Gas Pipeline Tests ‘North Korea Risk’

A gas pipeline project connecting South Korea, North Korea and Russia is expected to be near the top of the agenda at the impending Russia-North Korea summit in Ulan Ude.

People in the diplomatic arena report that Russia is pushing hard for the project, and they say that since Kim Jong Il’s Russia visit happened after discussions on the issue took place, the project is likely to be handed momentum upon his return to Pyongyang.

Certainly, Russian President Medvedev asked Kim Jong Il for cooperation in passing the Russian natural gas pipeline through North Korea in an August 15th letter publicized by Chosun Central News Agency, while energy officials and diplomats are reportedly in close contact.

Elsewhere, Kim Sung Hwan, South Korea’s Minister of Foreign Affairs, visited Russia on July 8th, where he also discussed the issue. Following the meeting, a government official noted, “Russia is persistently persuading North Korea, which holds the key to the gas pipeline connection, and North Korea is also showing more interest than they have in the past.”

For North Korea, the gas pipeline could provide a stable income of approximately $100 million-$150 million. Compared to the Kaesong Industrial Complex, which requires more than 47,000 workers and earns North Korea just $50 million, it is a very attractive figure.

Analyzing the prospects for the project, Yun Duk Ryong, a senior research fellow at the Institute for International Economic Policy told the Daily NK on August 22nd, “Russia is showing aggressiveness and, above all, there is no reason for North Korea to oppose a pipeline that will result in it earning foreign currency.”

But, even if agreement is reached, the amount of time it will take for North Korea to actually earn cash from the project could be an obstacle.

Also, it is essential that South Korea be prepared to accept the gas pipeline. For South Korea, it can replace existing import methods and reduce delivery costs. But the nature of inter-Korean relations cannot be overlooked in any decision.

Although the South Korean government signed an MOU on the importation of natural gas through a gas pipeline connected to Russia via North Korea in 2008, progress was tough, and it strained inter-Korean relations.

Russia would have to ensure energy security, immunizing South Korea from the ever-present ‘North Korea risk’. Though to do so entirely would be impossible, if Russia can make progress then the South Korean government might find the project more attractive.

On this, Yun remained positive, saying, “South Korea will eventually agree on the gas pipeline project, which can have a positive impact on strained inter-Korean relation.”

But, he went on, “The South Korean government will positively consider it only when they receive assurances from Russia that Russia can be held accountable for the risk on gas imports through North Korea.”

That means that any contract should be signed on the basis that Russia be held accountable for losses resulting from North Korea’s actions. But, even with Russian assurances, there are those who doubt that the pipeline will go ahead.

Dong Yong Seung of the Samsung Economic Research Institute explained why, saying, “Even if North Korea and Russia agree on the gas pipeline construction, an agreement that excludes South Korea doesn’t mean anything significant at the moment. Even if Russia were to assure South Korea that it will hold North Korea accountable, there exists plenty of chance that North Korea will use the gas pipeline in inter-Korean relations.”