China’s Arctic Strategy

China has certainly been busy since it won observer status at the May Arctic Council summit in Kiruna, Sweden.

First, Yu Zhengasheng, Chairman of China’s Political Consultative Conference, visited Finland, Sweden and Denmark with an eye to boosting general trade and cooperation, particularly in the Arctic.

China then announced an expanded research and scientific polar institute that will collaborate with Nordic research centers to study climate change, its impact and desired Arctic policies and legislation. With this, Beijing made clear it did not intend to be a passive member of the Council; it planned to have a real say in its future proceedings. China National Offshore Oil Corporation meanwhile announced a deal with Iceland’s Eykon Energy firm to explore off Iceland’s Southeast coast.

State-owned mining firm Sichan Xinue Mining has also agreed to finance a major international mining project at Greenland’s Isua iron-ore field*. If this venture succeeds, other Chinese state-owned mining companies, such as Jiangxi Zhongrun Mining and Jiangxi Union Mining, which have prospected in Greenland but have not yet started production, would then join it to explore for gold and copper. And other projects like aluminum smelting are already taking shape or will begin, espeically if the Isua project is successful.

These moves come on top of recently announced deals with Rosneft and Gazprom to explore Arctic fields for oil and gas. At the recent Sino-Russian summit, China concluded a contract with Rosneft to triple the size of current oil deliveries to China to 900,000 BPD, putting it on a par with Saudi deliveries to China, according to a recent report in the Financial Times print edition.

But Rosneft won that contract only by accepting further huge Chinese loans of $25-30 billion as cash infusions and agreeing to facilitate the acquisition of oil and gas assets in Russia by Sinopec, an oil and gas company. In other words, as part of its huge energy deals in the Arctic and the Russian Far East (RFE), China has added to Rosneft’s already sizable indebtedness to China, going back to the 2009 deal for the East Siberia Pacific Ocean pipeline. This indebtedness and the size of the planned oil deliveries from Rosneft will give China substantial leverage in the region.

Rosneft will consequently consider Sinopec’s participation in its large-scale project in the RFE, namely the Eastern Petrochemical Refinery jointly established in 2007 by Rosneft and Sinopec’s rival CNPC, China National Petrochemical Corporation. While China will loan Rosneft $2 billion backed by 25 years of oil supply, Rosneft will boost oil exports to China by 800,000 metric tons this year. Annual exports may reach 31 million tons annually or 620,000 barrels a day, more than doubling present volumes.

Igor Sechin, Rosneft’s boss and Putin’s right-hand man, even hinted at going to 50 million tons per annum. Rosneft’s other deal deal with CNPC to drill in the Pechora and Barents Seas in the Arctic similarly highlights CNPC’s growing clout in global markets.

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