Russian Pipeline: Bringing Gas and Building Trust

A discussion over energy at the summit last week between Russian President Vladimir Putin and North Korean leader Kim Jong-un has excited the government in South Korea, where the government is desperately looking to entice the North Koreans to come in out of the cold.

Among the topics that came up was access for the North Koreans to Russian electricity supplies and the question of North Korea allowing the Russians to build a pipeline that would ship natural gas from Vladivostok, where the summit was held, through North Korea and across the demilitarized zone to sell to the South Koreans.

While international media articulate US concerns that these topics plus Putin offer to help break the nuclear deadlock with the US over North Korea’s nuclear weapons might be code for sanctions-busting, in South Korea the Russian contribution is being seen as helpful.

The gas pipeline project is especially significant as the idea has been around for a quarter-century but until now blocked by politics. South Korean President Moon Jae-in and Putin have already agreed to start joint feasibility studies.

The flow of Russian gas overland through North Korea to South Korea could be a flagship project of inter-Korean cooperation. But it could also be even more significant. It is possible the pipeline could represent the first small step towards eventual regional East Asian economic integration.

The argument to that conclusion is quite simple. Until now, this project has not gone ahead because of politics. When it came up a generation ago following the state visit of then president Kim Dae-jung to Russia, the government of North Korea at that time could not ideologically justify welcoming outside experts to visit North Korea for a feasibility study on its territory and the pipeline died a natural death.

But times are changing. If the age of ideological confrontation on the Korean peninsula is ending, as we hope it is, all players will be motivated by their respective national self-interest.

What are those interests? Consider first the three main players – Russia, and North and South Korea.

Russia wants the pipeline because it is looking to diversify its gas markets from Europe to Asia. It aims by 2030 to be selling 25% of its natural gas to Asia.

South Korea takes 1.5 million tons of Sakhalin gas a year now and this could increase to 7 million with a pipeline. This will allow Seoul to reduce dependency on current suppliers. Another attraction is that piped gas is cheaper than LNG, which has to be liquefied, shipped and then re-gasified at importing terminals.

As for North Korea, once the pipeline is built, it would be able to charge transit fees. These could be around $150 million a year.

Consider also the interests of the other concerned regional powers.

They, too, could benefit, albeit less directly. It is possible, for example, that Japan might be interested in an extension of the pipeline, from Busan under the sea to Kyushu and even to Honshu.

For its part, China is looking for energy security. It now gets its gas from Turkmenistan to the west and Siberia to the north. Were the trans-Korean pipeline to be extended under the sea to China, it would receive gas from the east, so to speak.

That all said, there is another issue in the way – beside the denuclearization of North Korea, of course – and that is the geo-political standoff between the United States and Russia. Contrary to the general assumption that the gas pipeline will proceed as soon as the relationship between North and South Korean improves, based on a reliable denuclearization scheme, the U.S. still might be unhappy because the project would raise Russia’s political and economic clout in the Far East.

On the plus side, it is possible the US could benefit economically, if it were able to ship gas from Alaska to Korea’s east coast and feed it into the East Asian loop of the gas network.

If North Korea is serious about denuclearizing and if an improvement of relations between Washington and Moscow is on the cards, things may move forward.

With the right leadership, the cooperation and investment required to create the infrastructure to feed gas into the grids of China, Japan and South Korea, with add-ins from the United States, could form the basis for East Asian economic integration that would eventually reshape our region.

The longer-term vision for the United States should be of a Northeast Asia that operates on free market and democratic values. Such a region would be an economic powerhouse and the United States would naturally be a key member.

As a preliminary step bringing North Korea in out of the cold and as part of a broader gas grid delivering energy to the region, the pipeline moves the region in the direction of future economic integration. The United States should be on the right side of such a positive initiative from the outset.


The Author
Younghoon David Kim is the chairman of the London-based World Energy Council and chairman and CEO of the Daesung Group.