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The Nonproliferation Review

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ENERGY FOR SECURITY:

Chris Ajemian

To cite this Article Ajemian, Chris(2007) 'ENERGY FOR SECURITY:', The Nonproliferation Review, 14: 2, 329 349 To link to this Article: DOI: 10.1080/10736700701379401 URL: http://dx.doi.org/10.1080/10736700701379401

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ENERGY FOR SECURITY: A Natural Gas Pipeline Solution to the North Korean Security Threat
Chris Ajemian

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Though North Korea agreed to partial denuclearization in February 2007, achieving that goal is at best a long way off. A natural gas pipeline linking all of Northeast Asia and promising energy and economic help could help convince the isolated nation to step away from its nuclear programs entirely; it could also provide the nonproliferation and energy security benefits that have eluded the region for so long. These economic benefits could motivate the other nations involved in the six-party talks to deal with North Korea more than if only nuclear reactors were offered. KEYWORDS: North Korea; Natural gas; Pipeline; Energy resources; Northeast Asia

North Koreas nuclear weapon test on October 9, 2006 illustrates the extreme danger and difficulty of dealing with states that are isolated, paranoid, and desperate. Were North Korea to attack one of its neighbors or U.S. forces in South Korea, or supply a nuclear weapon to a terrorist group, the world would face the prospect of nuclear war. North Korea has posed a complex and grave problem for the international community since the end of the Cold War. It blocks reunification with the South, resists significant economic reform within its own borders, and maintains a hostile and unpredictable posture toward the international community. It is an impoverished police state led by Kim Jong Il, who appears willing to sustain any hardship to further the survival of his regime, including famines during the 1990s that took the lives of more than a million in his country. U.S. policy toward North Korea has spanned numerous approaches. The Clinton administration tried resolving North Koreas security threat with policies that alternated between engagement and confrontation that almost led to war. The efforts culminated in the 1994 Agreed Frameworks Korean Economic Development Organization (KEDO), which proffered nuclear power assistance in exchange for North Koreas decommissioning of its weapons programs. The Bush administration created the six-party talks (with South Korea, China, Japan, and Russia) to coax North Korea out of isolation. The first several rounds of talks seemed fruitless, but the fourth round produced the September 2005 Joint Statement of Principles, in which North Korea agreed to denuclearize in exchange for light water nuclear reactors and other energy assistance, similar to the 1994 Agreed Framework. North Korea temporarily withdrew from talks, however, after the United States imposed financial sanctions on it. Pyongyang conducted its test nuclear detonation Nonproliferation Review, Vol. 14, No. 2, July 2007
ISSN 1073-6700 print/ISSN 1746-1766 online/07/020329-21 2007 The Monterey Institute of International Studies, Center for Nonproliferation Studies DOI: 10.1080/10736700701379401

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approximately a year later in October 2006. Finally, during the last phase of the fifth round of talks, an agreement seemed to rescue the process. On February 13, 2007, North Korea agreed to shut down its nuclear facilities at Yongbyon within 60 days, returning to the terms of the Joint Statement 18 months earlier.1 At the time of this writing, several positive signs have followed Februarys announcement. The head of the International Atomic Energy Agency (IAEA) visited North Korea from March 12 15 and concluded that it intends to denuclearize.2 The United States said it would resolve its financial sanctions against North Korea.3 Additionally, the lead U.S. negotiator at the six-party talks has made statements conveying his belief that North Korea intends to denuclearize.4 These positive steps notwithstanding, the clock has only been turned back to 1994, when mistrust between North Korea and the United States was also extremely high. The February 2007 agreement does not address North Koreas potential arsenal of several nuclear devices or whether it has a uranium enrichment program. Most significantly, the overriding development since the current standoff between the United States and North Korea began in 2002 was North Koreas test nuclear detonation. While only partially successful, its occurrence still represents a major failure of the Treaty on the NonProliferation of Nuclear Weapons (NPT) and has likely boosted North Koreas confidence. After returning from a trip to North Korea a month after the test, Siegfried Hecker, a former director of the Los Alamos National Laboratory, wrote that the test will make it much more difficult to convince [North Korea] to give up its nuclear weapons.5 Thus, despite recent progress, North Korea may believe it will be eventually regarded as a default nuclear weapon state, much as India and Pakistan are years after their tests. It is safe to assume that North Korea also seeks the survival of the Kim Jong Il government and revitalization of its economy. If a solution is sought that preserves Kim Jong Il as North Koreas leader, then the question becomes what will motivate him to entirely denuclearize, substantially demilitarize, and peacefully join the international community? Change from within North Korea is not apparent. There are some limited signs of economic reform being reported by recent delegations, but nothing on the order of a glasnost or perestroika. A successful policy must promise to significantly improve North Koreas basic well-being, or its leadership will not risk lowering its defenses. Moreover, it must also be fully supported by the United States and all the states within Northeast Asia. Besides assurances of security from the United States, there is nothing North Korea would like more than a stable supply of energy with which to rebuild its crippled economy. It needs a new source to replace the oil imports that were severely curtailed after the end of the Cold War. Februarys agreement promised heavy fuel oil assistance to North Korea in exchange for steps toward denuclearization. It referenced the September 2005 Joint Statement, which promises energy assistance in the form of light water nuclear reactors similar to the 1994 Agreed Framework. But discussion of supplying the reactors has been pushed far into the future. While there is much to be accomplished before provision of nuclear reactors can realistically be entertained, some may prefer the subject never to come up.6 The prospect of North Korea retaining any nuclear capability is just too threatening. However, to keep North Korea on

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track to denuclearization and to ultimately improve the security environment on the Korean Peninsula, some major incentive will need to be proposed that will ensure a permanent energy source and that does not raise concerns about nuclear weapons. (Promises of energy assistance were, in fact, integral to the February 13 deal.) The delivery of pipeline gas is one possible solution. As part of a comprehensive regional agreement, it could entice North Korea to negotiate seriously about complete denuclearization and could provide a basis for the region to cooperate in resolving the wider North Korean security threat. Analysts have studied the feasibility of delivering Russian natural gas to the Korean Peninsula by pipeline for years. With some of the worlds largest gas reserves geographically proximate to its fastest growing economic region, a pipeline seems an obvious answer. The 1994 Agreed Framework and the September 2005 Joint Statement both supported the principle of Western nuclear power assistance in exchange for North Korean disarmament. A natural gas pipeline would deliver a non-nuclear energy source that has little or no potential for military use. The direct economic benefit to the region as a whole from such a pipeline could motivate the other nations in the six-party talks to pursue this solution in a way that reactors would not. This article explores how a natural gas pipeline could obtain the nonproliferation and energy security benefits that have eluded Northeast Asia for so long. It first examines the regions energy economies, notes projected growth and rising energy demand for the region, summarizes existing development options, and concludes with recommendations for policy and a natural gas pipeline.

