As Yamal LNG launches, both Russia and China try to claim success

Putin presses a button, and the gas from Yamal starts to flow. Source: Kremlin.

Last Friday, Russian President Vladimir Putin descended on the frigid Yamal Peninsula to participate in the opening ceremony for a major Arctic liquefied natural gas (LNG) project at the booming port town of Sabetta. Just a few years ago, hardly anybody lived at this remote outpost on the peninsula, a thumb of land sticking out from Siberia criss-crossed by reindeer herders and pipelines. Now, 30,000 employees, mostly shift workers imported from southern and central Russia, have helped to construct the biggest LNG project north of the Arctic Circle.

At Putin’s command, gas began pumping into an 80,000-ton ship sitting offshore. While his push of a button sought to symbolize his clear and effortless control over Yamal, the Russian Arctic, and the country at large, the network of actors involved in making the project a success runs far and wide. Even the icebreaking LNG tanker, Christophe de Margerie, was built in Korea. The vessel draws its name from the late CEO of France’s Total, one of the world’s largest oil and gas companies and a key investor in the long-awaited $27 billion Arctic gas project despite US and EU sanctions on Russia’s energy sector. Yamal LNG has a production capacity of 16.5 million tons per year and a total of 208 production wells are slated. Gas is sucked up from underneath the permafrost both on and offshore, making it an extremely technologically challenging endeavor.

In Sabetta, Putin gave a speech in which he declared about LNG, “This is an extremely important sector for Russia. This is not just an important event in our country’s energy sector, or gas production and liquefaction. This is a more ambitious project. What I mean is that we are faced with the enormous task of developing the Arctic and the Northern Sea Route.”

Putin thus inserted Yamal LNG into the longer arc he foresees of the development of the wider Russian Arctic, a region woefully ignored during the 1990s following the disintegration of the Soviet Union. For years now, the Russian president has been pushing the narrative that development of the Arctic will further the development of Russia. In other words, so goes the Arctic, so goes the nation.

This past June, during the annual “Direct Line with Putin” broadcast that gives Russian citizens a chance to speak with the president by phone, a woman by the name of Tatyana Remezova asked, “Why are we so focused on the Arctic? For the past 20 years, no one spoke about it, and today we see Arctic troops even at the Victory Day parade. A lot of money is spent on the Arctic. Why is this being done?”

Putin responded curtly, “While we are on this subject, what else can I say? I have already started talking about this. The Arctic is an extremely important region, which will ensure the future of our country. Mikhail Lomonosov once famously said that Russia would expand through Siberia. I can say with confidence that Russia’s power and capabilities will expand as we develop the Arctic region.”

Yamal LNG is thus intended to jump start development of the Northern Sea Route. Despite Putin’s Russia-centric frame of reference, however, Yamal LNG would likely not have been a success without crucial French and, notably, Chinese assistance.

To go north, look east

A screenshot of a China Times article from December 11 shows an Arctic LNG core module being loaded ontop a ship in Qingdao for transport to Yamal.

U.S. and European Union sanctions on Russia have made it difficult for energy projects to get the capital they need from the West. Companies like Novatek, the independent company operating Yamal LNG, have instead looked to China, which sees in Russia opportunities for geopolitical and economic gains. Gas-strapped and cash-rich, China has poured money into resource projects and companies in far-flung locations. Yamal LNG was one of the first three projects financed by the Silk Road Fund. Beijing established the state-owned investment fund to support its ambitious aims with the Belt and Road Initiative, a $1 trillion plan to build infrastructure across Eurasia. The Silk Road Fund loaned Yamal LNG $1 billion in exchange for a nearly 10% stake. Chinese banks loaned Yamal an additional $12 billion, the third biggest corporate deal of its kind in Russian history, according to Reuters. In turn, China National Petroleum Company received a 20% stake in the project.

