Asian Giants Look to the Arctic

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After a lengthy courtship, China and India formalized their relationship with the Arctic Council in May 2013 by gaining admission as official observer states. In the months since, both countries have been actively seeking influence with the Council’s permanent members to further establish footholds in a region certain to emerge as a central arena of 21st century geopolitics, scientific research and commerce. But while public statements out of Beijing and New Delhi since May have often cited climate change research as the primary driver of the two countries’ Arctic engagement, the real underlying motive remains securing access to the region’s greatest natural treasure: energy.

In recent years, the U.S. Geological Survey has estimated that the polar north may hold up to 13 percent of the world’s undiscovered oil resources*—potentially as many as 160 billion barrels—and as much as 30 percent of the world’s untapped natural gas supplies.

With climate shifts in the Arctic raising temperatures and reducing sea-ice coverage, the region has become increasingly accessible with each passing year, heightening the potential for commercial development. This has raised the prospects for not only maritime shipping across Eurasia’s northern rim, but also seabed energy-drilling operations on the continental shelves of the Arctic littoral states, where much of the oil and gas reserves are thought to lie.

As a result, since gaining observer status China and India have spent considerable time cultivating ties with key energy-rich Arctic littoral states, including Iceland, Norway and Russia. (In the case of Norway, China’s path has been somewhat tricky; Beijing is inching closer to reconciliation with Norway after a diplomatic row triggered by the award of a 2010 Nobel Peace Prize to Liu Xiaobo, a well-known Chinese dissident, and the two countries have been tentatively considering a joint venture to explore for oil in the waters between Norway and Iceland.) With a significant portion of the Arctic’s projected seabed energy reserves located within these states’ respective exclusive economic zones, China and India are pursuing closer diplomatic and private-sector relationships with these countries as a means to put themselves in a favorable position to receive future Arctic energy exports, and assist where applicable in the development and shipment of offshore oil and gas supplies.

The urgency of the mission that China and India feel stems from the fact that each faces significant energy shortfalls in the years ahead that threaten to decelerate the economic growth they have enjoyed in recent decades. Despite recent headline-earning investments in their domestic renewable energy industries, Beijing and New Delhi view Arctic fossil fuels as key elements in their strategies to diversify energy import supply lines, reduce reliance on Middle Eastern oil, and strengthen energy security at home. At the same time, both countries are aware that energy resource extraction in such a harsh and environmentally sensitive location will have to be undertaken carefully. The Arctic North possesses a variety of coastal and maritime ecosystems that support wildlife and fisheries upon which many of the Arctic littoral’s indigenous populations depend for sustenance and livelihoods. Oil spills in this part of the world could prove particularly harmful as a result, since no local infrastructure exists to conduct effectively and timely clean-up operations. Such spills could also be damaging from a public relations perspective. Given that environmental accidents in the Arctic Circle linked to Chinese and Indian energy development would threaten significant damage to local and international perceptions of these two countries as responsible Arctic stakeholders, both China and India will be keen to ensure that any energy-development ventures they engage in are undertaken with the necessary precautions and designed to leave as small an environmental footprint as possible.

In its early stages as Arctic Council observer state, India has eschewed developing close energy ties with Europe’s Arctic states in favor of hitching its wagon firmly to Russia, which has taken an early lead among Arctic littoral states in offshore commercial development of oil under the Arctic seabed. In December 2013, the Russian energy firm Gazprom started pumping oil from a platform in the Pechora Sea for the first time, a considerable achievement given that similar efforts launched by Royal Dutch Shell off the Alaskan coast in 2012 were called off due to logistical difficulties. When Prime Minister Manmohan Singh visited Russia less than two months before Gazprom’s landmark operation, the two countries released a joint statement stating that the international arm of India’s Oil and Natural Gas Corporation (ONGC) had “interest in participating along with Russian companies in exploration for hydrocarbons in the Arctic region.” With ONGC possessing more than 40 years’ worth of offshore drilling experience and Gazprom owing drilling rights for some 30 Arctic oil and gas fields, the stage for potentially significant bilateral private sector collaboration is set.

