- The prospects for negotiation with N. Korea and gas pipeline
- The prospects for improved South-North relations in 2003 are not as dark as it first appeared when North Korea revealed that it is seeking to produce weapons-grade enriched uranium. Since this revelation on October 4, it has become increasingly clear that the enrichment program is not yet far enough advanced to produce fissile material and that Kim Jong Il is prepared to give it up in return for U.S. steps to remove North Korean security concerns and to normalize economic and political relations. South Korea should continue its efforts to persuade the United States that North Korea is bargaining and that U.S. and South Korean interests require renegotiating the 1994 Agreed Framework, not abrogating it. If Seoul takes a firm stance with Washington, the prospects for further improvement in South-North relations will be promising. If not, the prospects will be uncertain, but I do not expect a serious military confrontation in 2003. According to North Korean and U.S. accounts, First Deputy Foreign Minister Kang Sok Ju, meeting on Oct. 4 with visiting U.S. emissary James Kelly, offered to: End the effort to produce weapons-grade enriched uranium Continue to abide by existing safeguards on plutonium-based nuclear facilities shut down under the 1994 agreement Accept whatever inspection and verification measures are deemed necessary by the United States In return, Kang told Kelly, the United States would have to: Make a public pledge not to stage a preemptive attack on North Korea. Sign a peace agreement ending the Korean War and replacing the 1953 armistice. Subsequent statements have referred only to a “non-aggression” agreement. Normalize diplomatic relations, thus opening the way for economic aid from U.S.-controlled multilateral financial institutions. Kelly says he told Kang that this offer was “upside down”: North Korea must first shut down its nuclear program. Only then would the USA “consider” what it might do to meet North Korean concerns. The Bush administration justifies its refusal to bargain by arguing that the enrichment program is a violation of the 1994 U.S.-North Korean agreement, proving that Pyongyang cannot be trusted. North Korea did indeed violate the spirit of the agreement, but not the letter. While the 1994 accord refers to the shared goal of a “nuclear-free Korean peninsula,” it covered only specified plutonium-based facilities then in existence. Moreover, the United States itself has failed to fulfill two key provisions of the accord: steps to normalize relations (Article Two) and “formal assurances” ruling out “the threat or use of nuclear weapons by the United States” against North Korea (Article Three). The administration’s National Security Doctrine announced on September 20 was, in effect, a repudiation of that second provision, because it asserted that the United States reserves the right to preemptively strike— with nuclear weapons, if deemed necessary— any state regarded as a potential peace threat. North Korea is in a strong bargaining position: It could make four plutonium bombs from spent fuel rods put in storage under the 1994 agreement. Kang told Kelly that North Korea is no longer bound by the agreement. But Pyongyang has yet to violate the ban on reprocessing the spent fuel. It is critically important for the United States to pursue a dialogue with Pyongyang to keep the key provisions of the 1994 agreement in force, while renegotiating the rest of the accord to settle the nuclear issue once and for all. Such a dialogue will not be easy. North Korean leader Kim Jong Il and his pragmatic advisers, such as Kang, face powerful hardliners in the armed forces who want to develop nuclear weapons. To give the pragmatists ammunition, the United States should recast the agreement to help meet North Korea’s acute energy storage. Under the 1994 agreement, two civilian electricity-generating nuclear reactors were to be built by 2003, but construction has not even started. Bush officials are talking of abandoning the project. South Korea and Japan understandably object: They agreed to pay for the reactors and have spent $800 million and $400 million respectively on it. Instead of abandoning both reactors, the United States should suggest cutting back to one while supporting a gas pipeline now under discussion that would be a bonanza for both North and South Korea. The proposed pipeline, which could be finished more quickly than the reactors, would run from gas fields off Russia’s Sakhalin Island through North Korea to South Korea. Exxon-Mobil and a Japanese partner control the Sakhalin gas concession and will not pursue a pipeline through North Korea without White House approval. South Korea could use gas from Sakhalin to offset its dependence on Middle Eastern petroleum. North Korea would get royalties for letting the pipeline pass through its territory and could tap into it to supply new power stations and fertilizer plants. Using a combination of pipeline gas and nuclear power as a carrot, the administration would have the decisive economic leverage necessary to get North Korea to end its nuclear and missile programs and accept adequate inspection and verification guarantees. Compared with the huge potential of Siberia, where gas reserves are expected to last for the next century, the reserves so far discovered along the east coast of Sakhalin Island are less spectacular, though their impact on the Russian Far East and adjacent areas of northeastern China, Korea and Japan is likely to be significant. The grand total of proven Sakhalin reserves