Post 36 (2012-1-27): Yonahp reports from anonymous sources that despite the death of Kim Jong-il, the DPRK leadership is still interested in pursuing the pipeline. According to the article:
Top North Korean officials have vowed to move ahead with an ambitious project to build a pipeline through their isolated country to ship Siberian gas to South Korea.
The North Korean officials reaffirmed their commitment to Russia following the death last month of their former leader Kim Jong-il, according to a diplomatic source in Moscow, without identifying the North Korean officials.
Post 35 (2011-11-17): According to RIA Novosti, the DPRK looks to reap $100 million per year in transit fees:
North Korea will get $100 million annually if it becomes a transit country for Russian gas supplies to South Korea, the Russian president’s envoy to the Far East said on Thursday.
In August, President Dmitry Medvedev said after talks with his North Korean counterpart Kim Jong-il that the parties had reached an agreement to draw up a project to build a gas pipeline to South Korea. The pipeline will cost an estimated $6 billion.
“It [$100 million] would be a huge sum for a country with annual gross product of $10 billion. Moreover, the country would have to make no big effort to get it,” Presidential plenipotentiary envoy to the Russian Far East Victor Ishayev said.
Alexander Medvedev, Gazprom deputy board chairman, said the expected volume of Russian gas exports to South Korea was raised to 12 billion cubic meters from 10 bcm.
Supplies of Russian gas to South Korea are expected to be started in 2017. Gazprom currently supplies up to 1.5 million tons of liquefied natural gas to South Korea annually.
Post 34 (2011-11-16): According to the Daily NK, Russia has agreed to guarantee deliveries of gas via the pipeline:
Responding to fears over the possible risks that may come with the proposed three-way gas pipeline from Russia to South Korea via the North, Russian Ambassador to the Republic of Korea Konstantin Vnukov reaffirmed again on Tuesday that Moscow is ready to shoulder that burden.
Delivering the keynote address at a forum held by the Korean Council for Reconciliation and Cooperation in central Seoul, Ambassador Vnukov asserted that Russia is in a position to “guarantee the risks arising from the North Korea pipeline.”
The ambassador’s words mirror an earlier pledge given by President Dimitry Medvedev during a summit meeting with President Lee Myung Bak in St. Petersburg on November 2nd, in which the Russian president revealed that his country would be willing to assume responsibility for the security risks associated with the project.
Vnukov also reaffirmed the benefits of the project for South Korea, saying, “Russian natural gas is coming into South Korea at the moment, but if imports were to be brought in via a pipeline, the cost would fall by 20-30%.”
He further noted that there is already a gas pipeline network in Russia stretching as far as the Russia-North Korea border region, meaning that “practical discussion about this can be had,” although he noted that it would require greater tripartite cooperation.
“Russia is pushing forward with joint projects including not only the gas pipeline but also the railways project,” he concluded, “These projects offer benefits to all of the North, the South and Russia, and help with the security of the Korean Peninsula and the normalization of inter-Korean dialogue.”
Post 33 (2011-11-4): According to the Donga Ilbo, the ROK is planning to offer the DPRK a natural gas power plant (rather than cash) in return for pipeline transit rights. The article reports:
South Korea plans to build a natural gas power plant in North Korea in return for the latter letting a gas pipeline linking the South and Russia pass through North Korean territory, a source said Thursday.
According to the source from the ruling Grand National Party of South Korea, if the pipeline goes through the North, the South is considering building a power plant rather than offering cash that Pyongyang could misuse.
“North Korea has no reason to reject this offer considering its dire power shortages,” the source said.
South Korean President Lee Myung-bak agreed with Russian leader Dmitry Medvedev to closely cooperate to ensure success of the pipeline, so debate has risen in Seoul on how to compensate Pyongyang. Certain voices warn that if Seoul pays between 100 million U.S. dollars and 200 million dollars in cash, Pyongyang might use the money to expand its nuclear and military facilities.
Without transparency in the North`s use of the funds, others say, South Korea and the U.S. could even argue over the pipeline project in addition to conservatives in Seoul.
“The key issues in the pipeline project are safety and the passage fee,” told Won Hee-ryong, a member of the ruling party`s supreme council, at a party meeting. “Public consensus is necessary since public opinion will be divided if Russia gives the money paid by the South to the North in cash.”
Therefore, Seoul and Moscow will likely include specific details on the proposed power plant in the North when they sign a contract for the pipeline and gas supply. Seoul`s plan is to pay cash to Moscow for the pipeline, while the latter will use part of the money to build a natural gas plant in the North.
