by
Su-Hoon Lee
[Graduate School of North Korean Studies, Kyungnam University]
posted December 13, 2003
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 Preface : |
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Introduction
As people dub the 21st century “the age of Northeast Asia,” countries in this region are making vigorous moves in response.(1) Along with North America and Europe, Northeast Asia(2) is constituting the main axis of the world economy. Consisting of about 25 percent of the world’s population, Northeast Asia's gross domestic production accounts for approximately 16 percent of the world GDP.
With the remarkable economic development and subsequent increase in demand for energy, South Korea, China, and Japan ranked second, fourth, and tenth, respectively, in terms of world energy consumption in 2001. This trend is expected to continue and even accelerate in the future. These countries mainly rely on the Middle East for energy supply, whether it is crude oil or LNG, and they need to diversify their sources of energy for the sake of energy security. Moreover, the sources should be replaced by clean energy sources. In particular, China's demand for energy is expected to sharply increase with its rapid economic development. Due to its dramatic economic development, China is even called a "global plant", but its heavy reliance on coal for an energy source has created serious environmental problems. China, therefore, will need to diversify its energy sources.
On the other hand, Russia is endowed with rich energy sources, especially in the Far East region, but the use of natural resources in this region has not been maximized yet. Countries and cities in the region, such as South Korea, China, and Japan, have an urgent need to utilize the energy sources of Russia. This is what we call cooperation for energy security. Russia can replenish its financial resources for economic development by exporting energy sources from Eastern Siberia and Sakhalin to China, South Korea, and Japan. At the same time, Russia needs to upgrade its obsolete energy infrastructure.
Countries in the Northeast Asian region, including South Korea, China, and Japan, are also demonstrating swift movement toward regional cooperation and integration. There are moves for collaboration in a variety of fields, such as security, economy, and culture. A number of ideas have been devised to strengthen economic ties and establish an economic union in this region, some of which have already been put into practice. The field of energy resource will also bring ripe possibilities for cooperation. Actually, it will provide the best chance and most urgent need for building cooperative relations among Northeast Asian countries.
When it comes to the Korean Peninsula, the North Korean economy is mired in hopeless depression due to its energy crisis, which is threatening the maintenance of the current North Korean regime. It is this energy crisis that has led to the current nuclear row, bringing about another security crisis on the peninsula. Therefore, the resolution of North Korea's energy crisis is the key to stabilizing peace on the Korean Peninsula. The answer to North Korea's energy problem also lies in cooperation among Northeast Asian countries over this concern. The on-going six-party talks on the North Korean nuclear issue bear great significance from this perspective.
Need for Cooperation
The amount of oil in Northeast Asia is not sufficient to meet the future demands in this region. Import of oil by Northeast Asian countries, especially by China, is expected to constantly increase, which will aggravate their dependence on oil supply from the Middle East. This situation will have a serious impact on energy security in the Asian region. Therefore, it is important to focus on this issue when considering the future development of Northeast Asia. Most crucial is the fact that the natural gas and crude oil buried in Siberia and Far East Russia can be exported to China, South Korea, Japan, and other countries. It is this point that grabs the attention of all Northeast Asian countries. The need for countries in this region to cooperate for energy security can be clarified as follows(3):
First, as mentioned above, energy consumption by Northeast Asian countries in general is dramatically increasing, and this trend is expected to continue in the future. Most of the increase is being met by imports, which may push Northeast Asian countries to compete with each other for stable energy resources.
Secondly, countries in this region need to cooperate with one another in order to diversify their sources of energy supply. Countries that heavily depend on the Middle East for oil supply, such as South Korea and Japan, are inevitably vulnerable to an energy crisis. A recommendable solution for diversifying energy sources is to increase the use of natural gas and nuclear energy. In terms of power generation, the use of thermoelectric power plants is decreasing while the use of nuclear energy and natural gas is increasing. In industries and household commerce, the expanded use of natural gas is serving as a means to improve the urban environment and cut back on the use of oil. Natural gas and electricity are also replacing oil in the field of transportation. In light of this, promoting the use of natural gas is imperative for ensuring energy security. Therefore, it is important to seriously consider measures to increase the supply of natural gas in Northeast Asia.
