On December 8, 2017, Russian president Vladimir Putin gave the order to begin loading LNG on the world’s first commercial ice-breaking LNG carrier, the Christopher de Margerie. That ship will make unescorted trips from Yamal to mostly Korea via the Northern Sea Route (NSR) in the Russian Arctic from July through December every year .
These impressive vessels were built in Korea for Russia to transport LNG from Russia’s new Yamal LNG megaproject. The Yamal LNG project is lead by the Russian firm Novatek. The ships are owned by the Russian firm Sovcomflot (SCF Group) but flagged in Cyprus. A fleet of up to sixteen ships is envisioned for SCF. According to press reports, the same Korean firm constructing the Margerie has orders for twelve additional ships for two joint ventures involving investors from China and Japan. The massive Yamal LNG project is expected to produce 16.5 million metric tons of LNG a year. The project aims to tap natural gas reserves totaling more than four billion barrels of oil equivalent. To do so, more than two hundred wells have been drilled and three liquefaction trains built, each with a capacity of 5.5 million metric tons. It is estimated that nearly 16.5 million metric tons of LNG will transit through the new port of Sabetta, with all LNG production sold to customers in Europe and Asia under fifteen- to twenty-year contracts.
Novatek owns 51 percent of the project, the French oil company Total owns 20 percent, and China’s China National Petroleum Company and its Silk Road Fund own the remaining 29–30 percent, which means that portion is mostly paid for with People’s Republic of China (PRC) government money. The massive $27–$60 billion project (some estimates) includes an international airport and the deepwater port Sabetta, which has the capacity to accommodate four LNG carriers simultaneously.
By all appearances Yamal LNG looks to be a highly modern operation if—for no other reason—Total’s French shareholders will not want the company affected by substandard environmental practices that could cost their reputation or pocketbook.
Yamal LNG is just one of five major projects in and around the Yamal Peninsula; more or less the midway point between its vast eastern and western Arctic coastline. The five major areas of exploitation in the Yamal peninsula include Yamal LNG. Major investors include, as mentioned, China, France and India. No U.S. companies are participating. The U.S. government has had no input into the standards that these projects would follow even though most are on or near the coast and an industrial accident would potentially affect the coastlines of other Arctic countries, including the United States.
The Yamal Peninsula is not the only venue for development. There are significant Chinese financed mining projects under development and talk of Chinese investment in Canada to develop its Northwest Passage (instrumentation, ports, terminals) plus possibly more pipelines and rail lines. Some Canadian scholars and officials have even suggested that Canada should embrace China’s Polar Silk Road because, in many respects, China offers Canada more tangible economic and political rewards than the United States. Brisk economic and political activity is taking place in Greenland, Iceland, Norway, Russia and Canada because those nations—in contrast to the United States—have figured out that their security and economic well-being is heavily linked to the Arctic because of its resource and transit benefits.
The U.S. policy community and press is more inwardly focused on the climate change in or near the Alaskan Arctic; even though most of those efforts cannot prevent other countries from exercising their sovereign right to host foreign investment and resource-extraction projects. Indeed, Greenland and to a lesser extent Iceland and Russia, both view Chinese FDI as an important ticket to economic independence. As detailed in a new CNA Report Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security, all FDI is not equal and that past instances of Chinese FDI has resulted in trade-offs in terms of sovereignty, labor standards and environmental protection that need to assessed alongside the economic benefits of outside cash.
The Arctic economy is comparatively small. Yet, there has been significant foreign direct investment (FDI) North of 60 degrees latitude and China appears to be leading investor (nearly $90 billion 2005–2017) in a range of projects. The projects include mining, energy, infrastructure and financial products. Hard numbers are difficult to come by but the CNA study suggests that Chinese FDI appears to dwarf that of other countries. Some of this is due to the fact that investors in the United States and other western countries perceive the Arctic as “hostile environment for industry and development” because of negative political perceptions of engaging in economic activity in the environmentally fragile Arctic region. Sanctions against Russia—a leading venue for FDI—has created considerable uncertainty among United States and some Western Investors who lack assurances that a direct investment in the Russian Arctic, or entering into a joint venture with a Russian company, will have to be abandoned if additional sanctions are imposed.