern waters and the
environmental risks of oil spills, collisions or sinkings. Even so, this
Arctic shipping route is likely to be the focus of intense interest by
China over the next decade.
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