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The Russian war on Ukraine is upending global energy markets. European countries are pushing to reduce their dependence on Russian oil and gas, while China and India are making the most of new, discounted supplies of increasingly shunned Russian hydrocarbons. This reshuffling of energy relations is also impacting the Northern Sea Route, the Arctic waterways that run along large stretches of Russia’s northern coastline, and which Russian President Vladimir Putin is looking to develop into an international shipping route. 

Putin has made developing the country’s Arctic territories a national priority, in part to capitalize on the region’s vast stores of oil, gas, coal, and other natural resources. The Northern Sea Route, the maritime zone that extends from the Kara Sea eastward to the Bering Strait, is crucial for developing these territories, providing a way to ship resources out for export to markets at more southern latitudes in Europe and Asia. 

Melting sea ice is making waters along the route more navigable. In 2018, Putin called for traffic along the route to be boosted to an annual 150 million tons of cargo by 2030. Ambitious even by pre-invasion standards, these targets have yet to be adjusted to the increasingly dire wartime straits that Russia now finds itself in. Instead, officials are doubling down on Putin’s grandiose growth targets. In April, Deputy Prime Minister Yuri Trutnev stated that the Northern Sea Route will see up to 200 million tons of cargo by 2030, a significant bump up from the pre-war goal. Last year, a modest 34 million tons of cargo were transported on the route.

The route is often marketed internationally as a maritime shortcut between Europe and East Asia, but few international shippers or shipping companies have so far been interested in ferrying goods through the still ice- and tariff-infested waters of the Russian far north. In 2020, a paltry 1.3 million tons of cargo transited through the Northern Sea Route. The invasion of Ukraine has further dimmed the prospects of it becoming a new Eurasian trade artery any time soon. According to data from the Northern Sea Route Administration, which issues permits to ships looking to voyage on the route, not a single international transit will be made this year. 

Instead, the Northern Sea Route is solidifying into an energy corridor. Liquefied natural gas in particular has come to dominate shipping in the region since the Yamal LNG project, situated on the Yamal Peninsula in northwestern Siberia, came online in 2017. The project, run by Novatek, Russia’s second-largest natural gas producer, has an annual output of roughly 18 million tons. Liquid gas from the project made up 64 percent of the total cargo volume transported on the Northern Sea Route in 2020. Oil exports from the nearby Novoportovskoye oil field, exported through the Arctic Gate terminal, stood for another 20 percent of exports that year. 

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Prior to the war, this segment was poised to keep growing. In 2018, then Prime Minister Dmitry Medvedev called on Russian energy companies to boost the country’s share of the global liquid gas export market to 20 percent by 2035. Western sanctions have seemingly done little to dampen these ambitions, either. Senior Russian officials have stressed that pre-war growth targets will not be revised, instead predicting that the country’s liquefied gas production will rise by up to 140 million tons by 2035. 

But for this growth to be possible, new projects have to come on tap. Novatek is developing Arctic LNG 2, its second liquefaction plant in the Arctic, located on the Gyda Peninsula across the Ob Bay from Yamal LNG. With a planned annual capacity north of 20 million tons, the project will more than double the company’s current Arctic gas output. Sanctions have thrown these plans into disarray, however. European financiers, suppliers, and buyers alike have largely abandoned the venture, and the launch of the project’s first liquefaction train, originally slated for 2023, is being pushed back by at least another year. Sanctions have also pushed Novatek to mothball another three large-scale energy projects in the Arctic, including two liquefied gas projects.

Other big-ticket oil and gas projects in the far north are set to further cement the Northern Sea Route as an energy export artery. Rosneft, the state-owned oil major, is leading the Vostok Oil project to develop fields in central Siberia – the country’s largest such undertaking since the days of the Soviet Union. Oil from the project will be shipped from the Bukhta Sever terminal on the Taymyr peninsula, with a planned initial capacity of 600,000 barrels per day, equaling about 15 percent of Russia’s current crude export capacity. 

At the St. Petersburg Economic Forum in June, Igor Sechin, the head of Rosneft, immodestly exclaimed that the project would be an “economic ark” for Russia, able to carry the country through an increasingly turbulent global economy, and underlined the company’s intent to push through with the project despite Western sanctions. In August, work began on the Bukhta Sever export terminal, which, when finished, will be the largest oil terminal in the country, with north of 100 million tons expected to leave the terminal annually by the end of the decade. 