The North Korean Security Threat

North Korea presents a unique international security threat. It is a sovereign state that possesses both some minor level of nuclear capability and a significant level of conventional military force, and it has engaged in terrorism in the past. If it has functional nuclear weapons * and that status is unclear * it can use them as a deterrent to invasion of its territory, as an offensive military weapon, or as tool of terrorism (by its own act or through a non-state group). The potential for a regional nuclear arms race exists in Northeast Asia.7 Japan and (to a lesser degree) South Korea and Taiwan may determine they need to develop their own nuclear weapons to deter the North Korean threat. The resolution of the North Korean nuclear threat is of paramount concern to Japan.8 Japanese Prime Minister Abe Shinzo has stated it would not be illegal for Japan to develop nuclear weapons.9 While it is no longer taboo to discuss the prohibition on Japanese possession of nuclear weapons that Prime Minister Sato Eisaku enunciated in 1967, as long as the U.S. alliance and nuclear umbrella are in place, Japan is unlikely to exercise the option.10 (For more on Japans nuclear debate, see Mike M. Mochizukis article, Japan Tests the Nuclear Taboo, in this issue.) However, Japans assertiveness in pressing for sanctions against North Korea demonstrates just how vulnerable it feels in the wake of the North Korean test. Similarly, in South Korea, there have already been calls for development of enrichment and reprocessing technologies in response to North Koreas nuclear test.11

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The effect of North Koreas test may extend outside the region as well. In the Middle East, Iran may be studying the international response and weighing whether to proceed with its own nuclear weapons program.12 Egypt and Saudi Arabia could also change their postures if they see nothing done about North Korea or Iran.13 After the nonproliferation successes of the last two decades * with Argentina, Brazil, Ukraine, Kazakhstan, Belarus, and South Africa either foregoing weapons programs or actual weapons * a new wave of countries contravening international nonproliferation goals could signal the end of the NPT. Other factors complicate the North Korean security situation. The massive conventional forces that North Korea maintains are in some ways as threatening as its nuclear weapons potential. Seoul, the capital of South Korea, is in range of approximately 10,000 North Korean rocket and artillery systems that effectively hold it hostage.14 Additionally, North Koreas destitution presents a significant refugee threat to both China and South Korea. In case of war or governmental collapse, the number of North Korean refugees could reach the hundreds of thousands, which for South Korea would be a major strain but for China could have a destabilizing effect in the poor and already politically unstable region bordering North Korea. Worse, China may also fear having to participate in a North Korean civil war if a coup or other event abruptly removes Kim Jong Il from power.15 The drag on the regional economy caused by North Korea is an often overlooked factor of North Koreas security threat. North Korea is a nation of approximately 23 million people with a per capita income of only $1,800.16 Its economy is estimated at growing at a rate of only 1 2 percent a year.17 The rest of the region stands in contrast. China has lifted a large portion of its population out of poverty since allowing market economics and should enjoy strong 6 7 percent growth for the next two decades.18 South Korea is an economic powerhouse, and Japan remains the worlds second-largest economy. Even Russia has recovered from the shocks of its conversion from communism and is rebuilding its economy. Within this vibrant region, North Korea constitutes a dead zone. It contributes practically nothing to these economies, yet could stimulate better performance in all of them if politically rehabilitated.

Energy Insecurity in Northeast Asia

Energy insecurity is a region-wide problem in Northeast Asia. North Korea in particular suffers from extreme energy shortages.19 Within China, energy shortages create obstacles to growth and threaten political stability.20 Japan and South Korea have mature economies that must constantly seek out new energy supplies. Led by this region, energy demand is rising worldwide. The International Energy Agency (IEA) recently predicted that global demand would increase by 53 percent by 2030. More than 70 percent of this increase comes from developing countries, led by China and India. Imports of oil and gas in the Organization for Economic Cooperation and Development countries and developing Asian nations are growing even faster. The IEA predicts world oil demand will reach 116 million barrels a day (mbd) in 2030, up from 84 mbd in 2005. Most of the increase in oil supply will be met by a small number of major

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Organization of Petroleum-Exporting Countries (OPEC) producers. Non-OPEC conventional crude oil output will peak by the middle of the next decade, according to the IEA.21 These trends indicate growing vulnerability to a severe supply disruption and resulting price shock. They also promise to amplify the magnitude of global climate change. These trends also make it important to evaluate which energy sources might meet the diverse needs of Northeast Asia. The following section explores the energy needs of various countries in the region.

North Korea
The dire state of North Koreas economy shows how much it has to gain from a new energy supply. While reliable data are hard to find, its economy is presumed to be stagnating at little more than the subsistence level. Its per capita electricity demand in 1990 was about 1,400 kilowatts (South Koreas was 2,200 kilowatts), and is believed to be much lower today.22 The early 1990s saw a series of poor grain harvests in North Korea. Compounding these difficulties, in 1995 and 1996 severe floods in many areas of North Korea washed away topsoil from higher elevations and buried many areas of crucial lowlying farmland.23 The flooding contributed to deforestation, generally poor harvests, and serious famines. Even 10 years after the famines of the mid-1990s, North Koreans still lack basic food sources and are thin and malnourished; much basic infrastructure has either been worn out or is in advanced disrepair. North Korea is not expected to be able to grow sufficient amounts of food for its people for years.24 Thermal power generation capability in North Korea has significantly eroded. In virtually all of its large power stations, only selected boilers and turbines are operating, and those that are still in use operate at low efficiency and low capacity factors due to maintenance problems and lack of fuel.25 As a consequence, hydroelectric plants have shouldered the burden of power generation in North Korea, despite maintenance problems and the seasonal nature of river flows.26 Natural gas. The fuel with which North Korea rebuilds its economy could be natural gas. If an adequate basic number of thermal electric plants could be built along a pipeline delivery system, North Korea could provide electricity for factories, homes, and public transportation. Power from these plants could also be used to operate other coalburning power plants in the short term while hydroelectric plants are repaired and modernized. Little or no gas is used in North Korea at present.27 If gas imports are to present a feasible alternative, through either a pipeline originating in Russia or shipments of liquefied natural gas (LNG), it will be necessary to begin introducing gas to the population of North Korea several years before in order to generate the necessary demand to justify a major infrastructural investment. One initial step could be the construction of small demonstration power plants that used liquefied petroleum gas (LPG) imported to small storage facilities for residential fuel within a limited area. If local distribution systems can be established, it may be possible to build a small LNG terminal. If gas consumption increased and a local pipeline network began to form, an international pipeline could be

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considered as the next step in energy relations between North Korea and its neighbors. David von Hippel and Peter Hayes of the Nautilus Institute have argued that this approach would provide significant opportunities to regionally and internationally engage North Korea, and it has the added advantage of being strongly in the interests of Russia and South Korea.28 Oil. The lack of viable energy alternatives supports natural gas as a primary fuel source. North Koreas economy was essentially built on subsidized oil imports from the Soviet Union; these ceased when the Cold War ended. Since then, China has provided North Korea with 80 90 percent of its imports.29 Higher levels of imports could only be attained at world market price, something that North Korea so far has been unable to afford. North Korea reportedly has oil and gas reserves in offshore areas, but the country lacks the technology to develop these resources and has yet to secure an international partner to aid in such an effort. Currently, all of the hydrocarbon products used in North Korea are imported, whether crude or refined.30
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Coal. North Korea possesses substantial domestic reserves of coal. They vary in quality, consisting mainly of anthracite and brown types. Some are very low in heating efficiency.31 Modern mining techniques may be able to increase these reserves, but a North Korean priority is to decrease its coal share in an attempt to diversify.32 Moreover, coal is the least clean-burning fossil fuel.

