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China eyeing Arctic Ocean LNG development

  • July 20, 2021
  • , Mainichi , p. 3
  • JMH Translation
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By Oka Daisuke, Takechi Hironori, and Onuki Tomoko


The Arctic LNG 2 project is attracting attention worldwide [as an ongoing Russia-sponsored project to export liquefied natural gas (LNG) via a new route through the Arctic Ocean]. The Arctic Ocean is becoming economically viable as sea temperatures rise and ice melts due to global warming. It is said that there are large reserves of undiscovered oil and gas. The project shows that it is possible to transport cargo not only by the conventional “westbound route” from Europe via the Suez Canal, but also by the “eastbound route” through the Arctic Ocean to the Kamchatka Peninsula. Although ships will not be able to sail for those months of the year when the ice is thick, the companies that participate in the project are hopeful that the route will eventually be open to traffic year-round.


Japan relies on imports from the Middle East, Australia, and Southeast Asia for much of its LNG, but shipments must pass through disputed areas such as the Strait of Hormuz and the Strait of Malacca. Some say that Japan will have better energy security if the country can use the “eastbound” route, which is shorter.


If Japanese and European banks withdraw from the co-financing for the Arctic LNG 2 project, China will emerge as an alternative. The nation already has its eagle eye on the Arctic Ocean. There is a possibility that China will increase its financing for the project if the Japanese banks’ financing needs to be replaced.


With its huge electricity demand, China is hurriedly building LNG-fired power plants. It is predicted that China will overtake Japan as the world’s largest importer of LNG by 2021. Originally, the hegemony of the Arctic Ocean was a contest between Russia and the NATO countries led by the U.S. However, China has entered the fray as the Arctic Ocean has become a business opportunity due to the melting of ice caused by global warming. The PRC regards the Arctic Ocean as the “Silk Road on ice” and has included it as part of China’s “One Belt, One Road,” an initiative to create a huge economic zone. It aims to be actively involved in the development of the Arctic Ocean.


Strengthening economic security was a main topic of discussion at the recent G7 summit. The summit leaders launched the “containment of China,” including shedding their nations’ supply chain dependence on China. Edward Chow, a senior associate at the Center for Strategic and International Studies (CSIS) and an expert on natural resources issues, said, “China may intend to support Russia militarily to counter the U.S., but Japan is a U.S. ally. I don’t understand why Japan supports the Arctic LNG 2 project.” It is, however, politically difficult for Japan to withdraw from the project, because Japan’s participation was decided by the national leaders. “Diversifying sources of natural gas supply is of increasing importance,” according to Minister of Economy, Trade and Industry Kajiyama Hiroshi, in order to reduce dependence on coal, an energy source the international community is moving away from.


Japan’s major banks continue to hold top-level talks with Novatek [the Russian gas giant leading the project’s joint venture]. “If we leave the project now, China will only gain more influence over the project,” said an official at one of the Japanese banks. “Considering Japan’s energy policy, we want to help [by financing the project]. Some take a more cautious view of the situation, saying, “Further support from the government is necessary in light of the political risks of the project.”


The Japanese government intends to press the banks to make a decision on the co-financing by offering preferential treatment through Nippon Export and Investment Insurance (NEXI). A source connected with the government said, “As awareness of climate change increases, development of fossil fuels around the world will stop, resulting in higher LNG prices. The project is certain to be successful.” Japanese banks are concerned about the tightening of sanctions against Russia by the U.S. But a senior official of the Ministry of Foreign Affairs anticipates that the U.S. sanctions will not affect the Arctic Ocean project. “Under the Biden administration, the U.S. and Russia are willing to cooperate in areas where they can,” he comments.


While businesses involving energy resources are expected to make huge profits; they carry the risk of creating significant losses that could rattle a company to its very core if it fails.


A senior bank official expressed caution about co-financing the project, saying coldly, “The government will not take responsibility for the final outcome, so that will not be the determining factor for us in making the decision about financing the project.”

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