Thursday, 5 September 2013

China looks to leverage warming Arctic transit routes

Setting aside the vigorous debate on climate change for a moment, the Arctic is flicking onto Pacific radars for some very good reasons. Shipping routes are opening up and energy fields are being exposed, both of which is grabbing China’s attention.

Arctic temperatures have risen 7.2 degrees Fahrenheit or 0.13 degrees Celsius over the past half-century. As a result, ice coverage has fallen 53% over summers to 1,384,000 square kilometres today, down from a high of 2,896,800 square kilometres in 1979 according to the US National Snow and Ice Data Centre.

Some analysts suggest there may not be any ice at all during summer sometime within the next 20 years. This sort of news would worry polar bears - if they could read - but it is making shipping companies smile from ear to ear. For centuries, explorers have tried and failed to find a route across the Arctic and easily connect Asia to Europe, but thick ice has always blocked their path.

For various reasons, ice is melting at faster rates opening up new highways for international shipping. The Northeast Passage, for instance, is administered by Russia and spreads 15,000 kilometres from the Bering Strait to the Barents Sea. Moscow issued 482 permits this summer to travel the cold waters, a marked increase from 46 permits in 2012 and a measly four in 2011. Russian officials are planning for an even greater increase in permits in the coming years if temperatures continue to rise.

Moving through the passage is about 20% quicker than steaming through the Suez Canal and Mediterranean Sea. In total, the distance slices 4,400 kilometres off an Asian trip to Europe and cuts back the total days at sea from 48 days to 35 days.

Shipping goods from Asia to Europe account for about 34% of total global cargo per year. The shipping industry expects about 15 million tons of cargo to travel via the Passage by 2021. Geopolitically, with the continued instability in the Middle East and recent militant attacks along the Suez Canal, the Northeast Passage is a welcome alternative for a few months of the year.

Already a Chinese cargo ship is making history by moving goods en route to Rotterdam travelling through the Northeast Passage from the warm water port of Dalian. The Chinese cargo ship Yong Sheng is expected to dock in the Dutch port by September 11.

For China, access to the Arctic is important for many reasons. China gained observer status as part of the Arctic Council in May, which is a group attempting to become the international decision making body for Arctic affairs.

For Beijing’s long term plans, moving goods quicker to Europe through the “golden gateway” will be crucial. Access to the Northeast Passage should reduce China’s dependence on other shipping bottlenecks in the Strait of Malacca, Suez Canal, and Panama Canal. For the time being, ships with ice-breaking capabilities will still be needed until the ice recedes further, but China is at least in at the ground floor.

Aside from the transit routes, China is just one of many countries chasing access to largest fields of untapped hydrocarbons in the world. Approximately 13% of the world’s undiscovered oil, or 90 billion barrels, and 22% of undiscovered natural gas reserves, 509 trillion cubic metres, are located in the Arctic. All of it is at least technically recoverable, so long as the ice stays back.

China would dearly love to work on recovering the energy reserves, but does not have direct access to the region. To compensate, Beijing is developing diplomatic ties with adjacent Arctic countries.

Estimates vary, but it would seem unreasonable to expect a completely ice-free route to the Arctic for perhaps another decade or two – at least one remaining open for half the year. The new route depends on the ongoing global warming trend, but such phenomena do not move quickly. Until the route is stable, insurance rates will be high and probably outweigh any savings the shipping companies will gain by shortening the delivery times.

However, the benefits of both establishing a political presence and voice in the Arctic, as well as gaining valuable experience with polar shipping are sure to incentivise Beijing’s drive to extend its influence in the far north.

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