China
The growth of Chinas economy is being felt around the world through inexpensive imports, relocation of jobs, and major changes in energy markets. Within Asia, it is seen generally as a positive force because it provides a source of cheap labor for Japanese and South Korean manufacturing and a market for low-cost exports, especially those of Southeast Asia. Economic forecasts remain strong for China, with real gross domestic product (GDP) expected to have increased 9.9 10.5 percent in 2006.33 The U.S. Energy Information Administrations (EIA) World Energy Outlook 2004 forecast Chinese hydrocarbon demand in 2030 at just under 14 mbd, about one-third less than current demand in the United States. Chinas import dependency will continue to grow with imports reaching 75 percent of total consumption, according to the EIAs assessment. In 2030, the EIA expects China to import as much oil as the United States did in 2004. The EIA also predicted that in 2006 Chinas increase in oil demand would represent 38 percent of the world total increase in demand.34 In recent years, Chinas natural gas consumption has risen sharply. The amount reached 50 billion cubic meters in 2005, up from 30.5 billion cubic meters in 2003. By 2010, Chinas natural gas demands are expected to exceed 110 billion cubic meters per year, and the figure is estimated to reach 210 billion in 2020.35 Chinas leaders believe constant economic expansion is essential to maintain internal order and stability.36 Its growing dependency on Middle Eastern oil imports has made the Chinese economy vulnerable to events outside its control, causing considerable

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anxiety among its leadership.37 Much of this anxiety is focused on the Strait of Malacca, a narrow thread of water through which roughly 80 percent of Chinas Middle Eastern oil travels. The strait is prone to frequent pirate attacks and vessels in transit are vulnerable to hijacking.38 It could also become a chokepoint on Chinas economy in time of war because China does not possess the naval forces to guard shipping lanes so far from its mainland. The fears over this vulnerability found a high-level voice during the central economic work conference on November 29, 2003, when President Hu Jintao reportedly expressed concern over the Malacca dilemma.39 While China has attempted to diversify over the last decade, including significant investment in nuclear power infrastructure, it is still reliant upon the Middle East.40 Pipelines. In order to reduce its reliance on the Strait of Malacca, China has constructed or is building several national and international oil pipelines.41 In May 2006, China began receiving crude oil imports from its first transnational oil pipeline, connecting Atasu in northern Kazakhstan with Alashankou in the Xinjiang Uighur Autonomous Region.42 China has undertaken an effort to expand its natural gas delivery system as well. Many of Chinas largest natural gas fields lie in remote basins in the western part of the country, and the gas must be piped to eastern population centers. China is also looking to lay transnational natural gas pipelines with several neighboring countries. In February 2005, for example, Kazakhstans state-owned KazMunaiGas (KMG) was reportedly conducting a feasibility study of a natural gas pipeline to China in partnership with China National Petroleum Company. If such a line were built, KMG officials have said that it could be operational as early as 2009 and supply natural gas from Turkmenistan and Uzbekistan.43 China is also pursuing pipeline options from Russia. Two major gas sources are the enormous Siberian Kovykta fields and the Sakhalin Island fields, which will be discussed in the next section. Either could support China and Korea by pipeline or LNG shipment. When Russian President Vladimir Putin and Hu Jintao met in March 2006, the two leaders reportedly agreed to move ahead with the proposed Kovykta pipeline by 2011, although as of March 2007 no formal decision had been made on whether to proceed with the project. In general, Chinas energy insecurity is spurring it to develop all energy resources, and natural gas is high among its priorities.

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South Korea
After posting 4 percent real growth in GDP for 2005, South Koreas economy was expected to rebound to a healthy 5.9 percent in 2006. Despite recovering from the brief 2003 recession, which was caused mainly by a tightening of requirements for consumer credit, the countrys economic growth in 2004 and 2005 was slight due to weak growth in demand for exports.44 South Korea imports all of its crude oil, and hydrocarbons accounted for 52 percent of its primary energy consumption in 2003. South Korea is the ninth largest oil consumer and fifth largest net oil importer in the world. Most of its oil imports come from the Persian

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Gulf region, with Saudi Arabia supplying about one-third of its import requirements in 2005. South Korea has sought to diversify its supply; it has both a short-term and a longterm approach to fulfilling its oil needs. In the short-term, it has developed a strategic petroleum reserve, which is managed by the state-owned Korea National Oil Corporation (KNOC). KNOC is pursuing equity stakes in oil and gas exploration worldwide.45 Adding pipelines into the balance of its increasing natural gas imports is its long-term strategy. South Korea currently relies on imported LNG for most of its natural gas, though it began producing a small quantity of natural gas from one offshore field in early 2004. Imports of LNG began in 1986 after the founding of the state-owned monopoly Korea Gas Company (Kogas). Imports grew by nearly 17 percent in 2004, continuing a pattern of rapid growth that has been interrupted only once, during the Asian financial crisis of 1997 1998.46 With demand surging, Kogas continues to sign contracts for additional supplies to increase the flexibility of its import options. Kogass most recent supply agreement was signed in July 2005 with Sakhalin Energy, a joint venture with Russian companies backed by Shell, for supplies from the Sakhalin-2 project for 20 years beginning in 2008.47 South Korea still has a market for natural gas that justifies the investment of a pipeline from either Russian source, but could only practically commit to one in the next decade. Its access to the shortest routes from Siberia is determined by China, which sits between it and Siberia. South Korea could receive Sakhalin gas either by pipeline, LNG, or a combination of the two, depending on how far existing lines go and if others are built.

