China is breaking into Arctic transport through a joint venture between the country’s biggest ocean carrier, COSCO Shipping Holdings Co., and its Russian Counterpart PAO Sovcomflot to move natural gas from Siberia to Western and Asian markets.
The state-owned companies will operate a fleet of a dozen ice-breaking liquefied natural gas tankers from Russia’s massive Yamal LNG project along the northern coast of central Siberia to destinations in Northern Europe, Japan, South Korea and China.
China Shipping LNG Investment Co., a COSCO unit, will operate another nine such vessels, according to maritime data provider Vessels Value Ltd.
The agreement comes a year after Beijing released its first Arctic policy white paper in which it said it said it would encourage investment across the northern sea route and conduct commercial sailings that would be part of a “Polar Silk Road.”
Although the Arctic Sea is thousands of miles from China’s northernmost port, the country wants the northern sea route to be part of its Belt and Road Initiative, an investment program worth trillions of dollars and intended to connect Asia and Europe through sea, rail and road networks.
The country became an observer member of the Arctic Council in 2013, an inter-government forum made up of the U.S., Canada, Russia, Denmark, Norway, Sweden, Finland and Iceland, which considers development issues and sailing rights as the polar ice recedes.
The U.S., Russia, Canada, Denmark and Norway are asserting rights to shipping lanes, and China has made investment there a priority to advance its energy and shipping interests.
China is set to surpass Japan as the world’s biggest natural gas importer this year as it moves away from coal-based power generation and toward cleaner fuels.
“We [China] imported about 57 million tons of LNG last year and we are looking for a steady supply of around four million a year coming from Yamal,” a Chinese shipping executive said. “We also look to move container ships through the northern sea route as warming temperatures melt the ice make it easier to navigate.”
The agreement came as Russia announced that Sovcomflot Chief Executive Sergey Frank would become the head of a new northern sea route committee that would oversee seaborne trade across the waterway, which runs from the Bering Strait to the Baltic Sea and is open from July to November.
Mr. Frank said the project’s transport and logistics will be consolidated into a single platform to optimise sailings, port calls and inland transport of LNG cargoes.
Mr. Frank said in an interview this month that shipments through the northern sea route “are growing by geometrical progression” and will include more container and general cargo ships looking to save time in sailings from Asia to Europe, compared with the traditional route through the Suez Canal.
COSCO has done trial runs through the northern sea route, including vessels moving windmill blades and towers to the U.K. It is also looking to deploy car carriers with China-destined European vehicles.
People involved in setting up the Maritime Arctic Transport LLC joint venture said Cosco also might look to buy stake in Sovcomflot, one of the world’s biggest tanker and natural gas carriers.
The Russian company has been planning for years an initial public offering on a Western exchange, but Moscow hasn’t given the green light.
“A direct sale to Cosco would probably be a good way to raise funds beyond an IPO,” the Chinese shipping executive said. “But it has to be a government-to-government decision.”