Could Russia pipe gas to Seoul via North Korea?

Via The BBC, a report on the possibility of Russia piping gas to Seoul via North Korea.  As the article notes:

“…Looking at the map, it is a no-brainer. Less than 700km (435 miles) separate one of the world’s biggest energy producers and one of its neediest consumers.

Russia sells natural gas; South Korea wants to buy it. Building a pipeline between the two seems like such an obvious solution that it has been on the table for years.

But for years, that is where it has stayed, because those crucial few hundred kilometres which separate them run through North Korea – a country still technically at war with its neighbour to the south.

And which government wants a key energy supply controlled by its enemy? Well, South Korea, for one.

President Lee Myung-bak – in line with presidents before him – has been sounding remarkably keen on the idea recently. And so, for the first time, has his North Korean counterpart Kim Jong-il.

Mr Kim met the Russian president in Siberia last month to discuss the project, since when North Korea’s state media has carried glowing reports on the prospect of warmer economic ties with Russia.

So what is behind the sudden upsurge in interest?

Regional scramble

As Mikkal Herberg, an energy specialist at the National Bureau of Asian Research (NBR) points out, the race is on for energy markets in Asia.


“Asia has become ‘ground zero’ in global energy markets,” he said in a report last year.

“Asia’s boom in oil and natural gas demand has increasingly provoked a scramble among regional powers to secure access to future oil and gas supplies, as well as intense competition over control of transportation links [and] infrastructure.”

South Korea has a pressing need to protect its energy supplies in the face of growing regional competition. It built its $800bn (£520bn) economy by importing 96% of its energy from elsewhere.

And it also has a growing interest in Russia’s natural gas, as it tries to wean itself off reliance on Middle Eastern oil.

Gas imports last year rose to 15% of the country’s total energy imports – all of it brought in by tanker as Liquefied Natural Gas (LNG) at a cost of $17bn, according to the Ministry of Knowledge Economy.

Importing gas via pipeline from eastern Russia may save a bit of money. But far more importantly, says Mikkal Herberg, it would mean securing an energy supply closer to home.

“What they’re worried about is diversification: that they’re 100% reliant on imported LNG,” he says – at a time when maritime threats to Asia’s sea lanes are seen to be a significant problem.

“Eighty per cent [of their oil] comes from the Middle East. They’ve been working for 20 years to change that, and they haven’t been able to because that’s where the oil comes from. [So] they’d dearly love to diversify their gas supply, so they’ve worked a long time to make this gas pipeline work.”

Mr Lee, answering questions on a live television programme this month, said he expected talks on the pipeline to proceed “faster than expected” because, he said, it would benefit all three parties.

A senior government official in South Korea, who spoke on condition of anonymity, went further – saying “it could not only boost economic cooperation between the three countries involved, but could also contribute to peace in North East Asia.”

But, he admitted “the biggest concern whenever it comes to North Korea is their unpredictability… We will need a strong commitment that they will keep their promises.”

Political leverage?

North Korea is increasingly public about its need for income and investment.

Professor Andrei Lankov, from Kookmin University in Seoul, says the pipeline is attractive to the North Korean leadership because “they need money in a way that would not require reforms and would not bring foreign knowledge inside the country”.

Even a railway line, he says, would mean North Koreans seeing trains full of large, bright containers, passing every few minutes – “a pipeline is ideal, because there’s no interaction”.

But despite the economic benefits, many analysts believe that the chances of Pyongyang using the pipeline as leverage – either for political or economic gain – are high.

Paik Keun-wook, a specialist in Asian energy from the Royal Institute of International Affairs in London, says it could turn out to be “a very serious threat”.

Mikkal Herberg says that “time and time again, the North Koreans have proved they’re working for short-term agendas – not willing to meet [Seoul’s] needs on security”.

And the political atmosphere now, he says, is more tense than before. “I think it’s a ploy by North Korea… looking for ways to look a little more co-operative without easing up on key strategic issues.”

Mr Lee has said his government is already discussing with Russia how to compensate for any disruption to supply.

“I know there are worries amongst South Koreans,” he said. “People are wondering whether the gas could be cut off. But do you think we haven’t thought about this?”

The gas provided by the proposed pipeline, he said, would be 30% cheaper than current LNG shipments.

“If the line gets cut off by the wrongdoings of North Korea or Russia, the gas should be continuously provided at this cheaper price, even if it were to be shipped,” he said.

And, as Andrei Lankov points out, it is not just North Korea that could use the pipeline to punish its neighbours. A hardline government in Seoul – or even in Washington – might be just as tempted to reduce this new cheap source of income.

China wrangling

But despite the potential pitfalls, officials in all countries see political mileage in Pyongyang moving closer to Moscow – balancing North Korea’s heavy reliance on China.

Which brings us to perhaps the most interesting part of the picture – why Russia itself is keen on pushing this deal through at the moment.

At face value, of course, energy producers always want customers. And Andrei Lankov believes Russia’s interest in the project is a straightforward bid for regional influence and a long-term economic foothold: “putting down a marker”, he says, for a more peaceful, stable time on the peninsula.

But according to Dr Paik, this is really part of a much bigger game being played out in North East Asia.

This deal, he says, is Russia’s “Korea card” – an attempt to pressure China into agreeing to higher prices for Russian gas.

“The Korean market isn’t really big enough,” he says. “What they’re intending to do is make a benchmark price.. with Korea, [then] apply it to the Chinese.”

Russia and China have been working on a gas pricing deal for several years, but talks broke up in June leaving both parties frustrated, he says.

Since the talks with North Korea in August, Beijing has announced a massive increase in gas imports from Turkmenistan – a sign, says Dr Paik, that “Gazprom’s game backfired”.

Gazprom, meanwhile, has been publicly pushing forward with the Korea deal, signing a road map with South Korea this month, and according to local media reports preparing to wipe out billions of dollars’ worth of North Korean debt in preparation for the proposed pipeline deal.

Nevertheless, Mikkal Herberg agrees that Korea is not the real prize. The Korea deal represents a relatively modest amount of gas, he says.

“[Russia] needs to move into the Chinese market, but increasingly the Chinese feel they’re comfortably supplied with gas. I think the Russians have played themselves out of the game.”

This entry was posted on Tuesday, September 27th, 2011 at 7:36 pm and is filed under Gazprom, North Korea, Russia, South Korea.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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