Japan
Moderate economic growth continued in 2005, maintaining the recovery that began in 2003 after a decade of economic stagnation. Japans real GDP rose by 2.6 percent in 2004 and was projected to rise by 2.3 percent in 2005. The upturn over the last three years partially reflects a surge in export demand, led by exports to China. Domestic consumer spending in Japan also has been strengthening.48 Japan is important to the world energy sector as one of the major exporters of energy-sector capital equipment, and engineering, construction, and project management services. Japan has almost no oil reserves of its own, but it is the worlds third largest oil consumer (after the United States and China). The EIA estimated that in 2006 Japan would consume 5.3 mbd of oil.49 This was a decrease in oil consumption, attributable to the recovery of Japans nuclear power industry after a series of plant shutdowns in 2003 that had caused utilities to maximize the use of oil-based generating capacity. Most of the oil consumed in Japan (75 80 percent) comes from OPEC, particularly Persian Gulf countries like the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, and Iran. Japan has worked * with relatively little success * to diversify its oil import sources away from the Middle East. Japan is the largest importer of LNG in the world.50 Like South Korea, most of Japans natural gas (97 percent) is imported. Demand for natural gas is rising due to increases in thermal power generation, utility gas consumption, and natural gas fueled cars.51 Most of Japans LNG comes from Southeast Asia and Australia, with 30 percent from Indonesia, 21 percent from Malaysia, 13 percent from Australia, and 11 percent from

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Brunei.52 Japan uses most of the LNG either for electric power generation or in petrochemical plants. Much of Japans urban area is not served by a natural gas distribution system, which the country is considering expanding. Many analysts cite the absence of an effective natural gas distribution system as a key reason for Japans high retail energy prices. Thus, Japan has strong incentive to seek inexpensive options for natural gas imports, such as a regional pipeline.

Russia
Russias real GDP grew in 2004 by approximately 7.1 percent, fueled primarily by energy exports.53 Russias economy is heavily dependent on oil and natural gas exports, making it vulnerable to fluctuations in world oil prices. According to an International Monetary Fund study, a $1 per barrel increase in Urals oil prices for one year would raise federal budget revenue by 0.35 percent of GDP, or $1.8 billion.54 Russia holds the worlds largest natural gas reserves, with 1,680 trillion cubic feet (tcf) * nearly twice the reserves of the next largest country, Iran.55 Accordingly, in 2004 Russia was the worlds largest natural gas producer (22.4 tcf), as well as the worlds largest exporter (7.1 tcf). However, Russias natural gas industry has not been as successful as its oil industry, with both natural gas production and consumption remaining relatively flat since independence. Moreover, the production forecast of Gazprom, Russias national natural gas company, anticipates only modest growth (about 1.3 percent) by 2008.56 Russias natural gas sector has been limited primarily due to aging fields, state regulation, Gazproms monopolistic control over the industry, and insufficient export pipelines. This section has shown that natural gas demand in Northeast Asia is high and that a large supply is nearby. How can this supply meet demand?

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Natural Gas Pipeline Dynamics

There has been much discussion among policy analysts about a possible energy for security deal with North Korea. The first attempt was the 1994 Agreed Framework, which promised two light water reactors and fuel oil shipments for North Koreas denuclearization and acceptance of IAEA inspections. The effort was controversial and ultimately failed. Although the six-party talks rejuvenated the light water nuclear reactor concept this February, nuclear technical assistance is not within the current focus of the talks and will not be for some time. The energy portion of energy-for-security concepts with North Korea to which analysts have given perhaps the greatest amount of consideration, other than nuclear reactors, involves the delivery of pipeline natural gas. The majority of the discussion on this option has focused on economics and investment risk.57 Some have constructed scenarios after a security resolution is achieved but leave the work of resolving the security issues to others.58 Other viewpoints marry the economics and security realms but were written before North Koreas nuclear test.59 There has been little consideration of North Koreas interests in a possible energy for security settlement, but some have attempted to collect this information despite the difficulty of assessing a closed society.60 Preliminary work on

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the financing of North Korean development does exist.61 Yet none of these development approaches emphasizes the need for regional governmental collaboration and coordination with each other and the private sector. To understand why government action is crucial, it is important to first understand how the private sector is approaching the natural gas supply problem. Profit motives are tempered by the risk of major investments potentially going wrong. Transnational pipelines are huge infrastructural projects that face numerous financial, political, and environmental risks. Also, the private sector is free to make decisions based on maximizing profit, not on public interest. In short, the private sector is not motivated * at least not directly * by the future payoff of North Korean denuclearization. The work of Keun-Wook Paik, a specialist on Sino-Russian oil and gas issues, emphasizes the private sectors role in natural gas pipeline development. In 2000, he proposed a circular route using Russian gas to supply the entire region.62 (See Figure 1.) The map shows the two major Russian natural gas sources that could supply North Korea by pipeline: the Kovykta gas fields near Irkutsk to the northwest of the Korean Peninsula, and Sakhalin Islands offshore fields to the northeast. This early vision of a circular natural gas pipeline loop serving all of Northeast Asia endures as the basic goal of what a pipeline scheme should resemble in order to achieve North Korean denuclearization as well as
FIGURE 1 Northeast Asia Natural Gas Pipeline Concept

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supplying natural gas to all the regions countries. Now follows an examination of how the private sector has progressed in filling in this map.

The Irkutsk Kovykta Fields

The Kovykta complex of six gas fields, one of the worlds largest, is located in a remote, undeveloped part of Siberia to the west of Lake Baikal. A number of fundamental issues will need to be addressed before any pipeline connecting the Kovykta fields with North Korea can be constructed. Authority. Gazprom has authority to regulate the export of Russian gas, but will not allow any export from the Kovykta fields until it decides whether it wants an equity stake in them. Gazprom is considering an equity purchase the TNK-BP partnership, but has not announced any decision.63
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Price. China and Gazprom cannot agree on price. Russia wants LNG rates, which have remained high due to strong LNG demand from the United States and high oil prices. Though South Korea is ready to consume 10 billion cubic meters, China may not be able to absorb its 20 billion until about 2010.64 This gives Beijing bargaining room in negotiating price; it also leaves South Korea stranded in the interim. A route concession from either Russia or China through Mongolia, discussed below, could make pipeline gas pricing competitive. Route. The shortest and least expensive route a pipeline could travel from the Kovykta fields to North Korea is southeast through Mongolia. China objects to this route for political reasons, viewing Mongolia as too pro-United States.65 A second route would go through Daqing, north of Beijing, to Nakhodka near Vladivostok, where a link could then proceed south through the Korean Peninsula. This alternate path puts South Korea in a difficult position because the greater length raises the price for consumers. Pipeline gas then loses its competitive advantage over LNG. However, this second route could also economically stimulate Chinas impoverished and unstable northeastern region.66 Gazprom dislikes Chinese pricing tactics and prefers a longer route that circumvents China, going through Nakhodka.67 Gazprom might even prefer to route the pipeline completely around northeastern China, which would make it even longer and more expensive. Russian action might be hastened if Gazprom sees its potential Asian customers increasing their imports from the Middle East. As for the Mongolian route, a breakthrough is possible if approval is given by the Chinese and Korean governments. The United States has not supported a pipeline to South Korea that involves the North, which caused the Roh Moo-Hyun government to reconsider the Kovykta gas option. However, if South Korea made a commitment to the Kovykta gas project now * before the remainder of its market is set with additional LNG contracts * it could facilitate a Russia-China-Korea route. North Korea could receive supply from a branch that connected Dandong (on the China-North Korea border) to Pyongyang and then stretched to the South. Paik fears the United States, wary of any such integration,

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would not support such an option.68 Nevertheless, because of the feasibility work previously done and the size of the Kovykta fields, he views Kovykta gas as the best longterm source for the Korean Peninsula.

