Putin and Xi Discuss Further Deepening of Arctic Partnership
Russia continues to pivot to China for Arctic economic partnership. Following the departure of most western companies from the country, Russia’s reliance on the Chinese market and financing is set to increase in the coming years.
During a three-day state visit to Moscow, Chinese leader Xi Jinping and Russian President Putin agreed to closer cooperation in the Arctic energy and transportation sectors. According to statements made by Putin, the two countries are seeking to establish a joint umbrella organization for traffic on the Northern Sea Route (NSR).
"We see cooperation with Chinese partners in developing the transit potential of the Northern Sea Route as promising. As I said, we are ready to create a joint working body for the development of the Northern Sea Route," said Putin.
Chinese shipping company COSCO has been the main international operator on the route since 2013. It conducted more than 100 voyages on the NSR over the past decade, significantly more than any other country or operator apart from Russia.
Over the past decade China has invested in excess of $90bn in Arctic energy and mineral projects, primarily in Russia. Trade between the two countries reached new heights in 2022 when it increased by around a third to $190bn. For the current year, Russia’s Prime Minister Mishustin expects that figure to surpass $200bn.
“Energy trade is expanding. Russia is a strategic supplier of oil, natural gas, including liquified natural gas (LNG), coal, and electricity to China. I will also mention that Russia is the fourth largest supplier of liquefied natural gas to China, and, of course, LNG supplies will expand in the foreseeable future,” explained Putin.
Mishustin highlighted the close ties between the two countries in the Arctic, with China investing tens of billions of dollars in natural gas projects, like Yamal LNG and Arctic LNG 2.
Chinese investments in the Arctic tie into the Belt and Road Initiative, a global infrastructure strategy, announced in 2013. During the meeting Xi and Putin discussed a number of transport corridors tying the two countries closer together.
“Russia and China as a whole intend to actively develop international transport and logistics corridors. The idea is to make more intensive use of the potential of the Trans-Siberian and Baikal-Amur railways, the Northern Sea Route and jointly guarantee their stable operation, and increase the efficiency of cargo and passenger transportation,” said Putin.
Russia also announced this week that Atomflot, in charge of administering the route, will receive around $50m in 2023 and 2024 to establish a “digital ecosystem” for the NSR which will allow for easier access to the route and more efficient tracking of traffic.
Nearly 40 Arctic projects
In total, the country has made foreign direct investments or holds interests through other channels in at least 39 projects in the Arctic. A 2022 report by the US’ Center for Naval Analysis, a nonprofit research and analysis organization, concludes that “PRC-based entities use to secure rights to the Arctic’s natural resources and develop the infrastructure to support Arctic shipping routes.”
Chinese companies hold direct stakes in a number of multi-billion dollar Arctic energy projects. China’s National Petroleum Corporation (CNPC) owns 20 percent of Novatek’s Yamal LNG project and secured a 10 percent stake in the follow-up project Arctic LNG 2.
In addition, the country’s Silk Road Fund also holds 9.9 percent interest in Yamal and the China National Offshore Oil Corporation (CNOOC) participates in Arctic LNG 2 also with 10 percent.
China’s involvement extends far beyond holding direct stakes in Russia’s energy mega projects.
The country provided 80 percent of financing to the Yamal LNG and Arctic LNG 2 projects, including a massive $12bn loan from Chinese lenders in 2016 and in return, saw the vast majority of construction contracts going to Chinese firms. Chinese enterprises completed around 85 percent of the modules for the two LNG megaprojects, worth in excess of $10bn.
The country’s shipping sector also booked significant revenues related to the projects. More than 60 percent of the modules for Yamal LNG were shipped from China through the Bering Strait to the project site.
Out of thirty vessels carrying supplies and modules to the Yamal peninsula, seven were built in China and 14 were operated by China. In total, Chinese companies received 8.5bn worth of shipping contracts related to Yamal LNG.
Chinese shipyards also received contracts for the construction of ice-capable Arctic tankers. In 2018, the Guangzhou Shipyard International completed the Arc7 ice-class condensate tanker Boris Sokolov for the Yamal LNG project. The country aims to secure additional contracts for Arc7 LNG carriers in the future.