Russian Gas May Enter China Via South Korea

2012-10-26

To shield the Russian gas industry from the Western economic downturn, Gazprom should focus efforts on meeting rising demand for gas in the Asia Pacific region, President Vladimir Putin recommended gas industry leaders on this week in Moscow. China, South Korea, and Japan are seeking ways to reduce their domestic energy deficits, offering Gazprom the opportunity to expand further into Asian markets. But pricing disputes with the region’s largest potential customer, China, has hindered Russian expansion into the region over the past 10 years.


How can Russia open the Asian vector of it’s gas business? Russian and Korean experts meeting the day after Putin’s remarks say the answer is: first the Korean Peninsula, then the rest.
The Fund for National Energy Security’s October 23 Moscow forum on Russia’s Asian Strategy addressed the opportunities and challenges of developing energy ties in the Far East. “Russia is a natural leader in Eurasia and has many [economic and security] interests in East Asia,” Gleb Ivashentsov, former Russian ambassador to South Korea, stated. “[But] military and political interests of [regional] governments are growing…and dependence on energy imports might lead to increased competition over access to resources. There is a need for an East Asian partnership that enables cooperation between energy suppliers, transit states, and consumers,” Ivashentsov said.

Business, government, and think-tank representatives at the meeting agreed that Moscow should focus initial efforts on linking Far Eastern natural gas fields to consumers on the Korean Peninsula. “The Republic of Korea is looking [to attract] new suppliers that would increase the diversification of the country’s natural gas imports,” according to Sergei Pravosudov, director of the Institute of National Energy. South Korea is the world’s second-largest importer of liquefied natural gas (LNG) after Japan, and is completely dependent on gas imports to satisfy the country’s domestic demand, Pravosudov explained. “Russia is [also] more actively developing the Asian vector of it’s gas business, hoping to expand it’s supplies to Southeast Asia. This is particularly important given the [current state of] relations with our traditional gas consumers – the European Union.”

For the Russian gas industry, there are several key advantages of establishing ties with South Korea before other East Asian countries. First, the South Koreans are willing to pay European prices for Russian gas, something that Beijing has refused to do because it can get cheaper gas from Central Asian suppliers like Turkmenistan and Kazakhstan. Signing a long-term supply contract at these price levels would bolster Moscow’s position at the negotiating table with the Chinese. Second, South Korea is interested in plans to construct a Trans-Korean pipeline from Vladivostok through the entire Korean Peninsula.

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