Following the cancellation of Nord Stream 2 and the discussion about whether Europe should continue to purchase gas from Russia, Russian gas producers are now facing uncertainty. New energy projects are being put on hold following the withdrawal of several Western partners, and the highly praised ambitions for the Northern Sea Route increasingly seem doomed to failure. The projects are entirely dependent on Western technology. Particularly hard hit are the large liquefied natural gas (LNG) projects in the Arctic. New sources of sales must be found and as quickly as possible in order to at least utilise the current extraction systems.
China as a saviour in times of need?
China’s hunger for energy in the form of gas is almost unlimited. A bigger problem is transporting it to the east. Nine out of ten pipelines run from Russia to the West. The first, and currently only, pipeline to China began transporting gas in 2019. Transport capacity to the West is six times greater than to China. To compensate for the loss of gas purchases from Europe, shipments through the Northeast Passage are now to be transported by LNG carriers. The existing fleet of LNG carriers in no way compensates for the shortfall.
Building a fleet of icebreaking LNG carriers, however, also depends on foreign companies; from Korean shipbuilders to US and Finnish marine engineers, as well as with a little-known French company with a monopoly on the technology that is essential for transporting liquefied natural gas.
Is China a reliable partner?
Only time will tell whether China will be a reliable partner for Russia in the future. China has also been calling itself a near-Arctic state for several years, although its northern border to the Arctic Ocean is 1,950 kilometers away.
China was granted observer status in the Arctic Council in 2013 and has since pursued an ambitious policy in the High North. President Xi Jinping referred to the People’s Republic of China as a “polar superpower” that same year.
Emerging China is likely to participate in Russian mining plans, but keep economically weaker Russia on a short leash so that it can use capital and technology to participate in Arctic energy exploitation itself. This constellation alone provides enough fuel for the next few years.
No trust among stakeholders
With Russian partners and customers of international shipyards on sanctions lists and the EU banning the export of ships, ship systems or equipment to Russia for most purposes, orders are now uncertain.
The three largest shipbuilders in South Korea are currently building 35 LNG vessels for Russian customers, according to shipbroker Simpson Spence Young. However, they have pledged to comply with US sanctions against Russia.
Two of the companies, Samsung Heavy Industries and Hyundai Heavy Industries, have also entered into joint ventures with the Russian shipyard Zvezda, which is based near Vladivostok. The latter is controlled by a consortium of state-owned companies led by sanction-hit Rosneft.
The Financial Times reports that the three South Korean shipyards were expecting financial problems with existing orders, but would still hold on to contracts with Russian customers. “Countries in Europe continue to import oil and gas from Russia,” explains a manager at a Korean shipbuilder. “So why should we end our current contracts with Russia?”
However, a senior executive at a major European supplier to Korean shipyards told the Financial Times that it would no longer supply products for Russian vessels because doing so would either violate sanctions imposed by individual customers or risk violating sector sanctions. “The situation is quite clear,” the executive said. “The technology used for Russian deployment of certain ships is a sanctioned product, so it is practically impossible to work on these projects.”
A senior Korean government official said while new Russian orders for special ships are unlikely while the war in Ukraine continues, there are fears in Seoul that Chinese competitors will fill the gap if existing orders are canceled.
But analysts do not share the same opinion as South Korea. This is because, on the one hand, shipyards such as Hudong-Zhonghua could not build more than eight ships per year, as the Financial Times writes in its article. Moreover, they would not have the know-how to build tankers of the required size and with the necessary ice class.
Another factor determining the future of Russian Arctic plans is the French company Gaztransport & Technigaz. This is because the French hold the monopoly on the construction of the high-tech containers needed for transporting LNG. In order to ensure safe transport, the gas must be cooled to -163°C. Until now, the company had carried out its services for its Russian customers despite the sanctions.
But Gaztransport & Technigaz warned last month of “a potential risk to the continuation and proper execution of certain contracts” under current conditions, raising the prospect that a crucial element of the vessels will no longer be available.
“If these ships are sanctioned on a GTT basis,” said Mitrou, “there’s not a shipyard in the whole world that can give you an alternative.”
Heiner Kubny, PolarJournal