Thirdly, the establishment of an energy-shipping infrastructure can be a useful means to diversify sources and suppliers of energy, improve price competitiveness, and ensure energy security. In this regard, cooperation among related countries is absolutely necessary to secure the enormous capital needed for constructing an energy infrastructure and balancing supply and demand. This is true of pipeline gas supply in particular. In order to deliver natural gas, large pipelines need to be built that connect different parts of a country or the world. In addition, a distribution network is needed that links various consumers within a region.
Fourth, in terms of energy security, there are always risk factors that cannot be controlled by the government. A salient example is political and military instability in energy exporting countries and routes. Accordingly, South Korea and Japan are tapping into strategic oil reserves, and China is also preparing to follow suit. The cooperation for energy security among Northeast Asian countries is expected to contribute to easing political and military instability and improving relations with neighboring countries, including North Korea, by cultivating an atmosphere of cooperation among related nations in general. In addition, oil reserves and mutual cooperation in oil distribution will help to minimize a potential oil crisis.
Possibility of Cooperation
Cooperation among Northeast Asian countries for energy security aims at improving the well-being of all related nations by interconnecting mutually beneficial relations in terms of economy, security, energy, and environment. Thus, the success or failure of this cooperation scheme depends on meeting the practical conditions in approaching this goal. These conditions include convergence in policy goals, similarity in economic structures, balance between energy supply and demand, solution to environmental problems, expected profit, and geographical proximity.
First, convergence in policy goals means that the strategic goals peculiar to each country should be compatible and interconnected with other countries. For instance, Russia is pushing ahead with a policy to explore its natural resources buried in the Far East region and East Siberia in order to develop its eastern area, while China, South Korea, and Japan are placing their top priority on securing stable sources of energy supply. Therefore, the policy goals of these Northeast Asian countries can be closely connected with each other.
Secondly, similarity in economic structures still leaves much to be desired. Northeast Asian countries show a wide range of different economic structures; from completely free competition to socialist economy; from Japan's high-technology and capital-intensive economy to Mongolia's relatively low technology and capital intensity.(4) On the other hand, China and Russia are constantly transforming their economies into a system of free competition, and their capital, technology, and human resources are complementing each other. Therefore, cooperation among Northeast Asian countries for energy security is expected to create a synergy effect.
Thirdly, let us consider the mutually beneficial relations in the supply and demand of energy. Russia is capable of exporting the above-mentioned energy resources, while South Korea, Japan, and other countries have to import almost all of their necessary energy resources from abroad. China is also expected to increase its import of oil and natural gas on a constant basis as its severe dependence on coal has brought about environmental problems. This would require a large-scale project to explore and use the energy resources of Russia, which can hardly be carried out by a single country alone. When it comes to electricity production and consumption, the peak load comes in wintertime for China and North Korea, while it comes in summertime for South Korea and Japan. Furthermore, the peak load “hours per day” differ in China, South Korea, and Japan. This is why Northeast Asian countries need to complement each other for energy supply and demand, as mutual cooperation is essential for the effective use of energy resources in this region. In addition, a joint project for providing clean energy resources and connecting electricity supply can contribute to easing the problem of air pollution that has resulted from economic development in lesser developed countries. Environment-polluting countries like China may provide a market for environmental technologies, while advanced countries like Japan may provide their capital and technological skills. Thus, a mutually beneficial relationship, with China resolving environmental problems and Japan fostering environmental technologies, can develop.
Fourth, all related countries are expected to greatly benefit from the potential profit, although the degree of benefit may differ according to the area of cooperation. Take the natural gas development project for example. Russia will gain profit by developing its gas field and exporting natural gas. Countries through which the pipeline passes will enjoy the effect of development investment and passage toll. End-consumers will benefit from the lower gas prices and more secure import supply as a result of the LNG substitution.