is 915 billion cubic meters. These reserves are divided almost evenly between the oil and gas concession areas off the northeast coast, known as Sakhalin I, where a multilateral consortium led by Exxon-Mobil plans to invest $20 billion, and Sakhalin II, to the south, where investments by Shell, Mitsui and Mitsubishi are likely to exceed $10 billion. Exploration in the Sakhalin seabed has been in progress since 1978, but development proceeded sporadically until late 2001, when Russia liberalized its tax and regulatory policies and Russian President Vladimir Putin’s meeting in Texas with President George Bush signaled an overall improvement in Russian-U.S. relations. Soon after Putin left Crawford, Exxon-Mobil announced that it would spend $4 billion of its projected $20 billion on Sakhalin development within the next five years, Russia’s largest single foreign investment commitment to date. At present, plans call for oil production to start at Sakhalin I in 2005 or 2006, but Exxon-Mobil will begin with gas production if either South Korea or Japan, or both, should decide to support the construction of gas pipelines from Sakhalin and make firm price commitments. Russia favors the construction of a pipeline running from Sakhalin I through North Korea to South Korea, partly because the pipeline route would skirt the Khabarovsk, Primorsky-Krai and Vladivostock areas on the Russian mainland opposite Sakhalin, where the demand for gas is rapidly growing. Until now, these cities have been dependent on Chernobyl-type nuclear reactors that pose a safety hazard and costly LNG supplies transported over long distances from Siberia. Initially, they might not get much gas from a pipeline originating in Sakhalin I, since most of it would have to go to South Korean consumers who can afford to pay the prices necessary to make the pipeline profitable for Exxon-Mobil. However, as untapped additional gas reserves of some 1.4 trillion cubic meters are explored and developed in newly allocated concession areas known as Sakhalin III, IV, and V, there will be enough gas available to divert what is needed to Russian cities along the pipeline route as well as to nearby northeastern Chinese cities, notably Harbin and Darien, where there is a heavy demand for gas from petrochemical plants as well as consumers. “If Exxon became serious about a pipeline from Sakhalin to Korea,” said Mikhail Lipilin, vice president of Rozneftegaztroy, Russia’s largest pipeline construction company, “Russia will support it because it would be in our long-term national interest, both in terms of our strategic interest in close relations with Korea and as a step toward the gasification of our Far East.” Even though Russia is short of cash, added Alexander Fedorovsky, Director of Pacific Studies at the Institute of World Economy and International Relations (INEMO), Russia could help to make the project financially viable in various ways. Instead of repaying its $1.7 billion debt to South Korea in scarce foreign exchange, he suggested, Russia could pay by getting government-controlled enterprises to contribute part of the work on the pipeline or to provide a share of the gas. Neither the precise routes from Kovykta and Sakhalin I, nor the capacity of the pipelines, have yet been decided. Still, it is clear that Sakhalin gas would be cheaper than Kovykta gas or LNG, though how much cheaper remains to be seen. The pipeline from Sakhalin I would not be more than 1,900 miles long, running along the east coast of Korea to its terminus near Seoul, where it would intersect with an existing South Korean gas network. The pipeline could be built within four years at an estimated cost of $2.7 billion. By contrast, another projected pipeline route from Kovykta near Irkutsk in eastern Siberia, which would run along the west coast of Korea to a terminus at Inchon, would be slightly over 3,000 miles long and would cost some $10 billion to build. As it happens, it cannot be assumed that a Kovykta pipeline would cross through North Korea to the South. The Bush Administration is flatly opposed to such a possibility. In South Korea, retiring president Kim Dae Jung favored a route through North Korea as a way to cement North-South economic cooperation and to help Pyongyang resolve its energy crisis. But some of Kim’s critics in the South want the pipeline to veer south of Dandong to Dalien, where it would go under the Yellow Sea directly to Inchon, bypassing North Korea, even though this would add 250 miles to the route and make the pipeline more expensive, especially since it costs more to lay pipeline under the sea than on land. South Korea formally asked China to support a route through North Korea in December 2000, Xhang Xin, Director General of the China National Petroleum Corporation, told me in Beijing. “That is our policy, even though some South Koreans have come to us saying that they would prefer the undersea route,” he said. “They think it’s less risky politically. Like the Americans, they’re afraid North Korea would have a stranglehold over the South if the pipeline goes through the North.” Ironically, North Korea itself is cool to the Kovykta project. Given China’s burgeoning demand for gas, observed Song Bok Ku, Commercial Counselor of the North Korean Embassy in Moscow, Beijing will not be willing for very long to let Kovykta gas go to Korea. Whatever short-term commitments it might make, he said, “as time goes by, there will be little left for North and South Korea.” South Korea’s Ko Gas has sent two missions to Pyongyang to keep North Korean petroleum officials abreast of progress