China therefore sees the Yamal LNG project as much a project of its own making as Russia’s. A story from Taiwan’s official outlet, Central News Agency, opened with these two noteworthy sentences: “The Yamal LNG project, jointly developed by China and Russia in the Arctic Circle, has been put into operation recently. Completion of this development in 2019 is expected to help make up for the LNG shortage in China and open up the Arctic waterway for China.” On the mainland, state-run outlet Zhejiang Press Office declared, “Throughout the project’s construction process, China’s advanced engineering capabilities showed most vividly,” while also adding, “The creative work of China’s construction team and builders is remarkable.” The article noted how of the four polar drilling rigs in one of the condensate fields, one was produced in China.

Despite China’s contributions to Yamal’s success, if the government is truly hoping that the Northern Sea Route will soon become an international shipping lane, alarm bells should be ringing in Beijing. In an interview with a Chinese newspaper, Dong Xiucheng, a professor at the University of International Business and Economics in Beijing observed, “The construction of the Yamal project not only brought natural gas to our country, but also made a new shipping lane.”

Yet in Sabetta, Putin asserted that success in Yamal “means further development of nuclear shipbuilding.” He also recently gave responsibility for development of the Northern Sea Route to Rosatom, the Russian nuclear regulator, a move that would be somewhat akin to having the U.S. Nuclear Regulatory Commission oversee development of the Alaskan coastline. Finally, and perhaps most worrisomely for China, Putin recently outlined his desire to nationalize oil and gas shipping along the Northern Sea Route, for which the State Duma is currently considering a draft Law. That would mean even Christophe de Margerie would be ineligible to carry LNG from Yamal, as it is a Cyprus- and not Russia-flagged ship.

For the moment, Chinese media seems to be ignoring Russia’s nationalist dreams of transforming the Northern Sea Route. Instead, state-run outlets like Xinhua are trying to bring the Russian Arctic into China’s sphere of maritime influence.

Rather than referring to the Northern Sea Route as such, Xinhua said, “This passage through the Arctic Circle is called the ‘Silk Road on Ice.'” When not using this new moniker that points to China’s plans to revive the ancient Silk Road, Chinese officials call the shipping lane the “North-East Passage” rather than the Northern Sea Route, a term which emerged under Soviet rule following the government’s closure of the lane to international shipping. Further underscoring the Arctic shipping lane’s eastern orientation, Xinhua drew attention to the fact that more than 60% of the modules and components for the Yamal project were transported through the Bering Strait – meaning that most of them likely came from Asia. (Chinese discourse also never lacks for colorful metaphors, with another Xinhua article referring to Yamal LNG as “an energy pearl inlaid in the Arctic Circle.”) Another Chinese outlet reported that “Chinese enterprises have contracted 85% of all modules, construction of 7 transport vessels and operation of 14 vessels among 15 LNG carriers.”

How Yamal and the “Silk Road on Ice” look from China. Source: China Times

Even the ice-class tanker currently transporting 172,000 cubic meters of LNG from Sabetta began its journey in Dalian, China. Prior to its maiden voyage transporting LNG, Christophe de Margerie was built in Daewoo’s South Korean shipyards. The company is tasked with building 14 other identical tankers worth a total $4.7 billion to ply the route between Sabetta and ports east and west.

In return for its money and equipment, Asia will buy up a lot of Yamal LNG’s output. Initial reports stated that Russia would send the first gas from Yamal to China as a symbolic gesture, but it actually appears that the first sale has been made to a UK-based subsidiary of Malaysia’s Petronas. Marine Traffic also shows the vessel sailing not towards Asia, but rather to Denmark’s Port of Skagen. Saudi Arabia, too, will buy gas from Yamal, and the country’s energy minister reportedly spoke with Novatek’s owner about the possibility of investing in an additional nearby LNG project while attending the opening ceremony in Sabetta. 

