.

Did you know that non-Arctic states have a keen interest in the Arctic? While many observers express grave concern that the changing Arctic environment portends greater rapid climate change—the Arctic is warming at twice the rate of any other location around the globe—this is not the only reason for interest. Melting Arctic sea ice creates commercial opportunities barely imaginable just a few scant years ago. The Northern Sea Route, bordering the coast of northern Russia is often already navigable during warmer summer months. And history was made when the Nordic Orion, carrying coal from Vancouver to Finland, made the first ever passage of a bulk carrier through the Northwest Passage in September 2013. In addition, the Arctic is widely seen as a massive and untapped source of hydrocarbons and minerals. Getting at those resources means running considerable environmental risks at great cost, but as we live in a carbon economy, our dependence on extracting oil and gas is not likely to change anytime soon.

It may surprise some even more to learn that both China and South Korea have developed Arctic strategies that encompass both scientific Arctic research and support for Arctic-related industries, even though neither have Arctic borders nor territorial claims. What they share in common is a demand for energy. China is the world’s largest energy consumer, and is expected to surpass the United States in 2014 to become the world’s largest consumer of oil. In 2011, South Korea was the second largest importer of liquefied natural gas, reliant solely on tanker shipments to fulfill their energy needs. Both countries continue to negotiate with energy rich Arctic nations to improve their domestic energy security.

A bit of background on the world energy picture may help us at this point. The envy of many, the United States alone sits on 29.0 billion barrels of proven oil reserves and 349 trillion cubic feet of proven wet natural gas reserves. Resource-rich Canada holds 173.6 billion barrels of proven crude oil reserves, 98 percent of which is from oil sands. As the world’s third-largest producer of crude oil after Saudi Arabia and Venezuela, Canada is already in the purview of China’s state-owed CNOCC. However, laws and logistics make moving that natural wealth cumbersome.

Beyond the supply and demand of energy resources, China and South Korea differ in their Arctic-related efforts. Where China is courting Arctic nations (Canada, Denmark, the semi-autonomous country of Greenland, Finland, Iceland, Norway, Sweden, Russia, and the United States) primarily to establish liaisons for future commercial partnership, South Korea’s highly developed shipping industry is producing vessels specifically designed for Arctic conditions.

China’s Arctic intentions could be portrayed as a national quest that offers investment in return for access to natural resources and unfettered passage through Arctic waters at a reasonable cost. Although Beijing has not yet produced an official Arctic policy, it promotes its interests through deepening diplomatic ties, increased bilateral agreements, and by giving support to private investment. Beijing is developing close ties with Nordic countries, resulting in considerable debate most notably in Iceland and Greenland where sizable foreign investment and the presence of large contingents of foreign workers are already creating challenges.

As a case in point, in 2012 and again in 2013 groups of Chinese businessmen visited Greenland to seek possible investment opportunities in mining, fisheries, tourism, and other industries. In 2012, then opposition leader Aleqa Hammond said, "We see Chinese delegations everywhere and even the parliament does not know who they are. We seen [sic] them in our hotels, in our fjords, and on our streets." Many parties have expressed an interest in Greenland’s presumed rare earth deposits as well as hydrocarbon wealth. How Greenland proceeds with development, the extent of foreign investment and the degree to which Greenlanders are willing to accept the tradeoffs between development and the environment suggest that acrimonious divisions may develop.

In April 2013, Iceland became the first European nation to negotiate a free trade agreement with China, lowering or eliminating most trade tariffs between the two countries over the following few years. But the disparity in economies gives reason for pause. With a gross domestic product of US$14 billion, Iceland’s economy pales in comparison to China’s GDP of US$13.7 trillion. Where Iceland’s 2012 exports to China, which are mainly fish, totaled $61 million, it imported Chinese goods and services valued at $341 million. Yet for Iceland the free trade agreement makes sense. In an effort to rebuild the economy in the aftermath of the 2008 financial crisis, Iceland reoriented its foreign policy to encourage outside investment from countries including China. Surely, fish imports alone are not the sole source of China’s ambitions for Iceland.

More likely, China’s interest in Iceland has to do with developing strategic ties with Arctic nations. China’s protracted discussions with all Arctic states was a plain effort to gain Observer status at the Arctic Council, a high level intergovernmental forum that provides a means for promoting cooperation, and coordination among the Arctic States, with the involvement of the Arctic Indigenous communities. That desire was fulfilled on May 15, 2014 when six non-Arctic nations including China and South Korea were grated Observer status.

