There apparently is something about building pipelines that causes otherwise rational oilmen to indulge in reveries that would give an opium addict pause.
Two of the most recent ideas for pipelines with a less than rational basis are Nabucco (less than 25 percent of the necessary throughput committed thus far) and the Trans-Afghanistan-India-Pakistan pipeline (running through a country wracked by 32 years of civil war), with the past decade seeing NATO fruitlessly attempting pacification.
Now a third surreal energy corridor has been added, a proposed Russian-South Korean natural gas pipeline transiting Kim Jong-Il’s socialist paradise on the Yalu.
What is perhaps most extraordinary is that this line has been proposed by the Russians, normally a most pragmatic bunch.
In 2009, according to the CIA, South Korea imported 32.69 billion cubic meters of natural gas, and the country has paltry reserves of 50 billion cubic meters, which, assuming that they were fully exploited, would last the country for a mere 18 months or so before running out completely.
North Korea? According to the CIA’s 2010 estimates, natural gas reserves – zero, imports – again, zero.
According to the U.S. Energy Information Administration, South Korea's demand for natural gas will grow by 1.4 percent per year up through 2035, led by strong growth in the electric power sector. The share of the country's natural gas consumption used for electricity generation is projected to increase from 39 percent in 2007 to 48 percent in 2035.
Given South Korea’s lack of domestic reserves, the country is one of the top energy importers in the world and is the world’s second largest importer of both coal and liquefied natural gas (NYSEMKT:LNG). As South Korea currently has no international oil or natural gas pipelines, it relies exclusively on tanker shipments of LNG and crude oil.
So, a Russian-South Korean natural gas pipeline makes a certain amount of sense – on paper. Earlier this week, South Korea’s Ministry of Foreign Affairs head Kim Sung-Hwan visited Moscow, and one of the main items during his negotiations was the construction of a natural gas pipeline from Russia through North Korean territory.
On 11 August Russian Federation Foreign Minister Sergei Lavrov announced that Moscow is prepared to give the project political support, telling reporters, “The tripartite projects were discussed today in my talks with the Minister (Kim). These projects involve the erection of a gas pipeline from Russia to the Republic of Korea via the DPRK, the construction of power transmission lines along the same route and the potential connection of the Trans-Korean Railway to the Trans-Siberian Railway. Contacts are now being held at the level of heads of gas companies of the three countries - so far in a separate format: Russia-DPRK and Russia-ROK (Republic of Korea) - to discuss gas pipeline construction prospects. I think that if the experts agree at the corporate level, political support will be provided in all three capitals.
With regard to the remaining projects expert consultations are yet to start, but, I repeat, those in respect of the gas pipeline are proceeding with sufficient concreteness.”
South Korean Ambassador to Russia Le Yun-ho told Kommersant newspaper, "The Korean side would prefer deliveries of pipeline gas. First of all, this is cheaper. And secondly, the implementation of the pipeline project could improve our relations with the DPRK."
“Sufficient concreteness” and cost considerations aside, Russia’s natural gas monopoly Gazprom is more sanguine, with a company source saying on condition of anonymity, "The political risks in the DPRK are still too high. If we want to release the gas in 2017, then we will have to sign the agreement in 2012. It is unlikely that new leadership will appear in Pyongyang before that time, which would give reliable guarantees of security of the pipeline, and the fact that the project will generally be realized," with Gazprom predictably inclining toward the option of liquefied natural gas deliveries.
The political factors involved in constructing such a pipeline currently make it a longer shot than Sarah Palin winning a forth presidential term. The first (and not insignificant) consideration is that North and South Korea still remain technically at war, 58 years after an armistice was signed between the two nations. Try selling that to insurers underwriting a pipeline.
Secondly, the succession issue in North Korea has yet to be definitively resolved. According to various media reports, “Dear Leader” Kim Jong-Il (either 69 or 70 years old, depending on conflicting data), has suffered several strokes and is angling to make his son Kim Jong-un his successor, but such an arrangement will obviously need support from two of the most powerful groups in North Korean society, the military and the secret police. Accordingly, any agreements reached by the current leadership are not necessarily forever.
Last but hardly least, South and North Korea have a history of spasmodic armed conflict. The ROKS Cheonan, a Pohang-class corvette, sank on 26 March 2010 off the country's west coast near Baengnyeong Island in the Yellow Sea, killing 46 seamen of its 104-man crew. A South Korean-led official investigation carried out by a team of international experts from South Korea, United States, United Kingdom, Canada, Australia, and Sweden presented a summary of its investigation on 20 May 2010, concluding that the warship had been sunk by a North Korean torpedo fired by a midget submarine, a conclusion totally rejected by Pyongyang.
Eight months later, on 23 November 2010, North Korean artillery shelled Yeonpyeong island with dozens of rounds at Yeonpyeong-ri and the surrounding area following a South Korean military exercise in the area, after which South Korean forces returned fire with 155mm K-9 self-propelled howitzers.
Is this really the most stable territory for a pipeline?
By. John C.K. Daly of OilPrice.com