Fifthly, the aspect of geographical proximity is a very important factor in cooperation for energy security. Energy resources are bulky and heavy in nature, and therefore, their shipment cost is extremely high. Electricity, a secondary energy source, also entails high transmission cost, especially for long-distance delivery. In the case of the Northeast Asian region, however, it embraces such a vast area that even neighboring countries can lie far apart from each other in physical distance. For example, the East Siberian natural gas pipeline construction project, which is to be carried out by the South Korean government, covers a lengthy distance of more than 4,000km. However, it should be noted that LNG imported from the Middle East now has to travel a 10,000km-long transport route. Furthermore, trans-border pollution resulting from geographical proximity compels Northeast Asian countries to recognize the urgent need for cooperation on environmental concerns.
Direction of Cooperation
In order for Northeast Asian countries to succeed in their effort for energy cooperation, the following directions should be set up. First, there should be a mutual goal that benefits all countries concerned. Objectives for this goal may include establishing an efficient energy supply and demand system as well as finding a solution to environmental problems that is directly associated with energy use. Drawing foreign capital into the energy project is another important factor to be considered. South Korea's major investors are already participating in the energy development project for Russia, so their interests should be taken into account while allowing other countries to take part in the project. Secondly, specific and practical approaches are required. Just as the International Energy Agency or IEA has a specific action plan for reserve and distribution of energy resources in preparation for a potential oil crisis, the Northeast Asian region should also establish standards for efficient supply and demand within the region. Thirdly, participating nations should bridge the gap between their differing interests. It should be noted that the Tumen River Area Development Program (TRADP) is having difficulty in implementation because the three participating nations of North Korea, China, and Russia have failed to narrow the gap between their interests in building ports and railway facilities. Fourthly, the success of multilateral cooperation relies on active bilateral cooperation. Successful bilateral cooperation deepens interdependency, which naturally leads to the cultivation of multilateral cooperation. Thus, bilateral cooperation should be sought in tandem with multilateral cooperation.
Countries in the Northeast Asian region should establish a solid regional policy framework for energy concerns. A regional framework of cooperation that resembles the framework of the EU should be set up with a focus on long-term issues and mutual interests. The success of a cooperative framework, which is conceived by Northeast Asian countries, depends on what policy instruments are to be adopted and to what extent political support would be rendered by China, Russia, Japan, and South Korea in order to promote energy security and solve environmental problems. In addition, this multilateral framework on cooperation should streamline the procedure for enacting laws and regulations and finance-related schemes, thereby reducing the risk of investment and enhancing competitiveness.
Ways of Energy Cooperation
Many different areas of cooperation can be thought of in addressing Northeast Asia's energy concerns. These deal with cooperation on electric power generation, oil exploration, and the natural gas pipeline construction project. Each of these areas has its own merits and limitations, so none of them can be said to have an absolute advantage over the others.
This paper will confine its scope to the natural gas pipeline construction project.(5) The general purpose of this project is to explore natural gas in East Siberia and Sakhalin, build a transnational pipeline, and promote cooperation on energy resource development. To be specific, several plans have already been proposed and are currently under review or implementation.(6) Setting aside Sino-Russian and Russian-Japanese projects, this paper will look at those projects that involve the Korean Peninsula.
In broad terms, project plans related to the Korean Peninsula can be divided into two categories.
First, there are plans that suggest a route starting from Irkutsk in East Siberia, passing through China and the West Sea of the Korean Peninsula, and to Pyeongtaek, North Korea. More specifically, these plans can again be classified into two categories as they either pass through or circumvent Mongolia. Besides, other plans suggest another route starting from China's seashore, passing through the seabed, and reaching Pyeongtaek, North Korea. Still others suggest starting from the Northeastern part of China and passing through the West Sea of North Korea and finally reaching Pyeongtaek.
Reviewed under the Kim Dae-jung administration, the plans of the second type are fairly appealing, especially considering the development of the Gaeseong Industrial complex and the West coast area of North Korea. As of 2003, China and Russia have agreed on a route that starts from Irkutsk and passes through Ulaude, Chita, Manchuria, Harbin, and Simyang. The route between China and North Korea, that is, the route from Simyang to Pyeongtaek, has yet to be settled.(7) Another plan called the "Sakhalin plan" suggests a pipeline route that starts from Sakhalin which passes through Far East Russia and North Korea, and reaches the East seashore of the Korean Peninsula. This plan is also meaningful for North and South Korea, since it is a very urgent and important matter to resolve the energy crisis in North Korea. Personally, the author suggests that the Sakhalin plan be implemented apart from the Irkutsk plan.