China, for its part, has moved even more proactively in recent months to make inroads with the Arctic’s major energy players in Russia and Europe alike. Aside from the political and strategic rationales underlying much of Beijing’s pursuit of close ties with Moscow, this push has been driven by China’s status as the world’s largest net energy user, largest net oil importer, and second largest overall oil consumer, worrisome superlatives that have made Beijing’s mission to secure Arctic energy access arguably even more urgent than that of New Delhi. In December 2013, China opened the China-Nordic Arctic Research Center in Shanghai to study energy development and other Arctic issues, in collaboration with a number of leading Arctic research organizations from Denmark, Finland, Iceland, Norway and Sweden. China’s National Offshore Oil Corporation (COONC), for its part, has signed deals in Iceland and Scotland to begin offshore exploratory drilling and improve the safety of offshore rigs, respectively. And in Russia, China has moved ahead of India, with China’s National Petroleum Corporation already signing an agreement with the Russian energy company Rosneft to jointly conduct exploratory oil drilling in three offshore blocs in the Arctic Ocean.

Competition between China and India for access to Arctic energy supplies is unlikely to be a zero-sum game, yet a great deal is at stake for both countries as the polar north emerges as an increasingly important node of international affairs. In addition to securing a piece of the pie vis-à-vis future Arctic oil and gas exports, Chinese and Indian companies potentially have much to gain commercially from Arctic engagement in the form of contracts to help build energy pipelines, develop much-needed transportation infrastructure on land and at sea, or secure access to some of the Arctic littoral’s newly accessible rich mineral deposits. While China has to date been more successful than India in developing partnerships with governments and businesses in the permanent Arctic Council member states, both countries will have their eyes trained above the Arctic Circle deep into the 21st century and likely beyond, making Beijing and New Delhi’s quest for influence in this critical region not a sprint but a marathon.

Russell Sticklor was previously a research analyst and Katherine Cima an intern with the Environmental Security Program at the Stimson Center, a non-partisan think tank in Washington, DC.

*Changed from the original “reserves.” Thanks to commentator Ivan for pointing this out.

Comments
7
Ivan
February 28, 2014 at 06:36

Dear Ms. Cima and Mr. Sticklor:

Thanks for the fix.

When there is occasion, I will go into a detailed discussion of why it is so important not to confuse these two concepts. (Resources vs. Reserves).

Mistaking these two concepts can start off a competition between states that results in wars really over…. “nothing”.

Kanes
February 27, 2014 at 12:36

They are only observers. It is better to partner with Russia than go it alone.

Tom
February 27, 2014 at 09:32

Agree with the above comments. The idea that China will try their uppermost to prevent environmental damage is laughable. I live in China at the moment under a cloud of smog which is at best only 4 times worse than the WHO recommends and at worst 25-40 times worse, and covers the entire North-East and South of the country. I’ve taken 26 hour train rides without seeing the sky. And I can tell the difference between the smog and the beautiful Chinese mist. The smog has a purple haze that doesn’t show up well in pictures. The water is polluted with heavy metals amongst other things and generally the idea that the Chinese give any thought to environmental protection is a joke. It is not possible to imagine the Chinese running a drilling facility that is clean and safe. Their economic model is growth at all costs and they will make anyone pay the price.

Ivan
February 27, 2014 at 00:20

Dear Katherine Cima and Russell Sticklor:

Your article states:

“U.S. Geological Survey has estimated that the polar north may hold up to 13 percent of the world’s undiscovered oil reserves.”

The facts are as follows. The US Geological Survey do not refer to RESERVES, but RESOURCES.

Please see these links;

http://energy.usgs.gov/RegionalStudies/Arctic.aspx

“The Arctic holds an estimated 13% (90 billion barrels) of the world’s undiscovered conventional oil resources and 30% of its undiscovered conventional natural gas resources, according to an assessment conducted by the U.S. Geological Survey (USGS). ”

http://www.eia.gov/todayinenergy/detail.cfm?id=4650

This is a critical technical error that is often made by many non-professionals in the mineral industry.

Resources are NOT reserves.

There are very strict definition of what constitute RESERVES, which is a term that is strictly regulated by the SEC for publically traded companies in the US.

afhack62
February 27, 2014 at 13:55

Slamdunk

for real!!
February 27, 2014 at 00:18

really? china does not give a fat rats backside about its own environment aka its backyard,why on earth does anyone expect they will do their utmost to prevent spills and subsequent damage in the backyards of arctic nations? just a thought !

Navi
February 27, 2014 at 06:58

Yep, China spilled oil from the Exxon Valdez in the late 1980s and got away with it and also spilled oil from the Torrey Canyon in the 1960s and got away with it as well. So don’t expect much to change ! ! !

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