Sakhalin Island
The alternative source of natural gas for North Korea is the offshore fields of Sakhalin Island. Their development has been discussed since the 1960s, but because of uneasy relations between the former Soviet Union and Japan, and questionable returns, did not gain momentum until the early 1990s.69 The Sakhalin-2 project is the largest gas and oil development venture in the world. It is now thought to be able to produce enough gas to be exported throughout Northeast Asia either by pipeline or LNG.70 Both Japan and South Korea have well-developed natural gas markets and are interested in a pipeline from Sakhalin Island to temper their Middle East dependency. A Sakhalin pipeline to North Korea has two route choices. A western line could track Russias mainland coast through Nakhodka to Pyongyang. Ideally, this line would reach as far as the western tip of Honshu, Japans main island. Consumer groups in Japan seek a separate Sakhalin pipeline directly south to Japan to compete with the more expensive LNG that Japanese utilities have provided by monopoly for many years.71 The efficacy of both the Russian and Japanese Sakhalin routes is threatened by LNG contracts in Japan and South Korea. In 2003, three Japanese utilities representing most of the Japanese gas market placed long-term orders for Sakhalin LNG that could eliminate the need for pipeline delivery from Sakhalin to Japan until 2013 or 2014.72 Likewise, South Koreas long-term Kogas contract for Sakhalin LNG could postpone any route for a Kovykta pipeline until 2010 2015. When the KEDO reactors were under active consideration for electricity supply, North Korea was reluctant to consider pipeline gas.73 However, Kim Jong Il is reportedly very interested in Sakhalin gas. Kim discussed the subject each of the three times he has met with Russian president Vladimir Putin since 2000.74 This preference for a Sakhalin pipeline may be, as longtime security analyst Selig Harrison argues, because North Korea is skeptical that Kovykta flow through China will be reliable, given Chinas burgeoning demand for gas.75 This is probably because of North Koreas history with Chinas delivery of hydrocarbon exports. One indication of Pyongyangs interest in Sakhalin pipeline delivery is that it gave rights to three Dutch companies to build the North Korean section of the pipeline from Russia to the South Korean border.76

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Energy Security: A Complete Loop

The ideal pipeline network would be a complete loop similar to Figure 1. A circular route would comprise a minimum level of redundancy, which would increase energy security throughout the entire region. The crucial link would connect South Korea and Japan. If such a line is built, flows from both Kovykta or Sakhalin Island could travel through the Korean Peninsula to supply Japan. Alternatively, a Sakhalin-originating

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flow could be sent westward to the Korean Peninsula. Since pipelines can be built to have bidirectional flow, only one would conceivably be needed for this link. Consequently, the threat of shutoff from China or Russia to both North and South Korea and Japan could be reduced. In short, by linking all the customers to the seller, everyones energy security is increased. It would be a collectively interdependent and reinforcing system. What could become the Japan line has begun, if in a disorganized fashion. Sakhalin2 gas will be transported through an 800 kilometer (km) pipeline to Prigorodnoye, on the south of Sakhalin Island, where it will be liquefied and shipped to Japan, South Korea, and the United States.77 This project lessens the urgency of quick private sector action for a pipeline being built farther into Japan but does not preclude it. In fact, Gazprom is considering building an 850 km natural gas pipeline from Sakhalin Island to northern Japan. The pipeline could link either to ExxonMobils Sakhalin-1 project or to Royal Dutch Shells Sakhalin-2 venture.78 Thus, a variety of potential routes exist to bring pipeline gas to North Korea: three of varying lengths from Siberias Kovykta fields (through Mongolia, northeast China, or around China), and two from Sakhalin Islands offshore fields (west to Russias Pacific coast, or south to Japan and the Korean Peninsula). Currently, Gazprom has delayed its decision over the development of the Kovykta fields due to indecision over whether to acquire a controlling interest and disagreement with China over price.79 As a result, without expedited action on Russias part, the Korean Peninsula may not know for several more years whether or how fully it can access this source. If it delays too long, Gazprom risks losing the Korean market, as South Korean utilities have already concluded one long-term LNG contract from Sakhalin Island and may conclude more. If so, South Korea will not need to seek pipeline gas for 10 20 years, precluding pipeline options for North Korea.

Infrastructure
Very little gas is currently used in North Korea. Setting up LPG networks can be a first step toward use of natural gas in North Korea. LPG is more expensive than natural gas, but it is much easier to use where piped-distribution networks do not yet exist. The infrastructure required to import LPG by oceangoing tanker is also cheaper than for either piped or liquefied natural gas, and LPG storage and transfer facilities are available in smaller capacities than for LNG. Like other natural gas forms, LPG is a clean-burning fuel with limited military potential.80 David von Hippel and Peter Hayes stress introducing LPG networks before the largescale quantities of energy from projects such as natural gas pipelines or LNG delivery systems.81 This can be accomplished by cooperation with South Korea, which possesses technology and expertise that can aid the Norths energy infrastructure. Seoul is also eager to make progress on reunification. Now that a South Korean natural gas pipeline network has been completed where the LPG market has saturated, the South Korean LPG industry can transfer its services to the North.

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The Benefits of a Comprehensive Regional Solution

Most perspectives on natural gas or other energy pacts with North Korea assume they cannot be achieved until a security resolution with North Korea is achieved first. However, the process of connecting Northeast Asian energy demand with Russian supply has progressed far enough to view it from the opposite perspective * that the energy should be used as an incentive to North Korea to gain the political resolution. What are the reasons for which a natural gas pipeline might provide a comprehensive regional security/ energy solution to the North Korean threat?

Improved Nuclear/Traditional Regional Security

The nonproliferation benefit of a North Korea that gives up all of its nuclear weapons programs would be measured regionally and globally with the mending of the NPT and forestallment of a regional nuclear arms race. There would also be an immense traditional security and economic payoff for resolving the North Korean crisis * a circular loop pipeline network will increase the entire regions energy security. Combined with some guarantee for the security of the Kim Jong Il government, access to a substantial energy supply would provide North Korea with the means to rebuild its economy. The pipeline itself would also act as a face-saving trophy that it could accept as substitute for the KEDO nuclear reactors, if they are never produced. The transit fees North Korea would gain as a result of transporting natural gas through its territory would provide a means to finance its section of the pipeline. Together, these incentives would demonstrate to North Korea that the international community is serious about peaceful coexistence and that the time for it to denuclearize has come.

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An Economically Active North Korea

Even if it remained predominantly socialist, an economically productive North Korea would accelerate the economic performance of an already dynamic region. The resulting benefit to the surrounding economies would more than recoup investments for a pipeline.

