Polar Thaw Opens Shortcut for Russian Gas ; New Shipping Lanes Ease Access to Chinese Market for Energy Companies

By Kramer, Andrew E | International Herald Tribune, July 9, 2013 | Go to article overview

Polar Thaw Opens Shortcut for Russian Gas ; New Shipping Lanes Ease Access to Chinese Market for Energy Companies


Kramer, Andrew E, International Herald Tribune


Now that the Northeast Passage is reliably open to commercial shipping, Russian energy companies are planning to ship directly to customers in China.

The polar ice cap is melting, and if executives at the Russian energy company Novatek feel guilty about profiting from that, they do not let it be known in public.

From this windswept shoreline on the Arctic Ocean, where Novatek owns massive natural gas deposits, extend thousands of kilometers of ice-free water leading to China. The company intends to ship the gas directly there.

"If we don't sell them the fuel, somebody else will," Mikhail Lozovoi, a spokesman for Novatek, said last month with a shrug.

Novatek, in partnership with the French energy company Total and China National Petroleum Corp., is building a $20 billion liquefied natural gas plant on the central Arctic coast of Russia. It is one of the first major energy projects to take advantage of the thawing of the Arctic caused by global warming.

The plant, called Yamal LNG, would send gas to Asia along the sea lanes known as the Northeast Passage, which opened for regular international shipping only four years ago.

While elsewhere in the world the petroleum industry has blamed for the grim environmental consequences of global warming, in the far north companies like Novatek are poised to become the biggest beneficiaries.

"It's a reality of what is available today, and commercially it is a route that cuts cost," Emily Stromquist, a global energy analyst at Eurasia Group, said in a telephone interview.

Because of easing ice conditions and new hull designs, tankers will not even require nuclear-powered icebreakers to lead the way -- as is the practice now -- except through the northernmost straits.

Novatek's alternative entailed extending the natural gas pipeline that goes to Europe over hundreds of kilometers of tundra, at great cost. While shipping the gas from the field on the Yamal Peninsula, one of the long, misshapen fingers of land that extend north of the Urals in Russia, remains expensive, it is relatively cheap to drill and produce from these rich fields, making the overall project competitive.

In addition to making it easier to ship to Asia, the receding ice cap has opened more of the sea floor to exploration. This has upended the traditional business model of using pipelines to Europe. Thawing has proceeded more slowly in the Arctic above Alaska, Canada and Greenland, but one day what is happening in Russia could happen there.

Still, the Arctic waters are particularly perilous for drilling because of the extreme cold. Tongues of ice that descend from the polar cap for hundreds of kilometers obstruct shipping and threaten rigs. After a rig ran aground last year, Shell canceled drilling this summer in the Chukchi Sea off Alaska.

This is not the first Arctic venture to benefit from newly cleared sea lanes. The decision to open the Arctic Ocean to drilling passed Russia's Parliament in 2008 as an amendment to a law on subsoil resources. Exxon Mobil and Rosneft, the Russian state oil company, are already in a joint venture to drill in the Kara Sea, and last month they agreed to expand to seven new exploration blocks in the Arctic. …

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