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Economic Issues of Natural Gas Trade in Northeast Asia: Political Bridges and Economic Advantages

Protracted talks—the so-called six-party talks—among the United States, South Korea (Republic of Korea; ROK), North Korea (Democratic People’s Republic of Korea; DPRK), Russia, China, and Japan over the standoff on the Korean peninsula ended in September 2005 with a face-saving statement of principles. North Korea assented to give up its existing nuclear weapons and return to the Nuclear Non-Proliferation Treaty, and the United States expressed “respect” for North Korea’s right to peaceful uses of nuclear energy and consideration of offers for renewed energy assistance and economic cooperation. The loose agreement was made possible by U.S. concessions that have encouraged North Korea to continue pressing for the delivery of light-water nuclear energy reactors promised in agreements signed in 1994. Detailed discussions of key implementation issues await a new meeting in November 2005, and timing concessions may bedevil future progress. The U.S. offer to “take steps to normalize” relations with North Korea seems to make more plausible a general security agreement that the conflict can be resolved during this go-round. North Korea, however, is going to want to see progress on the promise that the other parties—South Korea, Japan, the United States, Russia, and China—provide energy assistance. North Korea’s Ministry of Foreign Affairs said that the United States “should not even dream of the issue of (North Korea’s) dismantlement of its nuclear deterrent before providing lightwater reactors (LWRs), a physical guarantee for confidence building” (Dinmore et al. 2005, 7). As experience has shown, the financing and timing of provisions of energy aid can be technically and diplomatically challenging. The United States has already made clear that its interpretation of an “appropriate” time for the provision of LWRs would be at a time following the complete dismantling of all North Korea’s nuclear weapons and facilities.

But the conflict and its resolution beg the question of whether nuclear power is the top solution for the energy shortfalls on the Korean peninsula. To forge a compromise before the September 2005 six-party talks, South Korea offered to sell North Korea electricity from its own supplies. In June 2005, Minister of Unification Chung Dongyoung announced that South Korea would provide North Korea with 2 million kilowatts of electricity in exchange for the DPRK’s nuclear disarmament and the termination of the LWR project. South Korea argued that the remaining $2.4 billion South Korea intended for the LWR project could, instead, under its proposed plan be used to generate electricity, with transmission to the North beginning in 2008 (Lee 2005). The grid interconnection would include a 200-kilometer power supply line between Yangju and Pyongyang (Yonhap 2005). So far, the electricity trade plan seems to not only lack support from North Korea but also has met with criticism from some members of South Korea’s Grand National Party.

Still, a more fuel diverse, multilateral approach to solving North Korea’s energy woes might offer a more stable, commercially sound, and economically sustainable longterm solution to North Korea’s energy problem than would the delivery of the LWRs. A diverse energy plan that involved Russian energy would benefit not only South Korea and North Korea but also the economies of the other parties to the talks— Japan, China, Russia, and even the United States—by enhancing worldwide energy supplies. The likely result of a plan involving the other four countries would be generally lower gas prices worldwide, although Russian producers in the Far East would obtain higher prices than would otherwise have been the case. Pipeline exports of natural gas, or shipments of nearby hydroelectric power or electricity produced from local Russian natural gas or coal, or both, could provide cheaper, safer, and less politically contentious energy supplies than a major nuclear energy program on the peninsula.

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