At the same time as its extractive industry tries to get an Arctic foothold, Beijing is also responding to a possible future where Arctic waters may provide a desirable shipping route to and from North America and China and on to further destinations. Iceland is strategically located close to Russia’s Northern Sea Route, now considered the most likely route for Arctic shipping. Iceland could be the site of future deepwater ports critical for docking large vessels carrying consumer goods and fossil fuels. As the world’s largest export nation, it is only natural that China would be on the lookout for secure shipping routes at a reasonable cost. Though numerous challenges continue, the Arctic is seen as a potentially attractive alternative for future shipping needs.

And the economics of shipping through Arctic waters are potentially quite attractive. For example, the SCF Baltica shipment of 70,000 tons of gas condensate from Murmansk, Russia to Ningbo, China was 40 percent shorter than the traditional route through the Suez Canal. This Northern Sea Route passage saved 16 days and about 800 tons of fuel oil thus reducing GHG emission by 3,000 tons.

Northern shipping routes also play favorably to the hand of South Korea’s shipbuilding industry, which has a competitive advantage in building ships to handle harsh conditions. With the technological prowess and shipbuilding capacity, Daewoo Shipbuilding & Marine Engineering, STX Offshore and Shipbuilding Company, Hyundai Heavy Industries, and Samsung Heavy Industries are world leaders in the manufacture of vessels specifically designed for Arctic conditions.

High-level discussions between Moscow and Seoul have resulted in significant partnerships. Starting in 2007 Russia started seeking the means to modernize its shipbuilding industry. That year, Moscow established the state-owned United Shipbuilding Corporation (USC), while simultaneously adopting the Development of Civil Sea Technics in 2009-2016 program to support investment for new foreign technologies. The industry will need to train up to 17,000 specialists before 2020, reported the Barents Observer. In December 2010, USC signed a joint venture agreement with Korean shipbuilding holding STX Finland, resulting in 50-50 ownership of Arctech Helsinki Shipyard Oy. The firm specializes in Arctic shipbuilding technology such as icebreakers and other offshore vessels built for Arctic conditions. Later, the joint venture company acquired shares of Aker Arctic Technology Inc. (AARC), the world leader in development of Arctic sea shipbuilding technologies. Aker is known for a technology particularly suitable for Arctic ice navigation known as the double-acting ship, a type of icebreaking merchant ship, designed to run ahead in open water and astern (backwards) in ice.

Arctech Helsinki Shipyard Oy was contracted by Russia’s leading ship owner Sovkomflot to construct two multifunctional ice class service vessels that will be used on the Sakhalin gas fields. The Vitus Bering and Aleksey Chirikov were delivered in 2012 and 2013, respectively. USC became the sole owners of the Finnish Arctech yard in 2013. In February 2014, Archtech won the EUR 123 million contract for the Finnish Transport Agency's new basic icebreaker, with an expected delivery in 2016.

Yet, with all this focus on establishing diplomatic relations and commercial ventures, mass Arctic development is far from certain. On balance, Arctic nations and non-Arctic nations alike must also address the global repercussions of climate change, and thus the cascading effects of warming Arctic conditions. Of the little that exists, Arctic infrastructure is already compromised. In the Canadian Arctic, bridges are collapsing thereby cutting off vital services from Arctic communities, and Arctic ice roads are threatened by permafrost thaw. China and South Korea and all other interested parties should become keenly aware of the challenges ahead.

To that end, and to better understand the effect that climate change will have on environmental security and respective economies, both China and South Korea have established polar research stations located in Norway’s Ny-Ålesund Svalbard Archipelago. China is particularly concerned about the effects of Arctic climate change on food production and extreme weather in China. Both China and South Korea have stated that climate change is a potential threat to future growth.

As more shale sources come online across the globe, Arctic exploitation is far from a done deal. Yet at present Arctic development may be colliding with climate change at a critical moment, and it could be the place that we find ourselves feeling that collision most acutely. It would be remiss to think of the Arctic only as the next ‘frontier.’ Throughout history many have fallen into this trap, only to find that the conditions were harsh beyond their ability to cope, or that presumed ‘riches’ were in fact absent or beyond their technological and economic prowess. However, many are still operating under the assumption that untold resources are present and that human kind can conquer nature through ever improving engineering feats. Despite numerous disasters, technological risk is often far down on the list of concerns. The future is far from certain, but assuredly it will not be what we expect.

Sean S. Costigan is Senior Adviser to the Emerging Security Challenges Working Group at the Partnership for Peace Consortium and lecturer in Global Studies at The New School. Erica Dingman is an Associate Fellow at the World Policy Institute where she directs the Arctic program.

This article was originally published in the Diplomatic Courier's May/June 2014 print edition. Subscribe here.

About
Sean S. Costigan
:
Sean Costigan is a professor at the George C. Marshall European Center for Security Studies. The opinions expressed in this article are the author's own and do not reflect the view of the George C. Marshall Center, the Department of Defense, or the United States government.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.