The Sakhalin Natural Gas Pipeline Construction Plan
The gist of this plan(8) lies in producing natural gas in the area of Sakhalin and building a 2,400km-long pipeline that passes through Far East Siberia and reaches the Eastern seashore of the Korean Peninsula. This is to be a multilateral joint project in which South Korea, North Korea, the U.S., Japan, China, Russia, and Europe will participate. This project is highly meaningful in realizing the vision of the future 'Northeast Asian Union', as it is an exchange-cooperation project that involves not only government-level officials but also private businesses(9) and a great number of specialists. This plan will combine capital from the U.S., Japan and Russia, Russian businesses, construction companies of the countries through which the pipeline will pass, and the resources of Far East Russia. This is a truly cooperative joint project among Northeast Asian countries that assumes the characteristics of a positive sum game which benefits all participants. Why is this?
First, this project induces North Korea to be a member of the global community by enabling the Stalinist country to join an international joint project. Since this is an energy development project, there would be no more justification for North Korea's nuclear development, which will ease security tensions on the Korean Peninsula. Pyongyang will be able to establish an energy infrastructure and resolve the current energy crisis by collecting a pipeline passage toll and operating thermoelectric power plants with natural gas.
Secondly, by investing its own capital into Northeast Asia, the U.S. can exercise continuous influence on this region without offering direct financial support. U.S.-based companies including ExxonMobil are already operating and holding interests in the development of Sakhalin-1 block in Russia. Maintaining influential power at no additional cost is what the U.S. truly desires.
Thirdly, the South Korean government has often been accused by the public of giving largess to North Korea in a one-sided fashion through its support of North Korea's power supply and energy procurement. However, this project is not at risk of stirring up negative public opinion. By easing the North Korean nuclear issue and diversifying energy supply sources to alleviate heavy dependence on the Middle East, this project will be killing two birds with one stone.
Fourthly, Russia and China may profit from the development of Far East Russia and meet the high demand for natural gas in urban areas such as Khaberovsk and Vladivostok. China can procure necessary energy for the economic development of three Northeast Provinces including the major cities of Harbin and Taren. Japanese enterprises such as Mitsubishi and Mitsui can enjoy investment profit as well as the additional benefit of sharing natural gas when a pipeline reaches the area of Fukuoka.
Last, this project will also produce the incidental effect of curbing the environmental problems in this region as it aims at exploring and delivering natural gas, which is a clean energy resource. The Northeast Asian region now constitutes an important axis of the world economy with vigorous and dynamic development activities. Against this backdrop, analysts have indicated that environmental issues emerged as a byproduct of this dynamic economic development. Excessive use of fossil fuels has created air pollution not only in one country of this region but also in other neighboring countries as well. When this pollution problem overlaps with the 'yellow dust' from the Chinese continent, residents in affected areas will suffer from high degrees of damage. Excessive use of anthracite coal and brown coal in the northeastern part of China and North Korea has caused acid rain, which is a serious problem not only for these areas but also for the Northeast Asian region as a whole.
In this regard, the Sakhalin natural gas pipeline construction project is indeed meaningful as a complementary solution to the difficulties faced by the light-water reactor construction project at the Geumho District in North Korea. Given the overall circumstances, it is necessary for this project go through a complete overhaul. This project bears great political significance in improving inter-Korean relations and U.S.-North Korean relations,(10) but it is doomed to be readjusted as it has a series of complicated built-in problems. How then should this project be readjusted? Selig S. Harrison, Bradley Babson, the Nautilus Institute, researchers of natural gas in the Far East region, experts in North Korea's electric power supply, and many other analysts argue that the number of 1 million Kw-level light-water reactors to be built in North Korea should be reduced from two to one. Instead, they suggest constructing thermoelectric power plants to be fueled by natural gas delivered from Sakhalin. Due to inherent problems, the 2nd light-water reactor would not be able to transmit power, even when completed, with the existing power supply system and power transmission lines of North Korea. Setting aside safety and technology considerations for operating the nuclear power plant, building nation-wide power transmission lines suitable for a 1 million Kw-level reactor will cost more than 2 billion dollars. The Geneva Agreement does not include any partner to pay such a high price.