New coal projects are also in the works. A subsidiary of Nornickel is embarking on a project to develop the Syradasay coal deposit, found north of the planned Vostok Oil project on the Taymyr peninsula. The project will include port facilities and export terminals to ship out about 7 million tons of steelmaking coal per year by 2024, mainly to Asia. Exploration is slated for sometime this month. 

So far, the Northern Sea Route has been oriented westward. The majority of oil and gas shipments from the Russian Arctic sail for terminals in Europe. Out of the more than 250 gas shipments that left the Russian Arctic in 2020, only 33 shipments headed for Asia. This is part of a broader trend. Between 2016-2019, more than 570 commercial voyages sailed from the Russian Arctic to Europe. In the same period, only 124 such voyages were made to ports in Asia.

European countries are looking to wean themselves off Russian energy, with pipeline gas already having fallen dramatically since the start of the invasion. Tankers, however, are still shuttling Russian hydrocarbons to Europe. Liquid natural gas imports to terminals in Europe rose by 50 percent between January and September, as governments scrambled to fill inventories before winter. Yet these countries are taking steps to move away from Russian seaborne gas, too, turning instead to the United States and other exporters. Shipborne oil imports from Russia are poised to fall as well, with a long-discussed European Union ban on Russian seaborne crude having entered into effect earlier this month. 

Going forward, then, fewer and fewer tankers are likely to ply the waters between the Russian Arctic and Europe. A senior representative from Rosatom, the state company charged with developing the Northern Sea Route, stated as much during a government hearing in April: “Many customers will certainly shift from Europe to Asia,” and therefore “it will be a priority to ensure year-round navigation on the eastern [section of the Northern Sea Route].”

Rosatom recently secured government funding for the construction of new nuclear-powered icebreakers to work the route. The state company’s growing fleet of nuclear-powered icebreakers “will allow for the year-round transporta
tion of goods eastward, which, according to analysts, will be the most promising [direction] against the backdrop of sanctions,” the Russian business newspaper Kommersant noted. 

Five months later, at the Eastern Economic Forum in Vladivostok, this reality seemed to have sunk in. “External pressure of the sanctions … the reorientation of cargo flows to the east has become an obvious fact. Both consumers of our products and potential investors in the development of the Arctic are concentrated in the East,” a Rosatom representative explained at a meeting of Northern Sea Route stakeholders. 

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With the exit of European partners and buyers, then, Russia will have to look elsewhere to get its Arctic energy projects off the ground. More specifically, it will have to look eastward, to China, India, and other countries still willing to buy from, and invest in, the sanctions-riddled country.

Russia has in recent years risen to become China’s third-largest supplier of natural gas. In 2021, it accounted for about a tenth of China’s total gas imports, climbing over 50 percent year-on-year. A large chunk of this travels through pipelines, but liquefied gas imports have also been pointing upwards. This year, shipborne gas imports from Russia between April and July grew by 50 percent, and in April alone, Chinese imports of Russian liquefied gas jumped 80 percent. Monthly imports have kept growing, with September imports increasing by about one-third compared with last year. Chinese refineries have been snapping up barrels of discounted Russian oil as well. In May, Russia reclaimed its position as China’s largest supplier of crude, as imports from Russia rose by over 50 percent from last year. 

On the asset side of things, however, Beijing has so far seemed wary of getting itself tangled up in sanctions. Sinopec, the world’s largest gas and petrochemical conglomerate, announced in April that it was pausing its projects in Russia. The move, likely mirrored by other state companies, came after a briefing by the Chinese Ministry of Foreign Affairs advising the country’s energy and commodities companies to limit their exposure to the Russian market. Chinese fabrication yards have been forced to halt work on modules for the Arctic LNG 2 project, too, over fears of sanctions. Belt and Road Initiative funds to Russia have also seemingly dried up, with zero new deals struck so far this year. 

But this cautiousness may be short-lived. State-owned CNOOC and CNPC, which each hold a 10 percent stake in the Arctic LNG 2 mega-venture, are staying put in the Arctic. And prior to Putin nationalizing the Sakhalin 2 project, the two energy majors were, together with Sinopec, reportedly in talks with Gazprom to take a 27.5 percent stake in the venture, situated on the eponymous volcanic island on Russia’s Pacific coast, and which Shell exited back in March. 

But diplomacy plays a part, too. Russian energy remains core to Beijing’s ambitions to build a “Polar Silk Road” across the Arctic – its policy to develop shipping routes and access natural resources in the region. When the leaders of the two countries met in Beijing in February to affirm their “no limits” friendship, just three weeks before Russia launched its invasion into Ukraine, their summit was accompanied by a string of big-ticket energy deals on oil, gas, and coal. 

