How will North Korea react to 'hosting' a proposed gas pipeline between Russia and South Korea?

South Korea Seeks $90 Billion of Russian Natural Gas

South Korea plans to import $90 billion of natural gas from Russia via North Korea, with which it shares one of the world's most heavily fortified borders, to reduce its reliance on more expensive cargoes arriving by sea.
State-run Korea Gas Corp. signed a preliminary agreement with OAO Gazprom, Russia's largest energy company, to import 10 billion cubic meters of natural gas over 30 years starting in 2015, the Ministry of Knowledge Economy said in a statement. The accord was signed in Moscow during President Lee Myung Bak's three-day visit.
Gazprom Chief Executive Officer Alexei Miller said after talks between Lee and Russian President Dmitry Medvedev that the exact delivery route hasn't been determined and that shipments could begin as early as 2015.
The attempt to secure North Korea's consent to build a pipeline on its territory comes as six-nation talks aimed at disarming the country's nuclear capabilities have stalled. South Korea will seek guaranteed Russian gas supplies, whether the fuel is delivered via pipeline or otherwise, said Lee Jae Hoon, vice minister for trade and energy.
"Russia suggested a pipeline via North Korea, which is expected to be more economical than other possible routes," the minister said in a news briefing. "Russia will contact the North to discuss this."

'Long-Term Deliveries'
Miller said the two sides agreed "to start working on identifying the route for gas deliveries to South Korea," and that "work will be focused on preparing the basic principles for long-term deliveries."
The $90 billion estimate for the gas contract is based on current prices, which Russia and South Korea are likely to renegotiate every year, the Ministry of Knowledge Economy said.
"Transporting gas through North Korea could be risky for South Korea," said Kim Jin Woo, a senior research analyst at Korea Energy Economics Institute. "But the project will ease tensions on the Korean peninsula if Russia successfully persuades North Korea" to accept the plan.
North Korea could earn $100 million a year from the gas- pipeline project, the Ministry of Knowledge Economy said.

Energy Cooperation
In a statement following their talks, Medvedev and Lee said they support joint energy projects in Russia, South Korea and other countries. They agreed to cooperate on developing hydrocarbon deposits on Russia's continental shelf, particularly the West Kamchatka shelf. Russia welcomes South Korea's plans to participate in auctions for the right to develop energy reserves and to build petrochemical facilities in Russia's Far East, the statement said.
The volume of trade between Russia and South Korea may reach $20 billion this year, up from $15 billion in 2007, and "this isn't the limit," Medvedev told reporters after the meeting.
Six-way nuclear talks involving the U.S., Russia, China and Japan stalled last month when Kim Jong Il's regime said it stopped disabling the Yongbyon reactor, the source of its weapons-grade plutonium. North Korea complained about delays in being deleted from the U.S. terrorism blacklist and removing sanctions imposed under its Trading With the Enemies Act.
While North and South Korea share a border, they lack a standard diplomatic channel because their 1950-1953 war ended without a peace agreement. Around 1.7 million troops face each other across a demilitarized zone.

Biggest Reserves
"Russia will supply the fuel in the form of LNG or compressed natural gas if negotiations with North Korea do not work out," according to the ministry's statement. South Korea and Russia will sign a final agreement in 2010 when a study on the route is completed.
South Korea is turning to Russia, holder of the world's biggest proven gas reserves, as it faces intensifying competition for energy resources from China and Japan. Asia's fourth-largest economy depends on gas for 16 percent of its power generation.
Under the agreement, a pipeline to South Korea will be laid via North Korea from gas fields on Sakhalin Island in Russia's Far East. The pipeline would initially carry 10 billion cubic meters of gas a year, or about 20 percent of South Korea's annual consumption. The cost of the gas link's construction is estimated at $3 billion, the ministry said.

LNG Shipments
Last year, South Korea imported 25.5 million tons of gas and all of it arrived in a liquefied form by sea. Qatar, Indonesia, Oman and Malaysia accounted for 93 percent of its LNG shipments. The cost of gas delivered via pipelines was $410 a ton in the global market last year, while LNG was $499 a ton, according to the ministry.
Domestic demand for the fuel may climb 8.3 percent to 27.7 million tons in 2008, Korea Gas said on Sept. 9. The utility has entered into agreements to buy 25.8 million tons of gas for delivery this year.
LNG is gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ship to destinations not connected by pipeline. On arrival, it's turned back into gas for distribution to power plants and other buyers.
Under a February 2007 disarmament accord, North Korea said it would disable its nuclear programs in return for normalized diplomatic ties with the U.S. and Japan and energy assistance. It agreed to disable the 5-megawatt Yongbyon reactor last October and blew up a cooling tower there in June.

Nuclear Bomb
The Bush administration says North Korea, which tested a nuclear device in 2006, must allow international inspectors to verify the extent of its atomic program before the nation can be struck off its terrorism list.
North Korea, which tested a nuclear bomb in October 2006, has complained about the slow pace of energy assistance. The Communist country said it has received 390,000 tons of fuel aid, with another 100,000 tons yet to be delivered.
"South Korea and Russia may provide energy assistance through the pipeline," said Kim at Korea Energy Economics Institute.


Will the proposed pipeline be affected by the bogging down of nuclear talks with North Korea?