Still, China will be filling its pipes with gas from the Russian Arctic in due time. Once Yamal is fully operating in 2019, 4 million tons of LNG from Yamal are planned to be exported to China each year. The country’s government sees Yamal as its own success story, a view that clashes with the picture painted by Putin. Both Moscow and Beijing are eager to continue cooperation, though. Already, Honghua, a major global supplier of oil and gas rigs, accounts for 60% of Russia’s oil drilling equipment imports. In Sabetta, Russian energy ministers also noted that cooperation is “mutually beneficial,” as seen in this televised interview from China Global Television Network (in English). Whether Russia’s domestic policies in the Northern Sea Route will be beneficial for China, though, has yet to be seen.

Will it float?

With Yamal’s launch, overnight, Russia has doubled the number of Arctic LNG projects worldwide. Prior to Friday, only Norway’s Snøhvit field off Hammerfest was exporting LNG from north of the Arctic Circle.

More gradually, Russia has become a serious exporter of Arctic oil. Bloomberg’s Julian Lee did the math to show that crude exports from Russia’s three Arctic terminals – Varandey, Prirazlomnoye, and Arctic Gate – reached nearly 400,000 barrels a day in November. That’s a hair under four percent of Russia’s total daily output, which has averaged over 10 million barrels a day this year.

Perhaps uncomfortably for Alaska, Russia’s Arctic oil production is approaching production levels on the North Slope. Last month, the American energy frontier produced a mere 466,000 barrels. Representing a mirror image of the trajectory of Russia’s Arctic oil, North Slope oil has has been steadily declining since the 1980s.

In the coming months, Russia could well become the world’s biggest producer of Arctic oil and gas. Norway, the only other country besides the U.S. with active Arctic oil exploration, offers little competition for Russian Arctic crude. The Scandinavian country’s sole Arctic oil field, Goliat, with a production capacity of 100,000 barrels a day, has been beset by government-ordered shutdowns over worrisome issues like power outages and electrical safety risks.

Yet even as Russia inches closer to becoming the world leader in Arctic oil and gas, it’s worth remembering who is behind this evolution: not just Moscow, but also, among others, Beijing.

When climate change drives diplomacy: Landmark agreement prohibits fishing in Arctic’s high seas

Click to view animation.

Negotiations on a landmark agreement for the Arctic concluded last week when the five Arctic coastal states plus Iceland, the European Union, and three Asian countries with major ocean trawling fleets agreed to prohibit commercial fishing in the Central Arctic Ocean (CAO) for the next sixteen years. The agreement builds on the 2015 Arctic Fisheries Declaration signed by five Arctic coastal states – the U.S., Canada, Russia, Norway, and Denmark – to enact a moratorium on fishing in the CAO until more international mechanisms were in place to safeguard its fish stocks. Last week’s agreement also responds affirmatively to a letter signed by over 2,000 scientists five years ago, which called for delaying fishing “until such time as the biology and ecology of the region are understood sufficiently well to allow for setting scientifically sound catch levels.”

Surrounding the North Pole, the CAO sits beyond any the jurisdiction of any single country. This means it constitutes part of the high seas, which account for approximately 60% of the world’s oceans. For the most part, these areas are found beyond countries’ 200-mile exclusive economic zones extending from their shorelines. The United Nations Convention on the Law of the Sea (UNCLOS), the main treaty governing use of the world’s oceans, notes that “the high seas are open to all States,” giving all of the world’s 195 countries the freedom to fish in these remote, often treacherous waters.

The free-for-fall nature of the high seas has led to exploitation of their fisheries, particularly as the technology has improved to allow fishing fleets to reach farther and deeper than ever before. A report published by the United Nations Food and Agriculture Organization in 2006 found that two-thirds of the world’s high seas fish stocks were being overfished, including species like Patagonian toothfish and orange roughy.

