Melting Arctic Ice Pits Russia Against U.S. and China for Control of New Shipping Route

Warming in the Arctic is happening twice as fast as the rest of the planet. Last year, ice coverage reached some of the lowest levels ever recorded, and it is only expected to shrink further in 2021. That is pushing Moscow to build infrastructure along the route, which can cut the distance of trips between Europe and Asia by a third compared with shipping through the politically fraught South China Sea or congested Malacca Straits currently used for cargo.

This year’s shipping season on the passage, which spans Russia’s expansive Arctic coast, started earlier than ever before, in February, when the liquid natural gas carrier Christophe de Margerie sailed from China to the northern Yamal peninsula. The voyage followed an unprecedented nearly eight-month shipping season last year, giving Russia a taste of what the future could hold for the Northern Sea Route if traffic continues to grow.

A host of issues remain, such as icebreaker escort tariffs, transit costs and navigational unpredictability in the Arctic Circle. But an opening of the passage would put Russia at the center of a new global shipping route for energy supplies and cargo. Moscow says it has the right to restrict passage and set prices for transit, and the route would also give it an important bargaining chip in its ties with China—one of the biggest beneficiaries of the 3,500-mile long passage.

“We have to see what the future holds, but it could very well look a lot like this,” said Alexander Alyoshkin, head of shipping for the transport division of SUEK, Russia’s biggest coal company.

Mr. Alyoshkin said the company had planned one test-run shipment to China across the route last year from its port at Murmansk, but boosted that number to six: “In June, when we saw over satellite that there is practically no ice on the Northern Sea Route, we started to plan for a few more runs, then a few more.”

“This year we’ll do more, as many as we can,” he said.

The U.S. says Russia doesn’t have the right to regulate traffic through the waters and environmentalists say heavy shipping on the waters could cause untold damage to the high north’s fragile ecosystem. But with other shippers, including the Chinese, interested in exploring the route, Russia has pushed ahead with plans.

So far this year, traffic regulated by the Russian government is up 11% from the record 1,014 trips made last year. That is a drop in the ocean for global shipping that sees some 60,000 vessels every year. Last year’s traffic was up more than 25% from 2019 with 33 million tons of cargo, oil and liquefied natural gas, and Moscow expects that number to grow. Russian President

Vladimir Putin

has said he wants cargo to double to 80 million tons by 2024.

During his summit with U.S. President

Joe Biden

in Geneva on June 16, Mr. Putin said the two leaders talked about the project where Moscow, which has more nuclear icebreakers than any other country in the world, has developed a new class of vessels.

“Navigation will become practically year-round due to climate change,” Mr. Putin said. The two leaders spoke at length about the Arctic, where the U.S. has accused Russia of militarizing the region by reopening old Soviet-era bases. Mr. Putin called the accusations groundless.

The scope of the project, expected to cost around $11.5 billion, highlights Moscow’s great ambitions in the Arctic.

The State Atomic Energy Corporation, or Rosatom, which manages a fleet of nuclear icebreakers that can cut through ice up to 10-feet thick, is drafting plans to station personnel along the route, boost port infrastructure along the shipping lane to allow for loading, and provide navigational and medical aid for ships.

It has already stationed one floating nuclear power plant on the route, to help with onshore construction.

“The Arctic region is quite a unique one so we must think about infrastructure in a complex way,” said Polina Lion, chief sustainability officer at Rosatom.

Russia still has a way to go in upgrading its network of dilapidated, Soviet-era ports along the route to provide for loading and refueling. British mining company, Kaz Minerals, has agreed to build a port on the eastern tip of the route to export gold and copper from a newly acquired asset, said Alexey Chekunkov, minister of development for the Arctic and Far East. The port will be open to other ships passing, he said.

But shippers remain cautious.

China is watching progress but hasn’t yet made any commitments to invest in the passage or give cargo guarantees. China’s state shipper, COSCO, carries out around nine test runs every year, but the amount of Chinese shipping could rise, said Ms. Lion, as some companies are already in talks to guarantee some annual shipping volumes.

Beijing is eyeing the route in case weather makes navigation more predictable or if other trade routes in the South China Sea are disrupted by tensions with the U.S. or its allies.

Moreover, “There is a certain interest in the NSR from the Chinese Navy for strategic mobility to move troops between Pacific to Atlantic theaters,” said Vasily Kashin, an expert on Russia-China relations at the Moscow-based Higher School of Economics. “And they do have this interest in establishing their presence on the Atlantic.”

Russia has already boosted its military presence in the Arctic and along the Northern Sea Route, but the U.S. says Moscow’s legal jurisdiction doesn’t extend to the waters where the Kremlin is working to develop the passage.

“Unlawful regulation of maritime traffic along the Northern Sea Route undermines global interests, promotes instability, and ultimately degrades security in the region,” a U.S. naval strategy paper on the Arctic said earlier this year.

Russian authorities are still determining the transparent tariff duties, both for transit and for icebreaker escorts along the passage, that are key to attracting both investment and cargo.

Traffic on the route, however, is already guaranteed by Russia’s increasing production of Arctic oil and gas. The majority of vessels carry LNG from the port of Sabetta, where gas from Russian energy giant Novatek’s Yamal project is loaded for consumers in Europe or Asia. Crude from Rosneft’s planned Vostok oil field project will also be sent along the route when it comes onstream.

But Russia has yet to convince Europe’s biggest shippers about the Northern Sea Route.

The Danish integrated shipping company, Maersk, which made a test run of the passage in 2018, said it isn’t pursuing the route as a feasible alternative to current shipping passages, citing possible environmental damage to the fragile Arctic ecosystem.

Hapag-Lloyd AG

, the German international shipping and container transportation company, has also said it isn’t interested.

Still, Russia says it will be able to bring Western shippers onboard if the route proves predictable, and Mr. Chekunkov says the use of nuclear-powered icebreakers to help with escorts won’t add to carbon emissions in the high north.

“The dream, of course, is the dream of a regular container line. We are not there yet,” said Mr. Chekunkov. “But I’m a believer.”

Write to Thomas Grove at [email protected]