An Optimal Fuel
Other hydrocarbon fuels are more expensive, polluting, or more easily used in military equipment. Offshore oil drilling may someday be a possibility for North Korea, but these reserves are not yet sufficiently explored. Despite the renewed promise for light water nuclear reactors in the February agreement of the six-party talks, North Koreas nuclear test cannot have done anything to make nuclear power assistance toward it more politically palatable to the region. The test should not preclude nuclear-generated electricity being transmitted from a bordering country, but this form of energy assistance does require the expensive prior infrastructural step of building a modern electrical grid in North Korea. This step would also be required for distributing energy benefits from in-country reactors or any scaled energy scheme due

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to the eroded nature of the North Korean electrical grid. Further, countries such as Japan and South Korea have technical capacity and experience, which could create bases for regional cooperation.

Investment in Hydrogen
An added benefit for investing in a natural gas pipeline system is the possibility that it will someday be used as part of a larger hydrogen delivery system. Industry leaders and analysts have proposed a far-reaching regional energy infrastructure network that can distribute natural gas throughout Northeast Asia in the near term and renewable-source gaseous hydrogen in the long term.82 Their goal is to generate clean and renewable energy where hydrogen is produced from hydropower and solar energy in Siberia and China and wind power in areas from Kamchatka through the Kuril Islands to Sakhalin. The hydrogen produced in these regions could be transmitted by natural gas pipelines built now, progressively replacing natural gas as it depletes. Some believe hydrogen is the key to a clean energy future. It has the highest energy to weight ratio of any known fuel. It produces effectively zero emissions and can be produced from abundant resources including natural gas, coal, biomass, or water. Combined with other technologies such as carbon storage, renewable energy, fusion and fuel cells, hydrogen has the potential to create an ubiquitous energy source that is emissions-free.83 Hydrogen technology may be two decades or more away, but the prospect of only having to build a single pipeline that carries natural gas today and hydrogen in the future substantially raises the value of investing in a natural gas pipeline.

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Recommendations for Policy

The urgency for maintaining engagement with North Korea could not be higher. After its nuclear test, it is at the zenith of pride and confidence and expects the United States to grant it the respect it feels it deserves. Its walkout from talks in March over the delay in the release of North Korean funds, frozen in a Macao bank, is evidence of this.84 As a consequence, if it does not believe the United States will address more central issues such as its security, it may opt to become a default nuclear weapon state and endure whatever sanctions the United Nations applies in the short term.

A Political Window of Opportunity

North Korea needs a reliable source of energy with which to rebuild its economy. The political window of opportunity to construct a regional natural gas pipeline within Northeast Asia, however, has reached its point of widest opening and is beginning to close. There are two factors. First, with its test of a nuclear weapon, North Korea has the attention of the United States and perhaps also its greatest incentive to date for a political solution. To prevent North Korea from becoming a default nuclear weapon state, the United States must act quickly. The Bush administration has roughly six months before it

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loses the influence in the region to orchestrate a deal that would resolve the North Korean nuclear threat. Second, in South Korea and Japan, utilities may tire of waiting for pipeline options either from the Irkutsk Kovykta fields or Sakhalin Island. These utilities may agree to longterm LNG contracts that would satisfy their customers demand for natural gas in their developed natural gas markets. To gain competitive pipeline terms, China and South Korea, and preferably also Japan, must negotiate pipeline gas prices with Gazprom as a bloc. If South Korean or Japanese utilities sign additional long-term LNG contracts in the next six months, a pipeline will probably not be built in Kim Jong Ils lifetime. For South Korean utilities to wait any longer, they must receive direct instructions from their government. For Gazprom or ExxonMobil to construct a pipeline serving Japan, they must see a favorable business climate in Japan, which could be enhanced by governmental guarantees. The prospect of resolving the North Korean nuclear threat should be the impetus for regional governments to act.
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Government Action
Ultimately, if natural gas pipelines are to be built as part of a security settlement with North Korea, comprehensive and coordinated governmental action will be required. Only the political authority of governments can act on regional energy initiatives within the window of political opportunity to prevent North Korea from becoming a default nuclear weapon state. Only government financial guarantees can create umbrella protection to manage pipeline construction risk and stimulate pipeline development. Only governments can dissuade their utilities from making long-term LNG arrangements while the potential of pipelines is considered. Specific government action could include the following (some recommendations overlap with actions taken in the February 13 agreement): The United States should begin talks with North Korea immediately, focusing on a natural gas regional pipeline network and engaging all members of the six-party talks. Such talks should be done in addition to any other discussions on energy or infrastructure, including the promised two light water reactors, so as not to alienate North Korea. A pipeline is of course not mutually exclusive of nuclear assistance. The pipeline concept should support at least one route from each Russian source. These lines should meet in a loop configuration that provides for continuous flow throughout Northeast Asia. The United States should support the Kovykta Mongolian route to accelerate development of those large fields and lower the natural gas price for China and the Koreas. Japan and South Korea should enact a short-term moratorium on further LNG contracts to increase the demand for political resolution with North Korea. They should also guarantee their national energy companies investment outlays in regional pipeline projects. China and Russia should agree to the Mongolian route for pipeline development of the Kovykta fields, and Russia should do more to guarantee Gazproms investment outlays and draw its decisionmaking process over the Kovykta fields to a conclusion. North Korea should accept a non-nuclear energy for security settlement and begin denuclearization and substantial demilitarization along a phased time schedule.

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The World Bank, or a newly constructed international corporation, perhaps an expanded KEDO-type organization, could act as a project authority. It would oversee the financial processes and pipeline construction. The project authority would coordinate multinational policy, negotiate leases, grant commercial rights, and coordinate operations after gas begins to flow. Most critically, the project authority could expedite the financial guarantees that would justify the huge private outlays required for transnational pipelines. With umbrella coverage, the private sector could participate in a security settlement with North Korea. This could only happen, however, if extensive transparency conditions were met by North Korea. According to Bradley Babson, these financial and information-sharing conditions will need to be satisfied at some point because donor governments will most likely want development bank standards met before they give political and development aid.85 As an interim step, special trust funds administered by the World Bank * often useful in post-conflict situations * should be considered for North Korea. The results transition matrix is a mechanism for coordinating the planning of activities and assistance provided by donors in a phased manner. The United States could assist on all of these fronts. Supporting both Siberian and Sakhalin pipelines would balance power in the region, diversify energy supply, and create powerful incentive for engaging North Korea on total denuclearization.

Conclusion
If the six-party talks can freeze North Korean nuclear programs and permit inspections, then larger, more ambitious goals can be initiated. Whether a natural gas pipeline is built alone or in conjunction with light water reactors is unimportant. What is important is keeping North Korea on track toward denuclearization, and a project with economic incentive for the entire region holds the best chance for success. The dialogue for a natural gas pipeline settlement must happen quickly, but all the pieces are in place: sizeable markets, energy company interest, and the political impetus from North Koreas nuclear test. All that remains is for the governments of Northeast Asia and the United States to provide leadership.