on Kovykta and to conduct preliminary surveys of a possible pipeline route. North Korean officials have promised to keep an open mind on Kovykta until a feasibility study is completed next July. But the North strongly prefers a pipeline from Sakhalin and has repeatedly conveyed this preference to Russia, most recently during Kim Jong Il’s fourth meeting with President Putin at Vladivostock last August. Even before the North Korean revelation on October 4, many observers have long believed that the Bush Administration will never build the reactors and have questioned the reactor project on economic grounds, anyway, arguing that the United States should offer to support the pipeline if North Korea agrees to drop the reactor project and to comply with U.S. demands relating to its nuclear and missile capabilities. The most explicit proposal for such a deal has come from Bradley O. Babson, a Senior Consultant to the World Bank on East Asia. Babson told a Seoul conference on March 6, 2002, that the 1994 North Korea-U.S. nuclear freeze agreement “is very likely headed for a crisis.” The crisis could be triggered, Babson said, by any or all of three contingencies: an impasse over inspection issues; the unwillingness of KEDO members (South Korea, Japan, the European Union and the United States) to pay for completing the reactors; or, most probably, by their refusal to cover the costs of the new power distribution grid that would be needed to transmit the electricity produced by the reactors. Babson did not foresee that the crisis would result from North Korean acknowledgement of a secret nuclear weapons effort. But his warning was nonetheless prescient, and he made a proposal for a bargain with North Korea that the United States should now adopt, with important modifications, as I will explain later. If North Korea satisfies the United States that it has ended its nuclear and missile programs, Babson suggested, Washington and the multilateral development banks should be prepared to help finance not only the construction of the pipeline itself but also gas-powered power plants, gas-based fertilizer factories and rehabilitation of the existing North Korean power distribution grid. “The idea of building a gas pipeline to cross North Korea and serve the South Korean market is worth serious consideration,” he concluded, “not just from the point of view of meeting South Korea’s future gas requirements through regional energy cooperation,” but because “it could transform inter-Korean relations and advance the larger goal of regional security.” Supporting this view, a leading expert on Northeast Asian energy issues, Keun Wook Paik, author of Oil and Gas in Northeast Asia (Royal Institute of International Affairs), points out that the cost of building the reactors ($4.9 billion) would greatly exceed the projected $2.7 billion cost of the Sakhalin pipeline. Gas could begin flowing well before the reactors are likely to start producing and transmitting electricity, he adds, assuming that Exxon-Mobil can reach agreement with South Korea on the price of the gas and the annual volume to be purchased. Once the feasibility study is completed this summer, he says, Seoul will have firm evidence that Sakhalin gas would be cheaper. Negotiations with Exxon-Mobil could then be completed by the end of the year, opening the way for the start of gas production, as scheduled, in time for the completion of the pipeline by late 2006. Like many observers, Paik emphasizes that North Korea’s antiquated electricity transmission grid cannot handle the 2000 megawatts of electricity to be produced by the two nuclear reactors. The cost of constructing a new countrywide grid would surpass $2 billion, he estimates, substantially more than building a network of 250-megawatt gas-fired power stations, along the pipeline route, linked to small local transmission grids. Each of these power stations and its local grid would cost about $165 million, he calculates, based on the 2002 price of gas-fired turbines made by Korea Heavy Industries in the South. To cover the most populous parts of North Korea with eight power stations, the cost would be $1.32 billion, but all of them would not have to be constructed at once. At their own initiative and at their own expense, two leading European engineering firms, Asea Brown Boveri (ABB) of Switzerland and Siemens of Germany have both conducted extensive studies in North Korea of its existing electricity distribution system and of its future energy needs. Even though North Korea is virtually destitute at present, their reasoning is that the security interests of the United States, Japan and South Korea will sooner or later lead to multilateral aid to ease North Korea’s energy problem as part of a broader rapprochement, whether through a new countrywide grid linked to the two KEDO reactors or through gas-fired power stations with local grids fueled by a Sakhalin pipeline?or through a combination of both. In economic terms, there is no need to make an either-or choice between pipeline gas and nuclear power. Both will be needed to meet the growing economic needs of North Korea, South Korea and a unified Korea. In political terms, however, the issue confronting South Korea and the United States is how to head off a North Korean nuclear weapons program. In my view, the best way to do so is to replace the Agreed Framework with a new agreement that combines pipeline gas with a scaled-down nuclear power program in return for an inspection regime fully adequate to verify that the nuclear weapons effort has ended. North Korea and South Korea alike