The cost of constructing a light-water reactor is estimated to be around 4.9 billion dollars if the project proceeds as it does now. In contrast, the natural gas pipeline construction project has a comparative advantage with its relatively low cost of 2.7 billion dollars. If Russian businesses under the control of the government participate in this project, the 2 billion dollar debt Russia owes to South Korea can be reimbursed with construction cost. The timing also favors the latter option. Since the pipeline is already installed for the distance between Sakhalin and Khaberovsk, it only needs to be extended toward Vladivostok in Far East Russia. It then may stretch along the East Coast railroad on the Korean Peninsula to be accompanied by a delivery pipe. In this way, construction cost can be significantly reduced. Construction on the light-water reactors will not be completed until 2008 even if it proceeds as scheduled. In contrast, the construction of a natural gas pipeline can be completed by the end of 2006. In addition, negotiations with natural gas explorers in the course of the pipeline construction may make it possible to produce natural gas in time for the completion of the pipeline.
This project may contribute to the long-delayed establishment of a regional cooperative body in Northeast Asia by expanding the scope of exchanges and collaboration within the region. This contribution is all the more significant as it can serve as a basis for cultivating a multilateral cooperative framework on regional security and foreign relations. The fact that the European Union started from the European Coal and Steel Community (ECSC) is fully suggestive for the conception of a Northeast Asian cooperative body focused on energy. Cooperation in a largely non-political, mutually beneficial, and desperately needed area will have the greatest extent of feasibility and impact. The energy cooperation project among Northeast Asian countries meets these conditions.
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(1) For information on the South Korean government's response, see Lee, Su-Hun, 2003, "A New Conception for the Age of Northeast Asia," presented to an academic seminar held by the Policy Planning Committee of the Presidential Advisory Group at the International Conference Hall of the Center for the Federation of Banks, October 8, 2003.
(2) In general, the Northeast Asian region is considered to include the following six countries: South Korea, China, Japan, North Korea, Russia, and Mongolia.
(3) See Lee, Sang-Gon, 2003, "The Possibility for Northeast Asian Countries to Cooperate on Energy and Environment," presented to an academic seminar held by the Policy Planning Committee of the Presidential Advisory Group, at the International Conference Hall of the Center for the Federation of Banks, October 8, 2003
(4) Japan conceives of dividing the Northeast Asian region into two parts for co-development. National Institute for Research Advancement, 2003, "Grand Design for Northeast Asia: A Comprehensive Vision for Sustainable Development," Unpublished Report, NIRA, Tokyo.
(5) For discussions on more diverse joint projects, see Lee, Sang-Gon, 2003, ibid.
(6) Paik, Keun-Wook, 2002, "Sino-Russian Oil and Gas Cooperative Relationship: Implications for Economic Development in Northeast Asia," prepared for Northeast Asia Cooperation Dialogue XIII Infrastructure and Economic Development Workshop, Moscow, October 4, 2002. Press releases in South Korea also address similar plans. For more information, visit http://NKchosun.com/news id=30486, 30468
(7) Park, Je-Hun, 2003, "Issues in Northeast Asia's Economic Integration and Institutional Basis," presented to a symposium held by the Policy Planning Committee of the Presidential Advisory Group, p. 80.
(8) Based on a paper written by Selig S. Harrison in 2002. The author also referred to press releases and interviews with experts in this field and also with private companies at home and abroad.
(9) Currently, ExxonMobil accounts for 30% of the investment capital, SODECO 30%, and Rosneft 8.5%.
(10) Ivanov, Vladimir, 2002, "North Korea, KEDO, and Russia," //www.erina.or.jp.
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