Sakhalin Pipeline

South Korea’s state-run Korea Gas Corp signed a preliminary agreement with Russia’s OAO Gazprom to import 10 billion cubic meters of natural gas over 30 years starting from 2015.

The plan involves the Russians working with the North Koreans to build a transport pipeline from the Sakhalin Island in the Russian Far East, through the DPRK, down to South Korea.  If the pipeline plan proves too difficult, a “Plan B” may involve shipping the gas via an ocean route using Liquified Natural Gas (LNG) transport vessels.

The final agreement that details the route and delivery plans will be signed in 2010.

Last year, South Korea imported 25.5 million tons of gas and all of it arrived in a liquefied form by sea. Qatar, Indonesia, Oman and Malaysia accounted for 93 percent of its LNG shipments. The cost of gas delivered via pipelines was $410 a ton in the global market last year, while LNG was $499 a ton, according to the ministry.

It’s interesting the irony of North Korea being witness to a tangible sign of South Korea literally by-passing the North to gain access to and partnership with Russia, a former steward and benefactor of North Korea.

My bet is that the North won’t agree to the pipeline.  But, even if they do, it will be too tempting for them to use the pipeline as an object of actual or implied threats.