North Korea bets on its own black gold
By Jamie Miyazaki
With oil-rich Iraq and Nigeria both festering, the price of oil has resumed its upward trajectory over the past few days and hit the psychologically important $50-a-barrel mark. The hydrocarbon-poor South Korean economy has been buffeted by the high prices and President Roh Moo-hyun has just returned from a trip to Russia and Kazakhstan with a handful of energy deals.
Ironically, events just across the border in perpetually energy-starved North Korea seem to be going in just the opposite direction. Aminex, a small Anglo-Irish oil company, recently announced it had signed a 20-year deal with the North Korean government to develop the country's oil industry. Aminex has agreed to provide the North with technical assistance and market the country's potential to the rest of the oil industry. In return, it will be allowed to explore and drill throughout the country and it will be entitled not only to royalties from its own wells but also to earnings from wells drilled by other companies.
Though North Korea may not be readily associated with the black gold in the same way that Saudi Arabia is, that hasn't stopped the government in the past from talking up the possibility of sitting atop major oil reserves. Back in 1998, Kim Jong-il told Chung Joo-young, the late chairman of South Korean conglomerate Hyundai: "Pyongyang is on an oil basin."
While this may be something of an exaggeration, and Aminex freely admits that its deal is "highly prospective", given the discovery of small amounts of oil in the North already and the country's proximity to some of China's most productive reserves, Aminex thinks its chances are good.
Aminex is by no means the first foreigner to go to North Korea prospecting for oil. As far back as the 1960s, Chinese and Russian teams conducted exploratory tests of the country's potential for oil reserves. Western interest, however, began in earnest in the 1990s with the arrival of a number of small Australian, British and Swedish companies prospecting for offshore reserves.
By 1999, North Korea was said to be producing 300,000 tons of crude oil a year, but none of the foreign companies found enough oil to be worth exploiting commercially and their concessions were allowed to lapse. Then in 2001, Pyongyang signed its first deal for an on-shore block with Singaporean Sovereign Ventures for an area near the northeastern Chinese border. Sovereign's initial findings suggested modest oil and natural gas deposits and it planned to drill 15 wells, but work has yet to begin and the company's Canadian partner has decided to pull out of the project.
Going by previous developments, it does not bode too well for Aminex, which has been looking into opportunities in the North since 2001. But recent finds in Bohai Bay off China have yielded considerable hydrocarbon deposits. With South Korea's National Oil Corporation (KNOC) already is exploiting offshore gas field prospects, the North may be in for a major find. After all, the coastal area off North Korea is considered to be a geological extension of the Bohai Bay area.
However, with the maritime border between the two Koreas still unresolved and China's disputes over offshore fields in the Spratlys, and more recently with Japan, there could be potential disputes further down the road if large offshore fields were to be discovered near the sensitive maritime border areas between the two Koreas and China.
Still, any oil in North Korea would come as a welcome find for the energy- and cash-strapped regime. Though only 7% of the North's energy consumption is met by oil, power shortages have long been the bane of its attempts to get its economy off life-support. Previous efforts to kick-start the economy using Special Economic Zones (SEZs) were hampered by a lack of regular power supplies, which put a damper on any manufacturing. Even supplies at ports have to be frequently unloaded by hand because there isn't enough power for the cranes. Throw in the importance of oil in fertilizer production and to get the tractors running - both essential to northern agriculture - and you will see how important oil is, even to fiercely anti-capitalist North Korea.
Any new guaranteed energy supply would be thus more than welcome in Pyongyang. At present, most of North's oil needs are met by a pipeline from China. But China is undergoing its own energy shortage and it also hasn't been adverse to using the pipeline and delaying "maintenance" as leverage to get North Korea to the negotiating table to deal with its nuclear weapons programs.
The discovery of a major oil field could well change that. Not only could it help get the north's economy back up on its feet, it would also go some way to helping it attain its cherished goal of juche (self-sufficiency) - politically, agriculturally and economically. Oil revenue could also act as a very useful source of foreign exchange, especially given the country's continued trade deficits and the current high price of oil, which many analysts expect to continue for some time.
However, even if Aminex were to succeed in discovering and then exploiting a major oil field, oil might not be the foreign exchange holy grail that Pyongyang is after. Despite its economic woes, or perhaps because of them, the North is incredibly inefficient in its use of the scarce energy supplies it already has. It is estimated that the country is twice as inefficient in its energy use as South Korea.
One Japanese think-tank, the International Institute of Energy Economics, believes that energy consumption in the North is set to grow over the next few years by a brisk 8%. This demand will have to be met from somewhere. However, as Brian Hall, the chief executive of Aminex, points out, "The relationship with South Korea appears to be improving and commercial co-operation is on the increase. An expanding energy industry may possibly help to build bridges between North Korea and the outside world."
South Korean assistance in developing any northern hydrocarbon reserves would probably be forthcoming and very useful both in terms of inter-Korean cooperation and in helping the North acquire new technological skills. But commercially exploitable North Korean oil reserves are definitely not yet a given and as ever, there is the diplomatic storm over the country's nuclear program to be overcome. Still, the conspiracy theorists' favorite accusation that "it's all about oil!" may sometime come to be heard about the third member of the "axis of evil" - North Korea.
http://www.atimes.com/atimes/Korea/FI29Dg02.html
