Russia’s Eastern Gas Program

By Ben Priddy, November 29, 2012

the Russian gas industry “…is particularly important given the [current state of] relations with our traditional gas consumers – the European Union,” Pravosudov stated.

There is a key additional advantage for Russia to establish energy ties with South Korea before other East Asian countries. The South Koreans are willing to pay European prices for Russian gas, something that Beijing has refused to do because it can get cheaper gas from Central Asian suppliers like Turkmenistan and Kazakhstan. Signing a long-term supply contract at these price levels would bolster Moscow’s position at the negotiating table with the Chinese, according to experts gathered at the Moscow forum.

As early as 2008, South Korea’s KOGAS energy company signed a memorandum of understanding with Gazprom to import gas via LNG or pipeline as early as 2015. The proposed Trans-Korean pipeline would stretch from Vladivostok through the entire Korean Peninsula and become South Korea’s first international natural gas pipeline. But there are a number of challenges to this project.

Moscow must decide which supply route would most favor the Russian gas industry. As an alternative to the Trans-Korean pipeline, developing LNG terminals at Sakhalin would give Gazprom the flexibility to supply gas to any number of Asian or global customers, not just South Korea. However, according to Sergei Pravosudov, the Trans-Korean pipeline is the cheaper option. Building this pipeline would make it possible to sign long-term supply contracts with both North and South Korean customers, Pravosudov explained. “This would be beneficial to the end-user, Korea, who is trying to ease dependence on LNG and diversify the direction and means of gas imports. It [would also] benefit the supplier, who is looking for a more profitable means for delivering gas to a long-term consumer,” Pravosudov said. But is North Korea a reliable transit partner?

“Peace Pipeline” or Pipe Dreams?

Considering Moscow’s recent problems with troublesome transit states Ukraine and Belarus, it seems unwise to trust a secretive and unpredictable North Korean government to keep the gas flowing to it’s southern neighbor. What would prevent Pyongyang, for example, from shutting off gas supplies to Seoul during a political dispute? Russian and Korean proponents of the project stressed the positive aspects of the pipeline at the Moscow forum.

The proposed Trans-Korean pipeline could, for example, become a “peace pipeline” that would lead to increased regional security by integrating the two Koreas. “The construction of a gas pipeline…could become the locomotive for [Korean] integration,” according to Pravosudov. Li Yu-Jin, former director of KPMG in Russia, explained that the Trans-Korean pipeline would have four positive long-term effects: “It could lead to constructive cooperation with North Korea to increase stability on the Korean peninsula; bring North Korea into the international community; increase potential for investment in the wider Asia-Pacific region; and strengthen Russia’s position at the negotiating table with China over future gas supply contracts.”

Other participants at the forum disagreed. “At present, the [Trans-Korean pipeline] project faces very serious political risks, specifically with North Korea as a partner. The North