Korea Gas Plan Targets China

Russia boosts competition with North Korea pipeline.
An analysis by Michael Lelyveld
Kim Jong Il (C) inspecting the Bureiskaya hydro power station at Talakan in Russia's Amur region, Aug. 21, 2011.

Russia's plan to export gas through North Korea may be aimed at spurring China to compete for Siberian energy, analysts say.

On Aug. 24, President Dmitry Medvedev met with North Korea's reclusive leader Kim Jong-il at a remote military post in southern Siberia, four days after Kim crossed into Russia by armored train.

Following the meeting, Medvedev announced a commission to study a pipeline project through North Korea that would supply South Korea with 10 billion cubic meters (353 billion cubic feet) of gas per year from the Russian Far East.

"As far as I understand, North Korea is keen on this sort of a tripartite project involving Russia and South Korea," Medvedev said.

But experts see the plan for a 700-kilometer (435-mile) connection through North Korea as a high-risk venture that is unlikely to come about.

The primary concern is a matter of trust, said Mikkal Herberg, research director for energy security at the Seattle-based National Bureau of Asian Research.

"The first problem is that South Korea's not going to be interested, at least at this stage of the game, in relying on North Korea to be a significant transit state for their natural gas," Herberg said.

Mixed response

Reactions from Seoul have been mixed.

On Aug. 30, Hong Joon-pyo, chairman of South Korea's ruling Grand National Party, spoke about the prospect in glowing terms, JoongAng Daily reported.

The trans-Korean pipeline has been "a dream of President Lee Myung-bak since he was chief executive of Hyundai Engineering and Construction," said Hong. But a presidential spokesman declined to confirm Lee's support.

"I have no information about what Hong's remarks mean," Park Jeong-ha said. Other officials were cautious about the proposal.

"Faith between the two Koreas is critical for this process to move forward in earnest," said Unification Minister Hyun In-taek.

Analysts voiced doubts about depending on the north for energy flows, citing Pyongyang's "constant change of words, The Korea Herald reported.

"The project will do more harm than good if North Korea decides to block the gas pipeline whenever relations with Seoul become sour," said the paper, citing unnamed experts.

With its single land border, South Korea now depends on liquid natural gas (LNG) imports by sea for all of the 43 billion cubic meters (bcm) of gas it consumes annually.

Its biggest suppliers are Qatar, Indonesia and Malaysia, according to BP Statistical Review of World Energy.

Price advantage

Russia's Interfax said pipeline supplies would have a price advantage over LNG, citing comparisons by monopoly Gazprom and Seoul's state-controlled Korea Gas Corp. (KOGAS).

The news agency argued that "an overland pipeline would be both the cheapest and the most beneficial for the political climate on the Korean Peninsula." Cash-strapped North Korea could also earn up to $100 million a year in transit fees, the Associated Press said.

But frequent flare-ups in relations make the project a long shot, said Herberg.

"The North Koreans have put their security and their confrontations with the south ahead of the economic benefits consistently and repeatedly over the last 15 years," he said.

"In the current environment, it's hard to imagine how anybody would believe that's changed. If anything, it's more tense than it's been in a decade."

Although KOGAS officials have reportedly voiced interest in pipeline imports from Russia during meetings with Gazprom, the risk of North Korean transit disruptions to the south remains high.

"If they're willing to sink their ships and shell their coastal villages, I think it's not a stretch to imagine them cutting off the gas pipeline," Herberg said.

Russia has been pressing North Korea for the past decade to take part in a series of power, rail and pipeline projects to open links with South Korea, but agreements have produced little progress.


North Korea's distrust, hostile incidents and nuclear activities have frequently intervened.

It is unclear why Moscow believes the results will be different this time, but there have been suggestions that its real motive is to raise China's interest in Russian gas.

Russia's Gazprom has been locked in negotiations for years with China National Petroleum Corp. (CNPC) over deliveries of up to 68 bcm of gas per year through two planned pipelines from Siberia in the east and the west.

The main sticking point has been the price, with CNPC unwilling to meet Gazprom's demands.

Some analysts see Russia's push for a trans-Korean project as goading China to compete for Siberian gas, particularly since the deliveries would be in the east, which is China's preferred route.

"The main obstacle to building a pipeline across North Korea remains the country's volatile relations with South Korea," said industry weekly Argus FSU Energy. "But Russia could be hoping that talks with South Korea will show CNPC that other buyers are interested in its gas."

Herberg said a competitive nudge may be an attempt to justify Russia's price demands. Gazprom has repeatedly missed deadlines for sealing its big China deal.

"It could possibly be in Gazprom's mind," he said. "I think they're increasingly frustrated because the Chinese have shown less and less interest in Russian gas and less interest in paying very high European prices for it."

China's needs

Herberg questions whether China will even need Russian supplies, despite the government's plan to double the share of gas in the nation's energy mix to 8 percent by 2015.

China produced 94.5 bcm and consumed about 110 bcm last year. But Herberg said China is increasing domestic output from conventional sources while developing shale gas, coal-bed methane and biogas.

It has invested heavily in pipeline imports from Central Asia and expects more imports through Burma. LNG imports through China's ports also rose to a record in July.

"China looks to be increasingly well-supplied," said Herberg. "I have a hard time seeing why China would respond to this kind of indirect point of pressure to try to get them to move."


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