OREANDA-NEWS. April 25, 2013. China appears more determined than ever to participate in the exploration and extraction of the Arctic Circle’s vast reservoirs of gas – which the United States Geological Survey has said account for 30% of the world’s untapped natural gas resources.

The world’s second-largest economy and foremost energy consumer, which does not border the Arctic, has embarked on several well-publicised scientific expeditions to the region. The expeditions by the Xue Long – or Snow Dragon – China’s only icebreaker, have been followed closely by a rapt domestic audience, fascinated by the region’s remoteness and pristine environment. On 27 June last year, the ship departed on a three-month expedition to the Arctic region with a team of international scientists aboard to study climate change.

Built at a Ukrainian shipyard in 1993, the Xue Long will continue to serve as a platform for scientific research, but a new and more advanced icebreaker is in the works – one that may be enlisted to participate in the hunt for vast pockets of energy resources below the icy Arctic waters. “[The] Chinese government has approved our plans to construct a scientific survey icebreaker for polar research,” Zhang Xia, a director with the Polar Research Institute of China, told Interfax. “A Finnish shipyard has won the tender to design the vessel.”

Construction of the new icebreaker will start next year and a Chinese shipyard has been awarded the contract – marking the first time the nation will construct its own advanced icebreaker, according to Zhang. China’s Arctic pivot China has taken an assertive approach on the Arctic, engaging with the governments of Greenland, Iceland, Norway and Russia, among others, and eyeing investment opportunities that would put coveted energy resources within its grasp. “It [China] wants to be part of the Arctic order and influence discussion and decisions on how the Arctic should be governed,” Linda Jakobson, East Asia programme director of the Stockholm International Peace Research Institute, wrote in a paper, China’s Arctic Aspirations, co-authored by Jingchao Peng, last November.

China is keen to gain permanent observer status on the Arctic Council, the researchers noted. China justifies its Arctic ambitions – which would initially seem to contradict its longstanding policy of non-interference in the internal affairs of other countries – by maintaining that even states without Arctic borders are directly affected by the region’s changing climate and environment. “I think China should take the initiative to participate in Arctic affairs, including technology and economic cooperation, both bilaterally and multilaterally,” said Zhang. Ulterior motives While China appears genuine in its concerns about global warming, Beijing’s overarching interest in the Arctic appears to be the resources beneath its frozen surface.

Securing sufficient fuel to keep the Chinese economy going is of paramount concern to the ruling Communist Party, which derives much of its legitimacy from robust economic growth. Yet China’s energy map reveals a heavy reliance on costly energy imports. Crude oil imports climbed to 58% in 2012, while piped and shipped-in gas supplies grew by 29%. Furthermore, China outpaced Japan last year to become the world’s top coal importer. To meet staggering energy demand at home and secure ample supplies for the future, China’s state enterprises have spent hundreds of billions of dollars to acquire oil and gas assets overseas in recent years, with \\$34 billion spent on oil and gas acquisitions last year alone.

Frosty frontier Despite this spending spree, it is becoming increasingly difficult and expensive for China to acquire productive blocks abroad. Multinational energy giants have snapped up much of the low-hanging fruit, leaving China to invest in some of the world’s most politically unstable regions. Meanwhile, in anticipation of entering the region, China’s state energy companies are being advised to raise their capabilities and formulate sound development strategies. In a position paper, Status of World Hydrocarbon Resource Potential and Strategic Thinking of Overseas Oil and Gas Projects for China, Kang Yuzhu, of the China Academy of Engineering, called on state energy giants to strengthen their surveying and evaluation for oil and gas resources in preparation of entering the Arctic region.

The paper was published this March in Natural Gas Industry 2013. Warming to Russia Beijing policymakers are in the early stages in terms of formulating a cogent vision for the Arctic. “As we have no territory in the Arctic Circle, we have no alternative but to cooperate with Arctic states,” a source with the National Energy Administration told Interfax. Trade value between China and the Arctic region was a mere \\$2 billion in 2011, according to Zhang. Among the eight Arctic countries, Russia seems to be the best partner for now, according to Chinese experts. “I would like to see Chinese companies increase their level of participation with Russian oil and gas firms in joint development activities in the Arctic,” Zhang said. “Closer Sino-Russian cooperation would increase oil and gas sources and offer safer import routes, as well as enhancing our ability to compete globally.”

 During President Xi Jinping’s first state visit abroad to Moscow in March, Rosneft reportedly agreed to offer China National Petroleum Corp. (CNPC) access to jointly explore three offshore Arctic areas, the first such deal Russia has signed with an Asian company. However, the high cost of exploration and development, and advanced technology needed for work in the Arctic’s unforgiving terrain, pose high risks for Chinese companies. A source with CNPC told Interfax the Arctic deal was in an early phase. CNPC plans to retain investment banks to perform due diligence and send its own experts to the Russian Arctic to evaluate the blocks. “We won’t just throw our money in the water,” said the source.

Russia has teamed up with ExxonMobil, Italy’s Eni and Norway’s Statoil on a number of projects to help offset drilling costs. None of these companies hold majority stakes in the project, and it is unlikely CNPC will receive preferential treatment in any potential cooperation, Feng Yujun, director of the Institute of Russian Studies under the China Institutes of Contemporary International Relations, told Interfax. Rosneft President Igor Sechin also held meetings with the heads of Sinopec and China National Offshore Oil Corp. during his trip to Beijing in February, Feng said, intimating that CNPC may find itself competing against other Chinese firms to get a piece of the Arctic play. That said, once oil and gas output in Russia’s Arctic becomes a reality, East Asian markets –including China – will benefit, Feng added.