The South would then provide part of the natural gas from Russia to the North, which would use the gas to generate power.
The source said it was in the same vein that Medvedev promised that Russia will take complete responsibility for the risks of the pipeline going through North Korea.
Two points: First, this plan seems to be taking the proposal to route gas to the DPRK through South Korea seriously. See the map below for more details, but the bottom line of the proposal is that if Pyongyang carries through with a course of action that leads to the disruption of gas supplies, Pyongyang itself would pay a direct economic price for their behavior. The offer to build a gas power plant, in this sense, can be seen as an effort to coax North Korea into an economic game in which it faces a strong economic incentive to control its future behavior.
Secondly, every country’s budget is fungible. Offering to build a power plant instead of cash might reduce the quantity of funds the DPRK devotes to activities the international community considers undesirable, however, it will not zero them out. If the South Koreans and Russians build and maintain a power plant int he DPRK, this will free up significant resources in the DPRK budget for other activities, some of which may be considered unacceptable by its neighbors.
Post 32 (2011-11-3): The Korea Herald also reports on the Medvedev-Lee talks in St. Petersburg:
The two leaders agreed that once the security problem was dealt with, they could consider supplying surplus electricity as well as gas from the Russian Far East to South Korea via the North, Choe said.
A tentative agreement reached between Korea Gas Corp. and Russia’s Gazprom calls for starting the construction of a pipeline through North Korea in 2013 in order to begin gas supply in 2017.
The two state-funded companies agreed on the roadmap in September, Nikolai Dubik, head of Gazprom’s legal department, said at the Korea-Russia Dialogue forum in St. Petersburg Wednesday.
The roadmap calls for the completion of commercial negotiations on the basic conditions related to the pipeline gas project by January and the signing of a deal between January and April.
The two sides will then draft the gas pipeline route between March next year and September 2013, start the construction right away and complete it by December 2016 to begin supply in January 2017, Dubik said.
Chief executives Choo Kang-soo of KOGAS and Alexey Miller of Gazprom signed on to the plan in September during Choo’s visit to Moscow.
Alexander Medvedev, head of Gazprom’s export, said in an international management forum in Tokyo late last month that his staff were in talks with their Korean counterpart on the main conditions related to the gas supply.
He said they plan to complete the discussions by January and sign a basic agreement in mid-2012.
Lee said intensifying Korea-Russia cooperation in Siberia and the Russian Far East region was highly encouraging for the future of the two countries as well as Northeast Asia in a speech at the closing ceremony of the Korea-Russia Dialogue forum earlier Wednesday.
“I visited Siberia and the Russian Far East a number of times when I was a businessman, confirmed the infinite potential of the region with my own eyes and have sought bilateral economic cooperation since,” Lee said at the second annual KRD forum in St. Petersburg.
Post 31 (2011-11-2): The Korea Times reports on the Medvedev-Lee summit in St. Petersburg:
President Lee Myung-bak and Russian President Dmitry Medvedev agreed Wednesday to work closely together to push a pipeline project to send Russian gas to South Korea via North Korea.
During a summit here, Lee and Medvedev shared the view that the three sides involved will benefit if the project goes ahead.
Russia could send as much as 10 billion cubic meters of gas to South Korea a year if the trans-Korea pipeline is built.
South Korea could purchase quality Russian gas at a reasonable price — at nearly a 30 percent discount compared to current prices — while North Korea can earn an estimated $100 million a year in transit fees.
The gas pipeline was on top of the agenda for the Lee-Medvedev summit.
Although they agreed on the benefits, Lee addressed the political risks of the project. He said he was concerned with the possibility of North Korea, which was responsible for two attacks last year, “playing games” with the pipeline.
If that problem is resolved, Lee said Seoul could consider cooperating with Moscow on sending electricity from the Russian Far East to South Korea through North Korea as well.
Although the two leaders shared the need for cooperation on the project, no concrete agreement signaling a development in the matter was announced after the talks.
The state-run Korea Gas Corporation signed an exploratory blueprint with its Russian counterpart Gazprom in September.
Russia has been talking with North Korea over the pipeline project after Medvedev and North Korean leader Kim Jong-il agreed to construct the gas pipeline during a summit held in Sakhalin in August.
In an interview with French daily Le Figaro, Lee said the three sides involved may be able to sit down together some time in the future to discuss the trilateral project.
“But there are several conditions that need to be met before this happens,” he said.
Post 30 (2011-11-2): The Korea Times reports that South Korean officials are downplaying the importance of the roadmap:
South Korean officials on Wednesday downplayed the significance of a roadmap it had agreed with Russia to build a massive gas pipeline linking the two countries via North Korea, saying the project still has a long way to go.
