Can N. Korea commit to Russian gas project?

BEIJING — With President Lee Myung-bak sounding remarkably optimistic about the proposed trilateral gas project from Russia through North Korea to South Korea, optimism prevails with regard to the unprecedented trilateral project that links Russia to the Korean Peninsula.

But the ultimate fear still remains: can North Korea commit to it? President Lee this month said the ambitious pipeline project was not a pipe dream. “I do not consider this as a far-fetched dream,” Lee said in New York this month.

The Russian pipeline would pass through North Korea to South Korea. The gas provided by the new pipeline will be 30 percent cheaper than current liquefied natural gas (LNG) shipments to South Korea.

The North will also benefit from collecting the transaction fee. Lee touted it as “win-win for everyone involved.” Motivations for Russia and South Korea in support of the project are obvious.

Russia wants to sell gas. South Korea wants to buy it. Gas exportation is a prime economic pillar of Russia, which wants to diversify its market, outside of its current major market, which is Europe.

The South Korean energy market has great potential for Russia because South Korea is the world’s second-largest importer of LNG.

In fact, the plan has been on the table for nearly two decades but has not been materialized due to inter-Korean security confrontations.

In recent months, it has gained traction after North Korean leader Kim Jong-il said he supported the plan in his meeting with Russian President Dmitry Medvedev.

Since then, there has been a flurry of activities in this direction.

Russia’s gas-export giant Gazprom signed a memorandum of understanding (MOU) on the project with North Korea’s oil minister in Moscow. The head of South Korea’s gas monopoly, Korea Gas Corp. (KOGAS), also made a visit to Moscow.

But some experts see Lee’s singular optimism as unwarranted.

Speaking on condition of anonymity, a Chinese expert who previously participated in numerous negotiations with North Korea said, “I don’t think the project will go well.” “Look. There are three parties here: South Korea, Russia and North Korea. The problem is that only two of the three parties respect contracts.

North Korea doesn’t respect contracts,” he said, adding, “If I were the Russians, I wouldn’t push the project forward.” The Russian interest is likely to be also compromised when North Korea drills holes into the pipeline and steals gas — a remarkably common practice in countries where energy pipelines pass through.

A senior member of the South Korean government also shared the pessimism. “The question is whether we have safety measures in case North Korea cuts the Russian gas supply.

The backup plan now is for Russia to provide the gas by ship in case the pipeline supply is disrupted by North Korea. But that’s something that’s easier said than done. In practice, it could take days or months for the gas to be delivered by ship to South Korea,” he said.

Finding an alternative source, when the Russian gas pipeline is disrupted, can also be a problem.

“The international gas market is coordinated well ahead of time.

If you run out of gas today, you may think you can pick up the phone and the gas will be delivered tomorrow. It doesn’t work that way,” said the senior member of the South Korean government.

In the end, North Korea’s lagging credibility as a business partner will remain a dogging problem, just as it commands little credibility when it comes to its commitment to denuclearization.

“North Korea will not give up nuclear weapons,” said the Chinese expert, “despite North Korea’s public display of willingness to rejoin the six-party talks.” The six-party talks are designed to be an international consortium in which the North renounces its nuclear programs in exchange for economic aid and security guarantees.

North Korea also recently set a bad example when it unilaterally rescinded a long-standing agreement with South Korea’s Hyundai Asan. In 2000, North Korea gave the firm sole rights to operate package tours to Mt.Geumgang for 50 years.

The firm has subsequently invested millions of dollars in accommodation and other infrastructure facilities in the scenic resort. Investment sentiment into North Korea has since chilled.

Analysts point out that the cost, in case the massive pipeline project falls apart, will be much greater than that of Hyundai Asan’s case.

Against this backdrop, this is another problem: How much political energy can the Lee administration invest in the project? Lee’s term is nearing its end, while it may take years before the pipeline construction is completed.

In the end, the key question boils down to whether South Korea is willing to have its key energy supply controlled by North Korea, with whom it has the most adversarial relationship in the world.

“When it comes to North Korea, the biggest concern is always whether North Korea can commit to whatever agreement it signs,” said the senior official of the South Korean government.