Russia plans to construct a gas pipeline via North Korea

The negotiations with Seoul and Pyongyang on the construction of the gas pipeline from Russia to South Korea via North Korea will start by the end of the year, Gazprom plans to sign a contract with Kogas in the spring 2012. Russia will construct the entire lenght of the pipe on the territory of North Korea, and it will be a transit pipe only- North Korea won’t accept gas from it. Moscow has received the political warranties of the project’s realization from Pyongyang and Seoul.
The Ambassador –at-large of the Ministry of Foreign Affairs of Russia, A. Timonin, controlling the 3-party projects of Moscow, Pyongyang and Seoul, told Kommersant that the signing of the contract between Gazprom and Kogas on the purchase of the Russian gas by South Korea and construction of the gas pipeline via the territory of North Korea is planned for the spring 2012. According to him, by the end of the year 2 working groups will start working on the agreement, in the framework of it the Russian company will separately negotiate with North Korea and South Korea. The parties are to agree on the volumes of gas supply, periods, price formula, and the point of products transferring to the South Korean party. Only in this case the supplies might start in 2017, he said. The volumes of supplies will make up 10-12 bln cubic meters a year.
Meanwhile the parties have already settled a number of important issues. According to the interlocutor of Kommersant, it was decided that the construction of the gas pipeline on the territory of North Korea (the length will be 700 km) will be held by Gazprom only with the possible attraction of the North Korean work force. Kogas will lay the pipe from South Korea to the border with North Korea. It was also decided that the entire gas volume will be supplied only to South Korea – no volumes are meant for the needs of North Korea. It is due to the absence of the objects in North Korea that would work on natural gas, a source of Kommersant close to the negotiations said.
Moreover, Moscow has the political warranties from both Korean parties. According to the source of Kommersant in the Russian Government, in August at the meeting with the President of North Korea, K. C. Ir the President Medvedev was assured that Pyongyang wouldn’t interfere in gas transit. On November 2nd at the meeting in Saint-Petersburg the head of South Korea, L. M. Bak, said about the final readiness of Seoul to participate in the project. Our calculations show that the pipeline gas from Russia will be cheaper than LNG. Moreover, it is the first large-scale project with the North. According to the source of Kommersant close to the negotiations, the land under the pipeline on the territory of North Korea will be in the state property, but Gazprom will rent it for a long time – similar scheme is applied in Europe.
The entire cost of the project of the Russian gas supply to South Korea is assessed at not less than €7 bln – the recently launched gas pipeline Nord Stream via the bottom of the Baltic has the same cost. $2.5 bln out of this amount will be the cost of the site on the territory of North Korea, Kogas said. However, IFD-Capital’s V. Kryukov says that the problem is not that much in the project’s cost as in the fact the neither South Korea nor Russia have settled the most important thing: where South Korea will take gas – either on the border Russia-North Korea, or North Korea-South Korea? It will influence on what party will take on the transit risks of gas supplies, that despite of the warranties of North Korea stay high, the analyst thinks.
In general the analysts agree that in this gas project not only the economic part is interesting but also the political. It is a completely new approach to the solution of the nuclear problem. Earlier everybody laughed at Moscow’s idea but it might work out – North Korea will have a profit from transit and interest in stability, editor-in-chief of the magazine “Russia in global politics”, F. Lukianov, told Kommersant. All the previous approached have proved their invalidity.

http://www.kommersant.ru/doc/1827130
Translated by Galiya Musabekova