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Viewing cable 08VLADIVOSTOK109, SOUTH KOREA TO IMPORT RUSSIAN GAS THROUGH NORTH KOREA

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Reference ID Created Released Classification Origin
08VLADIVOSTOK109 2008-10-08 06:56 2011-08-24 01:00 UNCLASSIFIED Consulate Vladivostok
VZCZCXRO0915
RR RUEHAG RUEHAST RUEHCHI RUEHDA RUEHDF RUEHFK RUEHFL RUEHHM RUEHIK
RUEHKSO RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNAG RUEHPB RUEHPOD RUEHROV
RUEHSR RUEHYG
DE RUEHVK #0109 2820656
ZNR UUUUU ZZH
R 080656Z OCT 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1018
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHUL/AMEMBASSY SEOUL 0269
RUEHVK/AMCONSUL VLADIVOSTOK 1114
UNCLAS VLADIVOSTOK 000109 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL EPET KS KN RS
SUBJECT: SOUTH KOREA TO IMPORT RUSSIAN GAS THROUGH NORTH KOREA 
 
REF: VLADIVOSTOK 094 
 
Summary 
------- 
 
1.  Gazprom and Korean Gas Corporation signed a letter of 
understanding outlining a thirty-year, USD 90 billion deal to 
bring Russian natural gas to the Republic of Korea via a 
pipeline through North Korea.  Construction of the pipeline is 
scheduled to begin in 2011 for completion in 2015.  North Korea 
has yet to participate in talks on the deal. 
 
First, the Easy Part 
-------------------- 
 
2.  Gazprom and state-owned Korean Gas Corporation (Kogas) have 
signed a letter of understanding that will have Russia exporting 
USD 90 billion worth of natural gas to South Korea annually for 
thirty years.  The 10 billion cubic meters per year will amount 
to approximately 20 percent of South Korea's overall demand. 
The deal was announced following a September 29 meeting between 
President Medvedev and South Korean President Lee Myung-bak in 
Moscow.  The companies will sign the final agreement for the 
deal in 2010 after a feasibility study is complete, and gas 
shipments will begin in 2015. 
 
Figuring Out the Tough Parts Later 
---------------------------------- 
 
3.  To transport the gas, the companies have agreed to construct 
a natural gas pipeline from Vladivostok to South Korea through 
North Korea.  Construction for the proposed USD 3 billion 
project would begin in 2011, with gas flow beginning in 2015. 
North Korea, however, has not yet taken part in talks regarding 
the deal.  According to a Consulate contact, it was Russia who 
initially proposed the plan and will be in charge of convincing 
North Korea to take the deal. 
 
4.  In return, North Korea will collect USD 100-150 million in 
transit fees annually for the duration of the contract. 
Consulate contact suggested that Pyongyang will also reap 
financial benefit by providing most of the labor for the Russian 
and North Korean segments of the pipeline.  [Note: North Korean 
workers in the Russian Far East are a significant revenue stream 
for Pyongyang, which provides the manpower through virtual 
indentured servitude and pockets most of the salaries.  End 
Note.] 
 
The Backup Plan 
--------------- 
 
5.  If Pyongyang declines the financial incentives and refuses 
to approve the pipeline plan, the deal for the gas itself will 
still stand.  Russia and Korea announced plans to jointly 
construct a liquefied natural gas facility near Vladivostok and 
develop port facilities outside of Slavyanka.  This construction 
would be undertaken concurrently with the pipeline project and 
would allow gas transport to South Korea by ship, an alternative 
route that would add about 30 percent to the overall cost of the 
gas. 
 
6.  Presidents Medvedev and Lee also announced agreements to 
jointly develop oil and gas off the West coast of Kamchatka, 
connect the Trans-Korean railroad with the Trans-Siberian, and 
develop a chemical plant outside Vladivostok. 
 
Comment 
------- 
 
7.  The deal will help both countries realize plans to diversify 
trade in natural gas.   Russia has been looking for an 
alternative to the European market, and Korea wishes to reduce 
its dependence on gas from the Middle East, which currently 
provides 90 percent of the country's demand.  North Korea did 
agree in April to a joint project with Russia to renovate its 
rail links connecting the two countries, though that deal did 
not include connections with the South (reftel), so an agreement 
may be possible.  However, considering that the construction of 
the pipeline will not begin for several more years, and that the 
North Korean leader is in poor health, it is also possible that 
both parties are assuming that Pyongyang will be irrelevant when 
the time comes to begin construction. 
 
BENJAMIN