Russia’s rising engagement in Arctic game-changer for energy markets


Climate change has been one of the most controversial environmental problems of our century; however, it is not necessarily a negative development for those already allied with the Arctic’s melting waters – namely Russia.

Despite the current COVID-19 glut that stalled natural gas demand worldwide like it did the entire energy sector, Novatek, Russia’s second-largest gas producer, continues to eye increasing its liquefied natural gas (LNG) production through Yamal LNG and new Arctic LNG 2 facilities in Siberia.

The company most recently inked new contracts to complete its ice-breaking fleet, determined to make the Northern Sea Route (NSR) a completely new alternative to the south with year-round transportation, and by doing that, enabling vast amounts of natural gas distribution at a lower cost and with speedier deliveries to Europe and Asian markets.

Moscow, with close proximity to the world’s yet-to-be-discovered underground richness, wants to further increase its share on the global energy market and is keen on investing in cheaper alternatives like LNG.

It has already turned toward the Arctic’s untapped chilly waters, which are said to have one-fifth of the world’s natural gas resources, to better compete with other major LNG suppliers like Qatar and Australia along with the U.S.

Russian natural gas is significant for two major buyers, Europe and China.

While Europe has been diversifying its sources with a logic of “better to have more supply channels than depending on one,” China, who was projected by the International Energy Agency (IEA) to see a demand boom in near future, attributes great importance to new supply routes in the north initially dubbed free from political restrictions that may occur on the traditional Suez Canal.

Oğuzhan Akyener, the head of the Turkey Energy Strategies & Politics Research Center (TESPAM), told Daily Sabah that the long-term projections show the most important energy source of the future will be natural gas.

“In this context, natural gas prices will become more independent from oil prices,” he said, which makes it key to immediately start investing in the natural gas projects of the future.

Akyener said the trend in natural gas markets is shifting toward LNG options rather than pipeline gas due to the cheaper unit costs of the LNG facilities and the political pressure on the international pipeline projects along with the change in the regions where demand will be generated and the strengthening of the spot markets.

“Russia, which evaluates the future trends well, reshapes its gas export policies, already establishing a fixed distribution system with three new pipeline projects, and makes significant investments in the LNG field,” Akyener said.

The country “aims to increase the LNG facility capacity, which is currently around 18 million tons per year, to 120 million tons in the 2040s,” he said, and that the melting of the ice in the Arctic region creates an important opportunity for Russia to access world markets and strengthen its presence.

Ice-class tanker fleet

The Russian energy giant Novatek for its Arctic LNG 2 project, in which it has 60% share, has signed charter agreements with Mitsui O.S.K. Lines, Ltd. (MOL) for three icebreaking LNG carriers, the Japanese company announced earlier this month. The three vessels will be built by South Korean Daewoo Shipbuilding & Marine Engineering Co., Ltd. (DSME) and are scheduled for delivery in 2023. Novatek has also contracted with Russia’s Sovcomflot (SCF) for three other icebreaking LNG carriers to be built by the same shipbuilding firm.

“The project has successfully completed chartering of the required ice-class tanker fleet when you take into account the previously signed charter…

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