The Russians are coming

By John Burton

One unexpected and perhaps ironic consequence of Russia's stand-off with the West over the Ukraine is Moscow's renewed role in playing peacemaker on the Korean Peninsula in hopes of increasing natural gas sales to Northeast Asia.

The Ukraine crisis has forced European countries to reconsider their heavy dependence on Russia for gas supplies. The threat that Russia could lose future gas sales in Europe has accelerated existing plans by Moscow to boost gas shipments to China, Korea and Japan, where demand is growing faster than in Europe and where gas prices are higher.

A major element in Russia's strategy is the construction of a series of gas pipelines that would bring gas from Siberia through the port of Vladivostok and then down through North Korea into South Korea.

Russia has long eyed South Korea as a big gas customer since it is already the world's second-largest importer of liquefied natural gas (LNG), which is more expensive to buy than natural gas shipped through pipelines. Russia sent a big delegation to the World Energy Congress in Daegu last year and Gastech in Seoul in March to advertise its gas resources to Korea.

Military tensions between North Korea and its neighbors have blocked progress on a trans-Korean pipeline, which has been mooted for several years. Its construction in North Korea would plug a big gap in a proposed network of gas pipelines that would crisscross Northeast Asia.

Russia recently has stepped up efforts to woo North Korea in an apparent effort to get the pipeline project moving forward, with Moscow offering increased economic cooperation on lenient terms. North Korea has welcomed the Russian initiative since it would reduce its economic dependence on China.

A stream of official visitors, including Russian Deputy Prime Minister Yury Trutnev, have recently journeyed from Moscow to Pyongyang, to sign several economic agreements, such as increasing annual bilateral trade to $1 billion by 2020 and possible joint exploration and development of potential gas fields in North Korea.

More importantly, Russia agreed to write off 90 percent of North Korea's $10 billion debt to Moscow, with the stipulation that Pyongyang would spend the remaining debt payments on joint projects such as the pipeline.

Russia is also anxious to involve South Korea in what Moscow hopes will become trilateral projects in North Korea. These would include not only the trans-Korean pipeline, but also a trans-Korean/trans-Siberian railway network. The head of KORAIL last month visited North Korea to attend an international conference about Eurasian railroad integration.

Russia's efforts are meant to help ease doubts about the feasibility of the trans-Korean pipeline. Pipeline opponents have argued that it would be dangerous for Seoul to depend on a pipeline running through North Korea for its energy supplies, given the lack of stability and mutual trust in Northeast Asia. The recent events in Ukraine have also increased fears about whether South Korea should depend on Russia as a long-term energy supplier.

But Moscow is hoping that the trilateral projects would serve as a foundation for increased cooperation and understanding between the two Koreas and reduce tensions. The projects would also encourage the further opening of the North Korean economy.

A decisive factor for the success of these plans would be the willingness of Russian companies to help finance projects such as the trans-Korean pipeline. Gazprom, the Russian state gas producer, would be a likely source of these funds if its investment opportunities were curbed in the West because of sanctions.

Much will also depend on whether Gazprom signs a long-delayed gas supply deal soon with China that is essential to help finance the building of its Power of Siberia pipeline that will connect the Siberian gas fields to both China and Vladivostok. If this giant pipeline project is not completed, it may mean that Gazprom could not support the trans-Korean pipeline, while delaying and reducing future gas shipments to South Korea from other Russian gas fields.

As for South Korea, it has indicated interest in the project, with Gazprom and KOGAS discussing details about the pipeline project, which fits into President Park Geun-hye's "trustpolitik'' strategy of bringing North Korea into the international economic fold.

In a speech that President Park Geun-hye made at the WEC in October, she cautiously endorsed the idea of a trans-Korean pipeline, without mentioning the project directly.

"We have to explore new initiatives for energy cooperation in Northeast Asia," she noted, citing the example of the construction of Russian gas pipelines to Western Europe in the 1980s despite being built during the height of the Cold War. She suggested that Northeastern Asia countries could cooperate in the development and transport of gas reserves in eastern Siberia.

Cooperation between Russia and South Korea on the gas pipeline could yet play a crucial role in bringing North Korea in from the cold.

John Burton, a former Korea correspondent for the Financial Times, is now a Seoul-based independent journalist and media consultant. He can be reached at john. burton@insightcomms.com .