South Korea Is Massively Overpaying for Its Energy. Trump, Russia and Kim Could Change That

The pipeline gas Russia could deliver if peace broke out is far cheaper than the LNG the South burns now

No wonder the South Koreans rushed to restart talks with Gazprom as soon as Kim-Trump summit was over

South Korea is almost 100 percent dependent on energy imports to fuel its massive industry. A huge chunk of that is tanker-delivered liquified natural gas, and the proportion is only expected to rise:

At the core of the Vladivostok-Seoul gas pipeline is South Korea’s almost unprecedented dependence on imports to cover its energy needs – the rate stands at 98-99 percent for quite some time already. South Korea’s traditional means of generating energy largely boiled down to nuclear power and LNG, yet after the 2011 Fukushima catastrophe nuclear is about to be gradually removed from the national energy matrix.

But the problem is LNG is much more expensive than pipeline gas:

Korea’s LNG import capacities are undoubtedly spectacular, as the nation’s 4 LNG terminals can process up to 120 BCm per annum, double of South Korea’s actual natural gas needs. Yet if one is to compare LNG imports to South Korea and Gazprom’s exports to Europe, it becomes evident that Seoul has been overpaying massively.

Since LNG supplies in Asia-Pacific are exposed to seasonal volatility, the average price Korean buyers pay for liquefied gas is often double of that European consumers pay ($344 vs $172 per MCm in January 2017, $390 vs $215 per MCm in January 2018).

No wonder South Korea resurrected talks with Gazprom on a Russia-South Korea pipeline to deliver cheap energy from Russia’s Far East across North Korea as soon as the Trump-Summit in Singapore was over.

In theory a pipeline could be laid under the sea bypassing North Korea but the problem are frequent earthquakes. The Sea of Japan (like Japan itself) is one of the most seismically active parts of the world.

A pipeline across land would be safer but there would be another problem. North Korea is desperately poor, starved for energy and foreign currency and sometimes does not pick the means to get them; it has sold drugs and planted forged currency for example. There would be a real danger that Pyongyang, in addition to charging transit fees, would siphon off gas for itself or use it threaten to shut down the pipe when it needed leverage against Seoul or Russia:

Two-thirds (roughly 700km) of the Vladivostok-Seoul pipeline are supposed to pass through North Korean territory and there is no way of telling if there could be any sort of illegal tapping there. And if irregularities were to happen, how could Russia or South Korea make them stop? The last thing Russia needs is a potentially nuclear replica of Ukraine on its Far-Eastern border.

That said, the potential upside for everyone involved is enormous. Russia, the South, and the North, all have a huge incentive to make this work.

Washington on the other hand will likely find every reason to oppose it. If the pipe ever gets laid down it might be akin to Seoul’s declaration of independence from the Empire.

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