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Fringe Benefits: Asia is Hot on the Arctic

June 10, 2014

Did you know that non-Arctic states have a keen interest in the Arctic? While many observers express grave concern that the changing Arctic environment portends greater rapid climate change—the Arctic is warming at twice the rate of any other location around the globe—this is not the only reason for interest. Melting Arctic sea ice creates commercial opportunities barely imaginable just a few scant years ago. The Northern Sea Route, bordering the coast of northern Russia is often already navigable during warmer summer months. And history was made when the Nordic Orion, carrying coal from Vancouver to Finland, made the first ever passage of a bulk carrier through the Northwest Passage in September 2013. In addition, the Arctic is widely seen as a massive and untapped source of hydrocarbons and minerals. Getting at those resources means running considerable environmental risks at great cost, but as we live in a carbon economy, our dependence on extracting oil and gas is not likely to change anytime soon.

It may surprise some even more to learn that both China and South Korea have developed Arctic strategies that encompass both scientific Arctic research and support for Arctic-related industries, even though neither have Arctic borders nor territorial claims. What they share in common is a demand for energy. China is the world’s largest energy consumer, and is expected to surpass the United States in 2014 to become the world’s largest consumer of oil. In 2011, South Korea was the second largest importer of liquefied natural gas, reliant solely on tanker shipments to fulfill their energy needs. Both countries continue to negotiate with energy rich Arctic nations to improve their domestic energy security.

A bit of background on the world energy picture may help us at this point. The envy of many, the United States alone sits on 29.0 billion barrels of proven oil reserves and 349 trillion cubic feet of proven wet natural gas reserves. Resource-rich Canada holds 173.6 billion barrels of proven crude oil reserves, 98 percent of which is from oil sands. As the world’s third-largest producer of crude oil after Saudi Arabia and Venezuela, Canada is already in the purview of China’s state-owed CNOCC. However, laws and logistics make moving that natural wealth cumbersome.

Beyond the supply and demand of energy resources, China and South Korea differ in their Arctic-related efforts. Where China is courting Arctic nations (Canada, Denmark, the semi-autonomous country of Greenland, Finland, Iceland, Norway, Sweden, Russia, and the United States) primarily to establish liaisons for future commercial partnership, South Korea’s highly developed shipping industry is producing vessels specifically designed for Arctic conditions.

China’s Arctic intentions could be portrayed as a national quest that offers investment in return for access to natural resources and unfettered passage through Arctic waters at a reasonable cost. Although Beijing has not yet produced an official Arctic policy, it promotes its interests through deepening diplomatic ties, increased bilateral agreements, and by giving support to private investment. Beijing is developing close ties with Nordic countries, resulting in considerable debate most notably in Iceland and Greenland where sizable foreign investment and the presence of large contingents of foreign workers are already creating challenges.

As a case in point, in 2012 and again in 2013 groups of Chinese businessmen visited Greenland to seek possible investment opportunities in mining, fisheries, tourism, and other industries. In 2012, then opposition leader Aleqa Hammond said, "We see Chinese delegations everywhere and even the parliament does not know who they are. We seen [sic] them in our hotels, in our fjords, and on our streets." Many parties have expressed an interest in Greenland’s presumed rare earth deposits as well as hydrocarbon wealth. How Greenland proceeds with development, the extent of foreign investment and the degree to which Greenlanders are willing to accept the tradeoffs between development and the environment suggest that acrimonious divisions may develop.

In April 2013, Iceland became the first European nation to negotiate a free trade agreement with China, lowering or eliminating most trade tariffs between the two countries over the following few years. But the disparity in economies gives reason for pause. With a gross domestic product of US$14 billion, Iceland’s economy pales in comparison to China’s GDP of US$13.7 trillion. Where Iceland’s 2012 exports to China, which are mainly fish, totaled $61 million, it imported Chinese goods and services valued at $341 million. Yet for Iceland the free trade agreement makes sense. In an effort to rebuild the economy in the aftermath of the 2008 financial crisis, Iceland reoriented its foreign policy to encourage outside investment from countries including China. Surely, fish imports alone are not the sole source of China’s ambitions for Iceland.

More likely, China’s interest in Iceland has to do with developing strategic ties with Arctic nations. China’s protracted discussions with all Arctic states was a plain effort to gain Observer status at the Arctic Council, a high level intergovernmental forum that provides a means for promoting cooperation, and coordination among the Arctic States, with the involvement of the Arctic Indigenous communities. That desire was fulfilled on May 15, 2014 when six non-Arctic nations including China and South Korea were grated Observer status.

