Russia May Still Be Considering Pan-Korea Gas Pipeline

Russia denies rumors that Pyongyang's demands are sinking a pipeline deal, but fears continue to overshadow agreement
February 21st, 2013

Russia may still be considering moving ahead with ambitious plans to build a gas pipeline across the Korean peninsula, according to comments made by Russia’s Ambassador to North Korea earlier this month.

In a little noticed interview with Interfax News Agency earlier this month, the Russian Ambassador to North Korea Aleksandr Timonin denied reports that construction on the pipeline had been harmed by North Korea’s financial demands, while also saying that separate Russian – North Korean and Russian – South Korean talks were continuing.

In a separate interview, Russian Minister for Far East Development Viktor Ishayev said “Construction of a gas pipeline to South Korea is being planned. This pipeline, incidentally, will go through North Korea and will collect about $100 million in transit fees. I must stress that this is not a three-way agreement.”

The pipeline agreement between Russia and North Korea was first reached by Kim Jong Il and then-President Dmitry Medvedev in August 2011, but has reportedly received the blessing of Kim Jong Un as well.

South Korea is heavily dependent on imports for energy. According to a 2011 estimate by the U.S. Central Intelligence Agency (CIA), it is not only the 8th largest oil importer in the world, but also the 9th largest natural gas importer. The proposed pipeline could carry as much as 10 billion cubic meters of gas a year into South Korea, and according to former chairman of the ruling Saenuri party Hong Jun-pyo, would reduce natural-gas prices by about 30 percent.

However, analysts have cast doubt on whether the pipeline would ever come to fruition since it was signed. While there are obvious benefits for Russia and North Korea, most of the concerns fall on the South Korean side.

For South Korea, there would likely be a reduction in energy prices, but perhaps at the cost of energy security. Russia has played politics with natural gas supplies before in Europe, and if North Korea’s seemingly annual warnings about closing the Kaesong Industrial Complex (KIC) are any indication, it could potentially threaten the pipeline whenever it saw fit.

Given recent events, the biggest concern for the South Korean side could be what North Korea decides to do with the $100 million annually it is estimated to receive as part of the deal. As recent missile and nuclear tests have shown, North Korea has made strides in both areas and money from the deal could be used to upgrade further while also undermining sanctions.

The development of a pipeline would correspond with a noticeable increase in Russia – North Korea economic ties, albeit from an extremely small level. Bilateral trade between Russia and North Korea increased considerably in the first half of last year, and last year Russia announced that it would write off 90% of the $11 billion in debt owed by North Korea.

Russia is also one of the major drivers of development in the Rason Special Economic Zone (SEZ), located in northeast North Korea near the borders of China and Russia.

In addition to establishing cross-border freight train service, a Russian company paid $1 billion to obtain a 49-year lease on the 3rd pier. Andray Abrahamain at Choson Exchange says the pier is currently undergoing “refurbishment as well as bridge construction, which will allow Russian-gauge trains to go all the way to the port.”

The North Korean consul in Nakhodka, Sim Kuk Ryon, also told a recent meeting of Russian investors that there would be two flights a week between Vladivostok and Rason in the future, though he did not specify what carriers or when the flights would begin.

Photo by ripperda