Fisheries in the Central Arctic Ocean are not overfished, as no commercial activity occurs in its often icebound waters. The chairman’s statement from last week’s meeting of the negotiating parties in Washington, D.C., which was the sixth meeting in two years during which the agreement was discussed, explained:

“Commercial fishing has never been known to occur in this area, nor is it likely to occur in the near future. However, given the changing conditions of the Arctic Ocean, the governments in question developed this Agreement in accordance with the precautionary approach to fisheries management.”

Essentially, there’s a worry that as sea ice retreats, the world’s commercial fishing fleets will penetrate farther north. They would be following fish stocks that are shifting closer to the North Pole as they seek out cooler waters in the face of a warming ocean. In recent years, less of the Arctic’s high seas have been covered by sea ice. The portion of the CAO where sea ice cover is the lowest is just north of the Bering Strait, close to the Pacific Ocean and within reach of Asian shipping fleets. As the image below shows, in September of recent years when sea ice reaches its annual minimum, this area has generally consisted of open water.

To avoid the possibility of imminent overfishing in the increasingly accessible CAO, an area the size of the Mediterranean Sea, nine countries and the EU agreed that until scientists can better study fish stocks in the area, no commercial fishing should be allowed. Their worry was deep enough that it even brought the U.S. and Russia, whose relations are at their worse point since the Cold War, together to the table to agree on an issue of common concern.

You might be wondering why, besides the six Arctic states, only three other countries and the EU were involved in the negotiations of the CAO fisheries agreement. In short, it’s because those three countries – Japan, South Korea, China (including Taiwan) – accounted for 45% of the world’s high-seas landed value between 2000 and 2010, according to a paper published in Scientific Reports. Add into the mix Spain and France, the EU countries with the two biggest fishing fleets, and that figure grows to 54%.

Fish for sale at Tokyo’s massive Tsukiji market. Photo: Mia Bennett, 2014.

If the CAO agreement were to widen its circle of signatories, Chile, the Philippines, and Indonesia should probably be involved, since they are the other three countries along with the U.S. that round out the list of the world’s top ten countries fishing in the high seas. Together, these nations capture a whopping 71% of the world’s high-seas landed values.

Before building on the newfound success of the CAO fisheries agreement, all of the negotiating countries need to sign it. If and when they do, scientists, indigenous peoples, fishermen, and other people with knowledge of Arctic fisheries will have their work cut out for them over the next sixteen years.

They’ll have to figure out the answers to questions like: How will commercial fishing in the CAO affect polar bears, seals, whales, and other marine mammals? How might emissions and noise from commercial fishing fleets affect marine species, along with the people who live in the Arctic Ocean? What would be the economic and environmental consequences of keeping the CAO closed to commercial fishing indefinitely? How vulnerable is the shallow Arctic Ocean to deep-sea trawling?

While these issues and many others will require a great deal of research, at least the CAO has been given a little over a decade and a half of a respite from commercial fishing until more is known about its effects. The same can’t be said for offshore oil drilling in the Arctic: last week, Italian oil company Eni received the first permit from the U.S. federal government in two years for exploration off Alaska’s north coast, while the Senate also voted to allow drilling in the Arctic National Wildlife Refuge to, in theory, help pay for Alaska’s $1.5 trillion tax cut. Stricly speaking for the Arctic environment, last week marked two steps forward, one step back.

Who really built Canada’s first highway to the Arctic Ocean?

You can drive here now any time of year. Photo: Mia Bennett.

Today, Canada’s first highway to the Arctic Ocean opened. This 138-kilometer road between Inuvik, the administrative hub and biggest town in Canada’s Western Arctic, and Tuktoyaktuk, a coastal hamlet of about 900 people, also happens to be the first public highway in North America to the ocean at the top of the world. Travelers on Alaska’s Dalton Highway, completed in 1974, can only drive as far as Deadhorse before hitting the fenced-off oil facilities that sit atop the shoreline.