June saw energy majors from the two countries meet in St. Petersburg amidst sanctions at the International Economic Forum to ink even more agreements, including on the import of Russian liquefied gas. Then, in late November, Putin beamed into the Russian-Chinese Energy Business Forum, attended virtually by high-ranking officials and energy executives sitting in Moscow and Beijing, to encourage greater bilateral cooperation on energy, singling out liquefied gas and Arctic LNG 2. Chinese President Xi Jinping issued a similar statement in connection with the meeting, urging closer cooperation on energy. Rosneft chief Sechin used the forum to “welcome the inclusion of Chinese partners in projects in the Russian Arctic,” especially in the “joint development of the Northern Sea Route and supporting coastal infrastructure.” 

Russia has also begun courting India as a partner in its northern energy projects. The leaders of the two countries signed a memorandum of intent in 2019 to establish a maritime corridor between Chennai and Vladivostok, to facilitate the import of Russian oil, gas, and other natural resources. During the same visit, Prime Minister Narendra Modi announced India’s Act Far East policy, earmarking investments for developing the Russian Far East in order to tap into local resources. Indian companies have reportedly been interested in acquiring more Russian energy assets as well, including additional shares in the Sakhalin 1 oil venture, where Indian oil and gas producer ONGC already holds a 20 percent stake. 

But India, which published its first Arctic policy earlier this year, is looking for opportunities in the Far North, too. Appearing virtually at the Eastern Economic Forum in Vladivostok in September, Modi announced that his country “is keen to strengthen its partnership with Russia on Arctic issues,” and noted that there is “immense potential for cooperation in the field of energy.” Indian oil majors have been active in Russian Arctic energy projects for over a decade through their stakes in the Vankorneft joint venture, which operates the Vankor oil and gas cluster southeast of the Ob Gulf. Recently Rosneft, the majority stakeholder, has mulled redirecting production through a new 25-million-tons-per-year pipeline that would run northward to the Arctic coast, for oil to be shipped out on the Northern Sea Route, instead. 

India received its first shipment of Arctic liquefied gas last year, when the tanker Mikhail Vasilevskiy arrived at terminals in Dabhol, having made its way through the Northern Sea Route from the Yamal gas project. The country’s energy majors have also expressed interest in taking stakes in Arctic LNG 2 – potentially a much-needed capital infusion for the sanctions-battered venture. India is looking to get involved in the Vostok Oil mega-project as well, with Rosneft having held talks with both Indian and Chinese companies about acquiring stakes in this new flagship project. 

Russia is also emerging as a major source of coking coal for Indian steel producers. At a recent press conference held together with his Indian counterpart, Russian Foreign Minister Sergey Lavrov stated, “We are working with our Indian friends on … using the Northern Sea Route and [developing] hydrocarbon deposits that are located on Russia’s [continental] shelf.” 

As Russia’s energy pivot to Asia is hastened by the breaking-off of relations with Europe, the Northern Sea Route and the Arctic energy projects that it serves – and those that it could serve in the future – are turning eastward, effectively reorienting what was an energy corridor running from Western Siberia to Europe, to instead connect the Russian Arctic more closely with markets in Asia.

Geopolitically, should China and India yoke more of their energy security to the Arctic, it would in turn bring these states closer to the region. Moreover, if a growing portion of Russian seaborne energy exports were to head toward the Asia-Pacific, it would mean more ship traffic through the Bering Strait – the sole gateway between the Arctic and Pacific Oceans – as tankers and bulk carriers sail for terminals in China, India, and elsewhere in Asia. 

In May 2020, the gas carrier Christophe de Margerie, the flagship of the 15-ship fleet that services Yamal LNG, successfully transited through the eastern section of the Northern Sea Route en route to China, in an attempt by Rosatom to extend the navigation season on the route, which normally runs from July through November. The ice-breaking tanker achieved another first in early 2021, when it pioneered a winter-time voyage across the ice-choked route to Asia, calling at a Chinese port in late January of that year. 

Sanctions and looming embargoes are already causing more ships to brave the ice-infested waters above the Arctic Circle. In October, a Russian-flagged, ice-strengthened oil tanker laden with crude left Murmansk, normally a transshipment point for Arctic oil heading to Europe, and began its 5,310-kilometer journey east, across the Northern Sea Route, calling at the the port of Rizhao, China, in mid-November. The unconventional voyage is the second time Russian crude oil destined for Asia has taken the shortcut across the Arctic. In the coming years, more are likely to follow in its ice-strewn wake.