Gazprom to construct a gas pipeline from Vladivostok to South Korea

Gazprom has agreed with China and South Korea on the construction of the gas pipeline to South Korea from Vladivostok. Taking into account the expansion of the gas pipeline Sakhalin-Khabarovsk-Vladivostok, without which the project is impossible, its cost will exceed $10 bln. It would be cheaper for Gazprom to construct a new LNG plant in Sakhalin. 
Yesterday Gazprom signed with the South Korean Kogas a route map of the gas pipeline construction from Vladivostok to South Korea, with the Ministry of Oil of Korea – a memorandum of intentions to realize the project. Gazprom didn’t explain what the route map presupposes, what the stages and terms of realization of the project are. A. Miller said only that the Russian part of the infrastructure for the project – the gas pipeline Sakhalin-Khabarovsk-Vladivostok, launched last week, - is ready. Gazprom refused to comment in details the documents signed yesterday. 
The planned capacity of the gas pipeline to South Korea is 10 bln cubic meters of gas a year; the length is 1.1 thousand km, the start point – Vladivostok (the final route hasn’t been approved as yet); the launch is planned for 2017.
It is about the project that the sources of Kommersant called one of the main geopolitical ideas of President Medvedev in Asia. The idea is to connect the competing North Korea and South Korea' with a gas pipeline, thus forcing Pyongyang to shut down its nuclear program. The memorandum for gas supply between Gazprom and the South Korean Kogas was signed in 2008, but the negotiations started only this summer – after the meeting of Mr. Medvedev with the President of North Korea, Kim Jong-il. Since that they are held at the level of the Ministry of Foreign Affairs of Russia, Gazprom and Kogas.
As sources of Kommersant familiar with the negotiations of the parties say, neither the cost of the construction nor any other gas supply conditions by contract were approved yesterday. In early-September a highly ranked official at the Ministry of Foreign Affairs said that all the political approvals for the project might be considered settled and the problem is the commercial calculations of Gazprom. This is the very issue that causes lots of questions of the analysts. 
The head of the International center of Korea studies of the Moscow State University P. Leshakov says that South Korea, that doesn’t produce gas at all and doesn’t deal with pipeline gas, imports only LNG (32.6 mln tons in 2010). Based on that Russia is one of the suppliers (1.5 mln tons in 2010). It is not clear why should a new pipeline be constructed, if it might change the Korean gas infrastructure? The analyst adds that Gazprom planned to construct a new LNG plant in Vladivostok and Kogas was named one of the possible partners in the construction. 
On the other hand, IFD Capital’s V. Kryukov says, the construction of the pipeline to South Korea will for sure be cheaper than a plant in Vladivostok. It is assessed at €7 bln, while the Russian party will need to construct only that part of the pipe that will go via the territory of Korea with “cheap work force” (length is 700 km). This part of the gas pipeline will cost about $2.5-3 bln, M. Korchemkin from East European Gas Analysis, i.e. cheaper than a LNG plant. The analyst says that the main expenditure of the gas pipeline project to South Korea is in the necessity to expand the pipe Sakhalin-Khabarovsk-Vladivostok from the present 6 bln cubic meters a year to 30 bln. According to Gazprom, it costs more than $8 bln (the cost of the construction of the 1st line was extremely high – about $8.7 mln for 1 km), so it’s easier to construct a new LNG plant in Sakhalin, the analyst says. 
Gazprom won’t agree to that for sure, V. Kryukov is sure. Yes, it would be the most reasonable variant, but the expansion of the pipeline Sakhalin-Khabarovsk-Vladivostok is the settled issue as the Government requires it from Gazprom. And finally, as the Government treats the pipeline via Korea as a political tool, it is not only about the commercial grounds. So, the monopoly is likely to realize the project, despite  the expenses. 

http://www.kommersant.ru/doc/1774143
Translated by Galiya Musabekova