That same year, when bell-bottom jeans were groovy and “I Shot the Sheriff” was top of the charts (as was Canadian legend Gordon Lightfoot), Public Works Canada began the first survey for a potential road between Inuvik and Tuktoyaktuk. At the time, there was a lot of government interest in building an all-weather route to support the frenzy of oil and gas activity that was occurring off Tuktoyaktuk in the Beaufort Sea at the time. But as that activity died down, so did government interest in the road. Inuvik and Tuktoyaktuk made do with a seasonal overland connection, building an ice road every winter across the rock solid Mackenzie River. In spring, summer, and fall, one had to fly or take a boat. And now – voilà – there is a permanent road. That means access 24/7, 365 days a year to tiny Tuktoyaktuk (barring the likely many days the road will be closed due to flooding and washouts).

How did this come to be?

A gravel pit along the ITH. Photo: Mia Bennett.

With all the ribbon-cutting going on today and opening ceremonies involving figureheads like the Governor General of Canada and the Premier of the Northwest Territories, it’s easy to think of the Inuvik-Tuktoyaktuk Highway as yet another Northern accomplishment racked up by the Canadian government. Road-building projects, especially ones in remote frontiers like the Arctic, seem inextricably tied up with the machinations of the state. Typically, only governments (and perhaps a few big corporations) have the financial resources to construct large-scale infrastructure in harsh environments.

Yet in actuality, the highway represents a bottom-up rather than a top-down endeavor. I spent a relentlessly hot and buggy month under the midnight sun last year and a few weeks in subzero temps this past winter talking to the many individuals involved with the ITH, as locals refer to the highway project. Over conversations in Inuvik’s sole cafe, at church barbecues chowing down on caribou and whitefish, in people’s houses, and in government offices, it became clear that the Inuvik-Tuktoyaktuk Highway is, at its heart, a local project. The new transportation link between Inuvik and Tuktoyaktuk is the result of years of tireless, strategic lobbying by members of the Inuvialuit community, one of the indigenous peoples living in lands that the highway cuts across. Inuvialuit leaders, members of the Inuvialuit Regional Corporation, which represents the interests of the approximately 3,000 Inuvialuit living in the region, and other local officials were instrumental in convincing the federal and territorial governments to allocate $300 million for the highway’s construction.

Northwind construction workers. April 2017. Photo: Mia Bennett.

It is true that the ITH involves big-ticket items like geopolitics, oil and gas, and the Arctic. The highway realizes the decades-old dream of former Canadian prime ministers like John Diefenbaker to connect Canada from “sea to sea to sea”. By stretching from Inuvik to Tuktoyaktuk, it also extends the Dempster Highway, which opened in 1979. That famous, much longer gravel road formed a key role in government plans to open up Canada’s North to access oil, gas, and minerals and realize the country’s supposed destiny as a northern nation. Now, by reaching the Arctic Ocean, the ITH will grant Canada overland access to the increasingly important Northwest Passage.

Some individuals, including Inuvialuit representatives I spoke to, echoed these larger-than-life descriptions of the road. They, too called it a “road to resources” and marveled at how it would connect Canada’s Pacific, Arctic, and Atlantic coasts. But it seems that local leaders had integrated these imaginings into their own campaign to attract the government to their region and win financing for the project. They may have marketed their road as Canada’s first highway to the Arctic. But in other ways, their project was really about building a road between two communities in order to provide much-needed jobs, stimulate economic activity, and hopefully lower the price of things like groceries and fuel for people in Tuktoyaktuk, which rise outside of winter and skyrocket when planes can’t land in poor weather.

After the oil boom of the 1970s and 1980s ended, hard times fell on this corner of western Canada. Politically, however, the Inuvialuit had become empowered thanks to the resolution of their land claims agreement with the Canadian government in 1984. The Inuvialuit Final Agreement established the Inuvialuit Settlement Region – the lands to which they gained legal title – and the Inuvialuit Regional Corporation to protect their interests.

