Russian gas to compensate for North Korean nuclear programme

Russian Foreign Minister Sergei Lavrov has completed his visit to North and South Korea. One theme discussed in Pyongyang and Seoul was the freezing of North Korea's nuclear programme.

According to Lavrov, Russia has supported the principle of the package approach to tackling this problem, as well as North Korea's proposal, at the first stage, to freeze its nuclear programme in exchange for compensation

In particular, North Korea is expected to receive fuel supplies at cut prices in exchange for stopping work on its nuclear programmes. Today, this means fuel oil supplies from the United States. However, in the near future, the compensation mechanism may be extended to Russian gas supplies to North Korea.

Valery Yazev, the chairman of the State Duma committee for energy, transport and communications and president of the Russian Gas Society, told journalists, "the decision to freeze North Korea's nuclear programmes directly depends on the methods and delivery time of energy resources to that country; therefore the Russian gas supply project may become a priority."

In replying to a RIA Novosti question as to who put forward this initiative, Mr Yazev said, "the idea was in the air." He went on to say, "Russia is looking for new gas markets in the East since there is no reason to expect any large increases in gas supplies to Europe."

Mr Yazev also said that there were currently two projects for gas supplies to North Korea.

The first one is to supply gas from Sakhalin through a pipeline about 2,400km long (from the Sakhalin gas fields across North Korea to South Korea). However, the only trunk gas pipeline on the Korean peninsula is still on the drawing board.

This project has been preliminarily discussed as a feasibility study, which involved both Russian companies (such as Gazprom, Stroitransgaz and ITERA) and American companies. The cost of the gas pipeline projecthas been put at about $5 billion.

The second project is within the framework of the development of Eastern Siberia and the Far East using the Kovykta field. This programme, which aims to create an integral gas supply system for Eastern Siberia and the Russian Far East, has been worked out by Gazprom and is being considered by the government now. Mr Yazev said that it might be finally endorsed this year. In line with a Russian government decision, Gazprom will act as coordinator of work on this programme. The Kovykta gas condensate field should be incorporated into an integral gas transport system for Russia. The reserves of the Kovykta field are estimated at 1.9 trillion cubic metres, so for more than 30 years, it may ensure supplies of 34 billion cubic metres of commercial gas to Russian and other markets.

While the programme was being drafted, various versions of gas export supplies were considered, including to China, the two Koreas and Japan. In particular, liquid gas supplies were discussed. The point is that a plant for liquefied gas production is being built in Sakhalin and the Korean gas market fully depends on liquefied natural gas imports.

In Mr Yazev's opinion, the North Korean gas supply project could involve investors from Russia, the United States, Japan and other countries. "There are no real agreements now," the Russian deputy explained. Naturally, before launching the project the investors must receive risk insurance guarantees, including those against political risks.

Mr Yazev stressed that the mechanism of compensation for gas supplies to North Korea must be endorsed by international agreements in advance. He recalled, "North Korea will obtain gas at cut prices, and South Korea at world prices." The project's future depends on the compensation mechanism; if there is no such mechanism, gas exporters will see no reason to investment in it.

Valery Yazev believes that the project for building gas pipeline to the Korean peninsula can be implemented within three to four years. Mr Yazev stressed that he intended to "have a round-table discussion at the State Duma this autumn on the political, legal and economic aspects of Russian-Korean energy dialogue." In his opinion, the decision on Russian gas supplies to North Korea may be taken by the end of this year.