On Tuesday, a senior Russian official said the two countries hope to start construction of the transnational gas pipeline in 2013 and transport Siberian gas through the connection in 2017.
The timeline was part of a memorandum of understanding South Korea’s state-run gas firm Korea Gas Corp. signed in September with its Russian counterpart Gazprom on the project, said Nikolai Dubik, chief of Gazprom’s legal department.
On Wednesday, South Korean officials downplayed the plan’s significance, saying it is not legally binding and little more than wishful hopes for now. They stressed the two sides have not made any progress since September, and that any meaningful progress can come only after Russia and North Korea agree on pipeline transit fees.
“There has been no progress since the MOU in September,” a government official said on condition of anonymity. “Russia has not yet made any commercial proposals to us, such as gas prices or terms of construction. Once proposals are made, we have to hold negotiations.”
The ambitious project, which has been discussed for about 20 years but never materialized due in part to security tensions, gained momentum after North Korean leader Kim Jong-il expressed his willingness to permit the envisioned pipeline to go through the nation during summit talks with Medvedev in August.
South Korean President Lee Myung-bak and Russian President Dmitry Medvedev were expected to discuss the project during summit talks in Russia’s second-largest city of Saint Petersburg Wednesday, along with efforts to end Pyongyang’s nuclear ambitions.
“I doubt today’s summit will produce any specific results (about the pipeline),” the government official said.
The project has drawn keen media attention because it could help reduce tensions on the divided peninsula. Lee has also said that the project is workable as it would benefit all parties involved.
But in an interview with the French newspaper Le Figaro published Tuesday, Lee also said there is a long way to go before the project comes to fruition.
“There will be a point in time where the South, the North and Russia hold three-way discussions,” Lee said in the interview. “But before reaching that stage, a lot of conditions must be fulfilled. Discussions on the gas pipeline project could proceed swiftly, or not. It is difficult to predict for now.”
Post 29 (2011-10-24): The Korea Economic Institute and the National Committee on North Korea co-hosted a presentation with Georgy Toloraya on the current dynamics of North Korea – Russia relations and how their diplomatic efforts affect approaches to solving important issues involving North Korea. You can watch the presentation here.
Post 28 (2011-10-24): Russia, South Korea discuss gas pipeline. According to RIA Novosti:
A Russian delegation has left for Seoul for a meeting of the intergovernmental commission on gas supplies to South Korea and construction of a pipeline via North Korea, a source in the Russian Energy Ministry said on Monday.
“A meeting of the intergovernmental commission will be held tomorrow. A large Gazprom delegation has set off there and I hope they will reach an agreement,” the source said.
The source said that three-party negotiations would start only after all necessary agreements with South Korea were concluded. “We are looking forward to holding tripartite talks,” the source said.
In August, President Dmitry Medvedev said after talks with his North Korean counterpart Kim Jong-il that the parties had reached an agreement to draw up a project to build a gas pipeline to South Korea. The pipeline will cost an estimated $6 billion.
Alexander Medvedev, Gazprom deputy board chairman, said the expected volume of Russian gas exports to South Korea was raised to 12 billion cubic meters from 10 bcm.
Supplies of Russian gas to South Korea are expected to be started n 2017. Gazprom currently supplies up to 1.5 million tons of liquefied natural gas to South Korea annually.
Post 27 (2011-10-5): Stephan Haggard links to a fantastic report (in the Korean Yonhap) which offers an economic solution to the DPRK’s credible commitment problem with regards to pipeline contract enforcement: build the pipeline to Pyongyang via South Korea.
In this scheme (above left), if Pyongyang cuts off the gas in the pipeline, Pyongyang can be cut off as well. This is basically a form of bonding (insuring) the investment in the absence of a credible third party contract enforcer.
Haggard offers the following information from the Korean report:
South Korean demand will always be larger than North Korean demand, creating asymmetries in bargaining power. But this scheme requies that North Korea have some skin in the game beyond simply collecting transit fees. This idea creates a classic—and beneficial–mutual hostage situation: “you hold me up, I hold you up.”
Kwon’s cost estimate for the project–$2.2 billion—is slightly lower than what Kogas’ Russian subsidiary (Kogas Vostok) has estimated ($2.5 billion). But the project would increase Russia’s share of the South Korean market from 6 to nearly 30 percent. While the Kogas Vostok official stated that the pipeline option is more efficient than either compressed or liquefied natural gas (CNG or LNG), he also admitted that the pipeline involved “unavoidable” political risks.
(more…)
