A new world order

Russian fish replacing Alaska’s in China

(This story was updated on May 29, 2023 to reflect that Russia plans to make the ice-choked Northern Sea Route a year-round shipping corridor starting in 2024.)

Most Alaskans might remain oblivious, but economic fallout from the Russian invasion of Ukraine continues to settle on the 49th state a half a world away.

“In 2022, trade turnover between Russia and China rose by 29.3 percent, year-on-year, to $190.27 billion,” according to Russia’s Port News, and a big chunk of that business was in fish.

“In January-March 2023, exports of Russian fish products to China totaled 271 thousand tonnes, up over two-fold, year-on-year. Its value rose by 78 percent year-on-year, to $553 million,” according to the website.

It wasn’t that long ago that China was being trumpeted as the great new market for Alaska seafood.

“China holds big promise to become a top customer for Alaska salmon, and not just for the bright red fillets,” Laine Welch, the mouthpiece for the Alaska commercial fishing industry reported in 2017.

“Since 2011 China has been the No. 1 customer for Alaska seafood with purchases nearing $800 million and comprising 54 percent of all Alaska exports to China.

“In Chinese food culture, fish symbolizes abundance and prosperity, which plays into a growing middle class that now earns the equivalent of about $25,000 in U.S. dollars a year.”

Six years ago, the Chinese market for Alaska salmon and other seafood was only expected to continue to improve, but the beginning of the end of that relationship came only a year later in the form of a trade war.

“Last Friday U.S. and Chinese officials announced a bundle of tariffs, each targeting the other nation’s exports in what could become an all-out trade war,” National Fishermen magazine reported in June of 2018.

“The Alaska Seafood Marketing Institute is disappointed in today’s decision by China to increase tariffs on U.S. seafood products,” Alexa Tonkovich, executive director of the Alaska Seafood Marketing Institute, t told the industry trade publication. “China is the largest export market for Alaska seafood and a major reprocessing location. ASMI has been active in the Chinese market for over 20 years and has created strong demand in the domestic Chinese market for Alaska seafood products. Alaska seafood companies have also invested in the market and have many Chinese partnerships.”

Alaska’s business relationships with China have been pretty much on a downhill slide since then, and it’s not just about fish.

The great pipe hope

Former Gov. Bill Walker’s natural gas line pipedream linked to China turned out to be stillborn.

Walker in November 2017 hyped what he claimed was a multibillion-dollar agreement between Alaska; Sinopec, the Chinese gas company; China Investment Corp; and the Bank of China to start pipeline construction.

“It really will open up Alaska, perhaps like we’ve never seen before,” Walker told the Juneau Empire, adding that the state was poised to benefit from Chinese tourism and Chinese demand for minerals as well thanks to his talks with Bejing.

The deal, if it had happened, would have been great for the Chinese. They were supposed to get an ownership interest in the pipeline and a long-term commitment to supply them 75 percent of the gas flowing through it to a liquified natural gas plant to be built on the Kenai Peninsula.

Almost as soon as the agreement between Walker and the Chinese was announced, however, there were rumblings that the Committee on Foreign Investment in the U.S. (CFIUS) was concerned about the deal.

CFIUS has the authority to block business agreements it finds go against the country’s national interest, and with China trying to expand its reach as a global power, a long-term commitment to supply China with cheap natural gas didn’t appear in the interest of the U.S.

National leaders were willing to let U.S. companies already faced with a glut of gas sell some to the Chinese, but those weren’t long-term deals with a guaranteed stable supply.

Less than two years after Walker promised to deliver the long dreamed of gasline, he was out of office, and his plan was dead. Walker’s replacement, Republican Gov. Mike Dunleavy got credit for killing the deal, but the project wasn’t going anywhere anyway.

And now, thanks to the decisions by the U.S. and other Western nations to boycott Russian gas because of Russia’s continuing war on Ukraine, the Chinese are deep into Russian oil and gas.

The Center on Global Energy Policy at Columbia University in February reported that Russia last year became:

• China’s second-largest supplier of crude oil, after Saudi Arabia, delivering 1.7 million barrels per day, which accounted for 17 percent of China’s imports (up from 16 percent in 2021) and 35 percent of Russia’s exports (up from 31 percent in 2021).
• China’s second-largest supplier of coal, after Indonesia, delivering 68.1 million tons, which accounted for 23 percent of China’s imports (up from 18 percent in 2021) and 32 percent of Russian exports (up from 25 percent in 2021).
• China’s fourth largest supplier of LNG, after Australia, Qatar, and Malaysia, delivering 6.5 million tons, which accounted for 10 percent of China’s imports (up from 6 percent in 2021) and 20 percent of Russia’s exports (up from 17 percent in 2021).
• China’s second-largest supplier of pipeline gas after Turkmenistan, delivering 15.5 billion cubic meters, which accounted for 25 percent of China’s imports (up from 24 percent in 2021) and 15 percent of Russia’s exports (up from 5 percent in 2021).

Both the gas and oil shipments from Russia are on rapid growth tracks. The two countries are now nearing agreement on the construction of a second gas pipeline from Russia to China – the Power of Siberia 2, according to the Journal of Petroleum Technology.

At the same time, Novatek – an independent natural gas producer in the Russian Arctic – is nearing completion of an LNG transshipment center in the port of Petropavlovsk on the Kamchatka Peninsula on the western side of the Bering Sea opposite Alaska.