ACKNOWLEDGEMENTS
The author is indebted to Keun-Wook Paik and to his wife, Megan Bowman, for their assistance with this article.

NOTES
1. On the Joint Statement, see Department of State (DOS), Joint Statement of the Fourth Round of the
Six-Party Talks, Beijing, September 19, 2005; on the February 2007 deal, see DOS, Media Note, North Korea * Denuclearization Action Plan, February 13, 2007, Bwww.state.gov/r/pa/prs/ps/2007/february/ 80479.htm. 2. International Atomic Energy Agency (IAEA) head Mohamed ElBaradei said the DPRK was very clear they are ready to implement the February 13 agreement once the other parties implement their part of

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the deal. Staff Report, IAEA Director General Concludes Trip to the DPRK, IAEA Press Release, March 20, 2007, Bwww.iaea.org/NewsCenter/News/2007/dg_dprk_concludes.html. Steve Weisman, U.S. Treasury Ofcial to Help Free Up North Korean Funds, New York Times, March 24, 2007, p. A5. Assistant Secretary of State Chris Hill said that North Korean ofcials made it very clear that they have begun their tasks for the purpose of denuclearization. Joseph Kahn, U.S. and North Korea Are Said to End Frozen Funds Impasse, New York Times , March 19, 2007, p. A5. Siegfried S. Hecker, Report on North Korean Nuclear Program, Nautilus Institute, Policy Forum Online, 06-97A, November 15, 2006, Bwww.nautilus.org/fora/security/0697Hecker.html#sect2. See, generally, David E. Sanger, Sensing Shift in Bush Policy, Another Hawk Leaves, New York Times , March 21, 2007, p. A1. See James Clay Moltz, Future Nuclear Proliferation Scenarios in Northeast Asia, Nonproliferation Review 13 (November 2006), pp. 591 604. Others such as Christopher Hughes acknowledge the potential for a nuclear cascade in Northeast Asia but argue it is unlikely for the time being. North Koreas Nuclear Weapons: Implications for the Nuclear Ambitions of Japan, South Korea, and Taiwan, Asia Policy , No. 3 (January 2007), pp. 75 104, Bnbr.org/publications/asia_policy/AP3/AP3Hughes. pdf. Kenneth B. Pyle, Abe Shinzo and Japans Change of Course, NBR Analysis 17 (October 2006), p. 20, Bwww.nbr.org/publications/analysis/pdf/vol17no4.pdf. Provided they were limited in number and for self-defense. Howard French, Taboo Against Nuclear Arms Is Being Challenged in Japan, New York Times , June 9, 2002, p. 1. Japanese Foreign Minister Aso Taros calls for debate on the countrys prohibition against nuclear weapons led opposition parties to push for his resignation. Japanese Opposition Parties Seek Asos Ouster, Global Security Newswire , November 9, 2006, Bwww.nti.org/d_newswire/issues/2006_11_ 8.html#7BE4AC70. On the nuclear umbrella, see Pyle, Abe Shinzo and Japans Change of Course, p. 20. Jung Sung-ki, Seoul Should Secure Nuclear Technology, Korea Times , November 14, 2006, Btimes.hankooki.com/lpage/nation/200611/kt2006111417491011980.htm. I wouldnt be surprised if [Iranian President Mahmoud] Ahmadinejad and other hardliners in the regime say, Why do we back down at the last minute, when you look at the North Koreans and see that they make a threat and carry through * and on the whole that has not been a losing approach for them? Former Assistant Secretary of State for Nonproliferation Robert Einhorn, quoted in Howard LaFranchi, Is Iran Studying North Koreas Nuclear Moves? Christian Science Monitor , June 23, 2006, Bwww.csmonitor.com/2006/0623/p01s01-usfp.html. Ashton Carter, quoted in Dafna Linzer, Optimism Turns to Anxiety On Curbing Nuclear Arms, Washington Post , November 3, 2003, p. A23, Bwww.washingtonpost.com/wp-dyn/content/article/ 2006/11/02/AR2006110201581_pf.html. See also William J. Broad and David E. Sanger, With Eye on Iran, Rivals Also Want Nuclear Power, New York Times , April 15, 2007, p. 1. North Korea continues to position forces into the area just north of the [Demilitarized Zone] * in a position to threaten Combined Forces Command and all of Seoul with little warning. Seventy percent of their active force, including approximately 700,000 troops, over 8,000 artillery systems, and 2,000 tanks, is postured within 90 miles of the Demilitarized Zone. Excerpted from Korean Peoples Army, GlobalSecurity.org, Bwww.globalsecurity.org/military/world/dprk/army.htm. Kenneth Lieberthal, public statement at the National Bureau of Asian Research conference: Pursuing Security in Dynamic Asia, Seattle, November 17, 2006. Central Intelligence Agency, World Factbook , Korea, North, March 8, 2007, Bhttps://www.cia.gov/ cia/publications/factbook/geos/kn.html. Ibid. For the 2 percent gure, see North Koreas Economy Economic Data, PowerPoint Presentation, Slide 2, Korea Economic Institute, June 2006. Economy to Maintain High Growth: Economists, Peoples Daily , November 10, 2003, Benglish. people.com.cn/200311/10/eng20031110_127937.shtml. Anna Field, Energy Critical Power Source within N Korea, Financial Times , February 12, 2007, Bwww.ft.com/cms/s/ed5e3948-bad1-11db-bbf3-0000779e2340.html. Chinas leaders fear that domestic energy shortages. . .could undermine the countrys economic growth and thus seriously jeopardize job creation. For a regime that increasingly stakes its political

3. 4. 5. 6. 7.

8.
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9. 10.

11. 12.

13.

14.

15. 16. 17. 18. 19. 20.