By the early 2000s, the Inuvialuit were politically strong but economically marginalized. Things were looking up for oil and gas under Prime Minister Stephen Harper, whose entered into office in 2006. But when it appeared that Arctic offshore drilling wouldn’t materialize anytime soon, the Inuvialuit needed to stimulate the regional economy some other way.

The Arctic was still hot property. Harper was visiting every summer and was keen to “use it or lose it,” as he famously said of the country’s three northern territories. One individual from one of the two indigenous-owned companies building the road told me that while the highway is really a “make work project,” it was packaged to the government as a highway to the Arctic, one that would allow all Canadians to travel north and “dip their toe in the Arctic Ocean.” A professional video was made, with footage shot from a helicopter capturing the beauty of the lands that a road would pass through. People from Inuvik and Tuktoyaktuk provided testimonials declaring that this 21st century road to the north would be like what the railway was for the Canadian West in the 19th century. The video and additional materials were shown to as many people as possible, and a table was booked at Harper’s annual barbecue at the Calgary Stampede. Stories had trickled down to all sorts of media outlets about the promise of and potential of the road, which I found taped to the wall in one house in Tuktoyaktuk. And so the road to the Arctic was born, with the federal government announcing its commitment of $150 million in funding on June 6, 2011. The Government of the Northwest Territories would later commit the other $150 million.

Magazine clippings of stories about the Inuvik-Tuktoyaktuk Highway in one house in Tuktoyaktuk. Photo: Mia Bennett.

The road doesn’t fall short of how it was envisioned. It’s a beautiful drive high across the undulating tundra, and it’s pretty amazing to think that just five years, a highway to the Arctic was started and finished. Not by the government, but by two indigenous-owned companies, Inuvik-based Northwind and Tuktoyaktuk-based E. Gruben’s Transport, and the many workers they hired who hailed from surrounding communities like Inuvik, Tuktoyaktuk, and Aklavik, and additional ones who came from places outside the Northwest Territories like the Yukon. 

Many people are already asking whether the highway, with a price tag of $300 million, will be “worth it.” It’s a huge sum of money, and as some people expressed during my time in the region, the highway has also ruined the land. The gravel pits that were scoured to find material for the road used to provide prime denning habitat for grizzly bears, who will now have to find somewhere else to hibernate. The precious Husky Lakes that lie on the east side of the highway might be overly impacted by increasing numbers of Inuvialuit who wish to fish in waters to which they are legally entitled.

The road’s future is also unclear, as it sits atop permafrost that is unpredictably thawing as climate change accelerates. It may even warm faster in parts now that the road sits above it. Oil companies probably also won’t be turning up in numbers any time soon thanks to the low price of oil and the moratorium on Arctic offshore drilling enacted by current Prime Minister Justin Trudeau. And it’s doubtful whether tourists will suddenly come rushing in to take the polar bear plunge given that the number of trips up the Dempster Highway has been in steep decline since the early 2000s.

But in some ways, the highway has been worth it to many you might ask. Even if it’s not environmentally sustainable, and even if it still relies on government funding, the ITH is a prime example of indigenous-led development. It shows that the people of the Arctic, particularly with political empowerment and the right to their lands, can make decisions about their own future. In the 1950s, the Canadian government was unilaterally deciding where to put roads and radar stations in the Arctic. But now, while the tables haven’t turned completely, at least both the state and indigenous peoples are sitting at the same table.

There’s still a long ways to go, but progress is happening incrementally worldwide. At the United Nations climate summit in Bonn, Germany this week, the world’s governments recognized that “first peoples” should play an active and engaged role in halting global warming and protecting carbon sinks like forests. The pro-development positions of many indigenous peoples, and particularly indigenous corporations, in Alaska and Canada demonstrates that they may not always advocate for green solutions. But acknowledging that indigenous peoples have a right to manage their lands and territories whether that involves blocking new roads or building them is a step in the right direction.

Figure generated from April 2017 Landsat-8 imagery. Made by Cryopolitics.