The Petropavlosk terminal will “contribute to boosting cargo turnover along the Northern Sea Route,” Yury Safyanov, the CEO in charge of the company building the plant said in a statement earlier this year. “We are implementing projects at an accelerated pace, and we expect to launch the Kamchatka project at the end of 2023.”

The gas will come from Novatek’s Yamal plant in the Siberian Arctic about 1,500 miles northeast of Moscow. A $27-billion expansion project began there in 2017 with China a major investor, Phys.org reported at the time. 

The project is now operational and growing with with the Energy Intelligence website warning that “Novatek aims to establish almost as much liquefaction capacity in the Russian Arctic as there currently is in LNG powerhouse Qatar.

“Novatek’s LNG ambitions and development of the Arctic match the Kremlin’s strategic energy objectives. Historically, Novatek’s LNG expansion plans have irritated (state-owned) Gazprom, which considers them to pose unnecessary competition to its pipeline exports and believes the tax breaks they have been granted undermine Russia’s budget revenue. But that may be an irrelevance if the EU phases out Russian pipeline gas imports by 2027 (as the Europeans have promised to do).”

While the U.S. continues to talk about Arctic development while doing nothing – there was another big talkfest in Anchorage in March but nothing came of it – the Russians are actively developing the Arctic with help from the Chinese. And the war in Ukraine is only encouraging more Chinese involvement, given that the economic laws of supply and demand apply even to totalitarian regimes.

The loss of European demand for Russian gas and oil has pushed down the price for Russian oil and gas which has made it more attractive to both China and India, a country which also doesn’t seem to care what happens in Ukraine.

“We didn’t allow the geopolitical turbulence (ie. the Ukraine war) or the pandemic or anything else to come in the way of our ability to supply to our consumer,” India energy minister Hardeep Singh Puri told CNBC. 

Environmental costs

There are implications here for Alaska that stretch beyond economic losses, both real in fisheries and potential, in oil and gas.

For one thing, it’s hard to raise the money to build a $40 billion Alaska gas pipeline if other suppliers are already selling gas cheaper than it can be supplied from the 49th state.

Japan was once considered a key target for the sale of Alaska gas, but it has gone nuclear. Despite the Fukushima disaster 12 years ago, which led the Asian nation to close nuclear power plants and swear off nuclear energy, the Japanese have reversed course in the name of energy independence.

In February, Nikkei, the world’s largest financial newspaper, reported that “Japan’s Cabinet formally adopted a policy…that will allow for the operation of nuclear reactors beyond their current 60-year limit alongside the building of new units to replace aging ones as part of efforts to cut carbon emissions while ensuring adequate national energy supply.”

The plan to boost nuclear energy production to meet 20 to 22 percent of Japanese electric demand by 2030 is so aggressive some have questioned whether it is even feasible.

“Even if nuclear power supplies only 10 percent of Japan’s electricity after 2050, more than 10 new reactors may have to be built,” the East Asia Forum reported in March.

“Yet according to polling by Nikkei, 53 percent of Japanese support restarting reactors so long as safety can be ensured, the first time a majority has favored this in over a decade.”

Energy independence is in the national interest of every country on the globe, and nuclear power is the only way Japan can gain its independence on that front.

Nuclear power plants supply electricity at relatively stable costs while hydrocarbon energy costs oscillate violently depending on global markets. Since the start of this decade, global oil prices have varied from under $20 per barrel to over $120 per barrel.

Despite this, the International Energy Authority (IEA) expects demand for liquid fuels to grow through 2035 and possibly longer depending on national electrification programs intended to shift transportation away from hydrocarbons to electricity supplied by both renewable sources of electricity – wind, solar, hydroelectric and blue hydrogen – plus natural gas.

Russian President Vladimir Putin, well aware of market realities, has committed his country to ever-expanding oil and gas development.

“The objective of the energy strategy of Russia is to maximize the effective use of natural energy resources and the potential of the energy sector in order to sustain economic growth, improve quality of life, and strengthen Russia’s foreign economic positions,” according to the IEA. 

A busy new shipping route

Much of the country’s effort to sustain economic growth is focused on resource development in the Arctic.

“Russia’s 2020 Arctic strategy plans the launch by 2035 of five new major oil projects on the continental shelf, while Arctic liquified natural gas (LNG) production should increase from 8.6 million tonnes in 2018 to 91 million tonnes by 2035, to be shipped out via the newly ice-free Northern Sea Route,” notes Energy Monitor, a green-leaning, energy-monitoring website. 

“As far as the energy lobbies in the Kremlin are concerned, the green transition does not exist,” Mathieu Boulègue from Chatham House, an international think tank based in London, told the website. “The Russian state is now so reliant on fossil fuels that oil and gas exploitation is required to feed the beast of vested interests, corruption and state machinations. To change tack now would bring into question the very survival of the current regime.”

What all of this is sure to mean is more oil and gas shipments to Asia via both pipelines and that Northern Sea Route east across the Arctic Ocean to the Bering Strait and then south into the Pacific.

More shipping brings more chances for shipping disasters, including possible oil spills with which neither Russia, Alaska nor the U.S. are prepared to deal with in the region.

And the Russians have now announced that their fleet of icebreakers will next year make the Northern Sea Route a year-round shipping corridor through one of the most environmentally hostile regions on the globe – ice and 50-degree-below-zero temperatures be damned. A major shipping accident seems almost inevitable.