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right to rule on economic performance and rising standards of living, the threat of economic stagnation raises real risks of social instability, which could in turn threaten the continued political monopoly of the Chinese Communist Party. Kenneth Lieberthal and Mikkal Herberg, Chinas Search for Energy Security: Implications for U.S. Policy, NBR Analysis 17 (April 2006), p. 11. International Energy Agency, The World Energy Outlook 2006 Maps Out a Cleaner, Cleverer, and More Competitive Energy Future, November 6, 2006, Bwww.iea.org/Textbase/press/pressdetail.asp?PRE SS_REL_ID 187. David von Hippel and Timothy Savage, et al., The DPRK Energy Sector: Estimated Year 2000 Energy Balance And Suggested Approaches To Sectoral Redevelopment (hereafter Sectoral Redevelopment), Report Prepared for the Korea Energy Economics Institute, Nautilus Institute (revised March 6, 2003), pp. 2, 9, Bwww.nautilus.org/energy/2005/beijingworkshop/datasets/DPRK_Energy_2000_ revised.pdf. Ibid., p. 6. Ibid. Ibid., p. 97. Ibid. Ibid., p. 118. On small demonstration power plants and local distribution, see ibid., p. 9. Kim Reportedly Promises Not to Conduct Another Nuclear Weapon Test, Global Security Newswire , October 20, 2006, Bwww.nti.org/d_newswire/issues/2006_10_20.html#15E6CBE5. Von Hippel and Savage, et al., Sectoral Redevelopment, p. 37. Ibid., p. 36. Peter Hayes, David von Hippel, et al., South Koreas Power Play at the Six-Party Talks (hereafter South Koreas Power Play), Nautilus Institute Report (see sections 6.2, North Korean Energy Needs?, and 6.3.3, Redevelopment Priority), July 21, 2005, Bwww.nautilus.org/napsnet/sr/2005/0560ROK_ Energy_Aid.pdf. For the 9.9 percent gure, see U.S. Energy Information Administration (EIA), China Country Analysis Brief, updated August 2006, Bwww.eia.doe.gov/emeu/cabs/China/pdf.pdf ; for the 10.5 percent gure, see CIA, World Factbook , China prole, updated March 15, 2007, Bhttps://cia.gov/cia/ publications/factbook/geos/ch.html. EIA, China Country Analysis Brief. China Likely to Slow Down Progress in LNG Project, SinoCast China Business Daily News , September 26, 2006 (University of Alberta, China Institute Web Site), Bwww.uofaweb.ualberta.ca/chinainstitute/ nav03.cfm?nav03 50936&nav02 43590&nav01 43092. Ibid.; Lieberthal and Herberg, Chinas Search for Energy Security, p. 11. Lieberthal and Herberg, Chinas Search for Energy Security, p. 11. Bo Kong, An Anatomy of Chinas Energy Insecurity and Its Strategies, Pacic Northwest National Laboratory (PNNL), Pacic Northwest Center for Global Security, December 2005, p. 26, Bpnwcgs.pnl.gov/Newsletter/otherdocs/anatchinaenergy.pdf. Ibid., footnote 61, Hu Jintao Urges Breakthrough in Malacca Dilemma. James Tang, With the Grain or Against the Grain? Energy Security And Chinese Foreign Policy in the Hu Jintao Era, Brookings Institution, October 2006, p. 27. EIA, China Country Analysis Brief, see Pipelines and Shipping, p. 5. Ibid. Ibid. EIA, South Korea Country Analysis Brief, updated May 2006, Bwww.eia.doe.gov/emeu/cabs/South_ Korea/pdf.pdf. Ibid., p. 3. Ibid. Ibid. EIA, Japan Country Analysis, updated November 2005, Bwww.eia.doe.gov/emeu/cabs/Japan/Full. html. Ibid. Ibid.

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21. 22.

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23. 24. 25. 26. 27. 28. 29. 30. 31. 32.

33.

34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

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CHRIS AJEMIAN 51. Trends in Natural Gas: Outlook, Japan Agency for Natural Resources and Energy, Bwww.enecho.
meti.go.jp/english/energy/lng/trends.html.

52. Ibid. 53. EIA, Russia Country Analysis Brief, updated January 2006, Bwww.eia.doe.gov/emeu/cabs/Russia/ 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79.
Full.html. Ibid. Ibid. Ibid. For a discussion of pipeline and private sector dynamics, see Keun-Wook Paik, Pipeline Gas Introduction to the Korean Peninsula (hereafter Pipeline Gas), Chatham House Report, January 2005, Bwww.chathamhouse.org.uk/pdf/research/sdp/KPJan05.pdf. See the Introduction by Nicholas Eberstadt and Richard J. Ellings, What If? Economic Implications of a Fundamental Shift in North Korean Security Policy, Asia Policy , No. 2 (July 2006), pp. 2 8, Bwww.nbr.org/announcements/pdf/AP2_NolandSpecial.pdf. See Selig Harrison, Gas and Geopolitics in Northeast Asia Pipelines, Regional Stability, and the Korean Nuclear Crisis, World Policy Journal, Winter 2002 2003, pp. 23-36, Bwww.worldpolicy.org/journal/ articles/wpj02-4/harrison.pdf. Hayes and von Hippel, et al., South Koreas Power Play, pp. 10 12. Bradley O. Babson, Visualizing a North Korean Bold Switchover: International Financial Institutions and Economic Development in the DPRK, in Eberstadt and Ellings, What If? Keun-Wook Paik and Kengo Asakura envisioned a circular natural gas pipeline system for Northeast Asia around the same time in 1999 2000. See Paik, Pipeline Gas, p. 41, footnote 73. Gazprom is expected to respond positively this year to TNK-BPs offer, but there had been no ofcial decision at the time of writing. TNK-BP Offers Gazprom 51% of Shares in Kovykta Project, No Answer Received, Press Release, March 15, 2006, Bwww.tnk-bp.com/press/media/2006/3/1757/. See Harrison, Gas and Geopolitics, p. 27. On Chinas objections, see Paik, Pipeline Gas, p. 8. On perception of Mongolia, see Harrison, Gas and Geopolitics, p. 26. Paik, Pipeline Gas. Ibid., p. 12. Ibid., p. 25. Ibid., p. 12. Ibid., p. 15. Harrison, Gas and Geopolitics, p. 26. Paik, Pipeline Gas, p. 18. Ibid., p. 26. Ibid., p. 34. Harrison, Gas and Geopolitics, p. 30. Paik, Pipeline Gas, p. 27. Hisane Masaki, Russian Energy Roulette Spooks Japanese, Asia Times Online, October 24, 2006, Bwww.atimes.com/atimes/Central_Asia/HJ24Ag01.html. Gazprom in Japans Pipeline, St. Petersburg Times (Russia), June 20, 2006, Bwww.sptimes.ru/ index.php?action_id 2&story_id 17953. Keun-Wook Paik, Sino-Russian Oil and Gas Pipelines: The Reality and Implications, Paper Prepared for the Second Colloquium on Eurasian Pipelines and East Asia: A Path to Integration or a Marriage of Convenience? Columbia University, November 30 December 1, 2006, p. 27, Bwww.harriman institute.org/MEDIA/00649.pdf. Hayes and von Hippel, South Koreas Power Play, p. 17. Ibid., p. 16. Kazuhiko Ohashi, Masaru Hirata, and William Leighty, Proposal for a Northeast Asian Hydrogen Highway: From a Natural Gas-Based to a Hydrogen-Based Society, Leighty Foundation, August 2005, Bwww.leightyfoundation.org/les/NAGPF-Seoul-Sep05-REV2Sep.pdf. Department of Energy, Energy Sources: Hydrogen, Bwww.energy.gov/energysources/hydrogen. htm; Global Strategy Institute, Hydrogen: The Fuel of the Future? Center for Strategic and

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80. 81. 82. 83.

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International Studies, October 12, 2005, Bwww.csis.org/component/option,com_csis_pubs/task,view/ id,2551/. 84. David Lague, China Ends North Korea Talks Amid Delay in Return of Funds, New York Times , March 23, 2007, p. 7A. 85. Babson, Visualizing a North Korean Bold Switchover, p. 18.

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