would strongly oppose a revision of the 1994 accord in which both nuclear reactors would be abandoned in favor of pipeline gas. But it would serve the interests of both to reduce the KEDO commitment to one reactor, instead of two, if that would keep the nuclear agreement on track. In order to make such a compromise attractive to the United States, Pyongyang would have to reaffirm its commitment to the existing provisions of the Agreed Framework, under which it must dismantle its frozen nuclear facilities, designed to produce plutonium, coincident with the completion of the reactor project. In addition, North Korea would have to accept new provisions that would end its effort to acquire enriched uranium under adequate inspection safeguards, and would have to go beyond existing provisions that require International Atomic Energy Agency inspections to determine how much fissile material had been accumulated before 1994. The Bush Administration wants these inspections to begin immediately, much sooner than the Agreed Framework requires. North Korea would accept such accelerated inspections, in my view, if the schedule of inspections is linked to progress in the construction of the reactor. In return, the United States would drop its opposition to an Exxon-Mobil gas pipeline through North Korea; encourage multilateral assistance for gas-fired power stations, transmission grids and fertilizer factories along the pipeline route, and support interim KEDO energy aid to the North pending completion of the reactor and the pipeline. For the Bush Administration, inducing North Korea to accept one reactor instead of two, together with strengthened nuclear inspections, could be presented in the United States as a political victory, partially vindicating Republican charges that Clinton gave North Korea too much in the 1994 accord, on terms that were not tough enough. For Pyongyang, getting at least one of the reactors up and running is a political imperative if only because the Agreed Framework bore the personal imprint of the late President Kim Il Sung and of his son Kim Jong Il, now North Korea’s leader. Equally important, since Japan and South Korea both have large civilian nuclear programs, North Korea regards nuclear power as a technological status symbol. Like Tokyo and Seoul, Pyongyang wants nuclear power in its energy mix to reduce dependence on petroleum. Still another factor is that North Korea has a force of 7,500 nuclear technicians, many of them trained in Russia, who have been in a state of limbo since the 1994 accord and are awaiting new jobs when the KEDO nuclear complex at Kumho is completed. In the case of South Korea, support for the KEDO program comes in part from vested interests with a stake in contracts to build the reactors. In addition to the $800 million that the South has already spent on the reactors by the end of 2002, South Korean companies had lined up contracts totaling another $2.3 billion for the construction work ahead. As a State Department official observed, “the bribes have already been paid.” Still, half a loaf would be better than none, and the money spent by the South has gone, so far, only to the infrastructure at the site and to the first reactor. South Korea likes the KEDO project because it is confident that the reactors will someday belong to a unified Korea. By contrast, Japan made its $1 billion commitment to KEDO grudgingly and has dragged its feet in meeting its obligations. In Japanese eyes, North Korea cannot be trusted to observe nuclear safety standards, and Tokyo fears another Chernobyl in Japan’s backyard. Since Tokyo has already spent $400 million on the project, it is reluctant to see it scrapped entirely, but like Seoul, might accept a compromise limiting the project to one reactor. The government-controlled Japan Petroleum Exploration Company (JAPEX) is Exxon-Mobil’s principal partner in Sakhalin I, with a 30 percent stake. Therefore, if Prime Minister Koizumi’s September 16, 2002, summit meeting with Kim Jong Il leads to a normalization of Japanese relations with Pyongyang, Japan might well support a pipeline from Sakhalin I through North Korea to the South as part of its rapprochement with Pyongyang. Renegotiating the Agreed Framework is the key to improved South-North relations in 2003. At the same time, however, Seoul should press Washington to address North Korean security concerns by concluding a non-aggression agreement as a stopgap measure until a bilateral US-North Korean peace agreement can be concluded, formally ending the Korean War and replacing the 1953 Armistice. Such a US-North Korean agreement is the necessary precondition for a separate South-North agreement, unrelated to the Armistice, in which the South would formally acknowledge that the war is over— half a century after Syngman Rhee refused to sign the Armistice and agreed to abide by it only when the United States bought him off with economic and military aid to the South that has now surpassed $20 billion, not to mention what has since become an open-ended U.S. military presence. The most significant aspect of Kang’s October 4 peace overture to the United States was that he did not demand a withdrawal of U.S. forces. All that he requested was a U.S. pledge not to stage a first strike against North Korea, including a nuclear first strike. If the United States refuses to give such a pledge, North Korean generals will understandably insist on developing a nuclear deterrent, and the responsibility for continued tension in the Korean peninsula will clearly rest with the Bush Administration and its supporters in Seoul.