At the same time as its extractive industry tries to get an Arctic foothold, Beijing is also responding to a possible future where Arctic waters may provide a desirable shipping route to and from North America and China and on to further destinations. Iceland is strategically located close to Russia’s Northern Sea Route, now considered the most likely route for Arctic shipping. Iceland could be the site of future deepwater ports critical for docking large vessels carrying consumer goods and fossil fuels. As the world’s largest export nation, it is only natural that China would be on the lookout for secure shipping routes at a reasonable cost. Though numerous challenges continue, the Arctic is seen as a potentially attractive alternative for future shipping needs.

And the economics of shipping through Arctic waters are potentially quite attractive. For example, the SCF Baltica shipment of 70,000 tons of gas condensate from Murmansk, Russia to Ningbo, China was 40 percent shorter than the traditional route through the Suez Canal. This Northern Sea Route passage saved 16 days and about 800 tons of fuel oil thus reducing GHG emission by 3,000 tons.

Northern shipping routes also play favorably to the hand of South Korea’s shipbuilding industry, which has a competitive advantage in building ships to handle harsh conditions. With the technological prowess and shipbuilding capacity, Daewoo Shipbuilding & Marine Engineering, STX Offshore and Shipbuilding Company, Hyundai Heavy Industries, and Samsung Heavy Industries are world leaders in the manufacture of vessels specifically designed for Arctic conditions.

High-level discussions between Moscow and Seoul have resulted in significant partnerships. Starting in 2007 Russia started seeking the means to modernize its shipbuilding industry. That year, Moscow established the state-owned United Shipbuilding Corporation (USC), while simultaneously adopting the Development of Civil Sea Technics in 2009-2016 program to support investment for new foreign technologies. The industry will need to train up to 17,000 specialists before 2020, reported the Barents Observer. In December 2010, USC signed a joint venture agreement with Korean shipbuilding holding STX Finland, resulting in 50-50 ownership of Arctech Helsinki Shipyard Oy. The firm specializes in Arctic shipbuilding technology such as icebreakers and other offshore vessels built for Arctic conditions. Later, the joint venture company acquired shares of Aker Arctic Technology Inc. (AARC), the world leader in development of Arctic sea shipbuilding technologies. Aker is known for a technology particularly suitable for Arctic ice navigation known as the double-acting ship, a type of icebreaking merchant ship, designed to run ahead in open water and astern (backwards) in ice.

Arctech Helsinki Shipyard Oy was contracted by Russia’s leading ship owner Sovkomflot to construct two multifunctional ice class service vessels that will be used on the Sakhalin gas fields. The Vitus Bering and Aleksey Chirikov were delivered in 2012 and 2013, respectively. USC became the sole owners of the Finnish Arctech yard in 2013. In February 2014, Archtech won the EUR 123 million contract for the Finnish Transport Agency's new basic icebreaker, with an expected delivery in 2016.

Yet, with all this focus on establishing diplomatic relations and commercial ventures, mass Arctic development is far from certain. On balance, Arctic nations and non-Arctic nations alike must also address the global repercussions of climate change, and thus the cascading effects of warming Arctic conditions. Of the little that exists, Arctic infrastructure is already compromised. In the Canadian Arctic, bridges are collapsing thereby cutting off vital services from Arctic communities, and Arctic ice roads are threatened by permafrost thaw. China and South Korea and all other interested parties should become keenly aware of the challenges ahead.

To that end, and to better understand the effect that climate change will have on environmental security and respective economies, both China and South Korea have established polar research stations located in Norway’s Ny-Ålesund Svalbard Archipelago. China is particularly concerned about the effects of Arctic climate change on food production and extreme weather in China. Both China and South Korea have stated that climate change is a potential threat to future growth.

As more shale sources come online across the globe, Arctic exploitation is far from a done deal. Yet at present Arctic development may be colliding with climate change at a critical moment, and it could be the place that we find ourselves feeling that collision most acutely. It would be remiss to think of the Arctic only as the next ‘frontier.’ Throughout history many have fallen into this trap, only to find that the conditions were harsh beyond their ability to cope, or that presumed ‘riches’ were in fact absent or beyond their technological and economic prowess. However, many are still operating under the assumption that untold resources are present and that human kind can conquer nature through ever improving engineering feats. Despite numerous disasters, technological risk is often far down on the list of concerns. The future is far from certain, but assuredly it will not be what we expect.

Sean S. Costigan is Senior Adviser to the Emerging Security Challenges Working Group at the Partnership for Peace Consortium and lecturer in Global Studies at The New School. Erica Dingman is an Associate Fellow at the World Policy Institute where she directs the Arctic program.

This article was originally published in the Diplomatic Courier's May/June 2014 print edition. Subscribe here.

About
Sean S. Costigan
:
Sean Costigan is a professor at the George C. Marshall European Center for Security Studies. The opinions expressed in this article are the author's own and do not reflect the view of the George C. Marshall Center, the Department of Defense, or the United States government.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.