VZCZCXRO0829
RR RUEHVK
DE RUEHUL #3610/01 3620650
ZNR UUUUU ZZH
R 280650Z DEC 07
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 7883
INFO RUEHMO/AMEMBASSY MOSCOW 8403
RUEHBJ/AMEMBASSY BEIJING 3654
RUEHKO/AMEMBASSY TOKYO 3790
RUEHUM/AMEMBASSY ULAANBAATAR 1614
RUEHBK/AMEMBASSY BANGKOK 7052
RUEHFR/AMEMBASSY PARIS 1580
RUEHSH/AMCONSUL SHENYANG 3550
RUEHVK/AMCONSUL VLADIVOSTOK 1358
RHEHNSC/NSC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC 1747
RUEKJCS/SECDEF WASHINGTON DC//ISA/DSCA/DUSDAT//
RHHMUNA/CDR USPACOM HONOLULU HI//J5//
RHMFISS/COMUSKOREA CC SEOUL KOR

UNCLAS SECTION 01 OF 03 SEOUL 003610 
 
SIPDIS 
 
STATE FOR EEB/ESC/IEC/ENR, INR AND EAP/K 
STATE ALSO FOR IO/EDA - DE OTALVARO 
NSC FOR TONG 
DOE FOR INTERNATIONAL AND FE 
USDOC FOR 4440/MAC/EAP/OPB/ITA/TA 
COMM CENTER PLEASE PASS SCJS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG PREL RS KN KS
SUBJECT: KOREA AND RUSSIA TO STUDY POSSIBLE GAS PIPELINE 
 
¶1.  (U) SENSITIVE BUT UNCLASSIFIED. 
 
SUMMARY 
------- 
 
¶2. (U) The governments of Korea and Russia agreed during a December 
11-12 meeting in Moscow to jointly conduct a feasibility study for a 
possible gas pipeline extending from the Russian Far East (RFE) to 
South Korea.  According to the Ministry of Commerce, Industry and 
Energy (MOCIE), the study is very preliminary, and does not reflect 
a determination by either side that a pipeline should be 
constructed.  Three possible pipeline routes will be studied -- 
through the Sea of Japan/East Sea, through North Korea, and through 
China and the Yellow Sea/West Sea. Meanwhile, Korea is set to begin 
importing 1.5 million tons per year of liquefied natural gas (LNG) 
from the Sakhalin II project in 2008. 
 
¶3. (SBU) Korea remains dependent on foreign suppliers for more than 
96 percent of its primary energy consumption.  Its drive to pull all 
available bilateral (and also multilateral -- see septel) levers to 
make Russia a major and secure source of supply was underscored in 
one of the first acts of Korea's new President-elect, who met with 
the Russian Ambassador two days after his election and publicly 
proclaimed his support for Russo-Korean energy cooperation.  Russia, 
however, seems in no hurry to fulfill Korean hopes.  Even in the 
best of cases, a pipeline connecting Russia to South Korea is 
unlikely to be built before 2020.  End summary. 
 
CONSIDERING OPTIONS ON ADDITIONAL GAS SUPPLIES 
--------------------------------------------- - 
 
¶4.  (U) The bilateral Korea-Russia Natural Resources Cooperation 
Council met in Moscow December 11-12.  This was the eighth meeting 
of the council, which was founded in 2000.  The Korean delegation 
was led by Ahn Cheol-shik, Director General for Energy Industry at 
the Ministry of Commerce, Industry and Energy (MOCIE), and included 
representatives of the Korea Gas Corporation (KOGAS), Korea Electric 
Power Corporation (KEPCO), Korea Resources Corporation (KORES) and 
the Korea Energy Economics Institute (KEEI).  The Russian delegation 
was led by Deputy Minister of Industry and Energy Anatoliy 
Yanovskiy. 
 
¶5. (U) According to a December 13 MOCIE press release, the two sides 
agreed to conduct a joint study of the economic and technical 
feasibility of a gas pipeline to provide Russian gas to Korea.  The 
study will be conducted by Russia's Gazprom and the state-run Korea 
Gas Corporation (KOGAS). 
 
¶6. (SBU) The Director of MOCIE's Gas Industry Division, Cheong 
Seung-il, explained to ESTH Chief on December 18 that Korea and 
Russia had signed a Memorandum of Understanding (MOU) in 2006 
providing for delivery to Korea of 1.5 million tons of LNG per year 
from the Sakhalin II project.  The contract covers the period 
2008-2028.  (Note: 1.5 million metric tons equates to about 6 
percent of Korea's annual imports of around 26 million metric tons 
of LNG.  End note.) Cheong observed that, due to rising demand from 
industry and the power-generation sector, additional supplies will 
be needed in 5-10 years, and Russia is an obvious potential source. 
No decision has been yet made, he said, whether the additional 
supplies should be LNG or piped gas.  The planned feasibility study 
will help to arrive at a determination. 
 
¶7. (SBU) The timing for a joint study appears to be auspicious, 
Cheong indicated, because Russia has completed plans for upgrading 
and extending the links in its Unified Gas Supply System (UGSS). 
Cheong recalled that Korea, China and Russia had undertaken an 
earlier feasibility study on a proposed pipeline route from the 
Irkutsk gas field beginning in 1999, but the project was scrapped by 
Gazprom. 
 
 
SEOUL 00003610  002 OF 003 
 
 
¶8. (SBU) The joint Gazprom/KOGAS study will examine three options 
for pipelines to bring gas to South Korea.  One route would be under 
the Sea of Japan/East Sea. The second, and cheapest, would be 
overland through North Korea.  A third would be through China and 
under the Yellow Sea/West Sea. 
 
¶9. (SBU) The timing of a potential pipeline development is unclear. 
From Korea's point of view, the sooner the better to get additional 
sources of supply.  Korea asked Russia for both a timetable and 
estimates of the potential volume of supply, but did not get clear 
answers.  The issue of prices has not yet been broached.  Cheong 
noted that, with Vladivostok scheduled to host the APEC summit in 
2012, Russia may focus on completing its domestic gas pipelines by 
that date.  A KOGAS official opined to an ECON FSN that a pipeline 
to Korea, if it eventuates, would likely not be in place before 
¶2020. 
 
¶10. (SBU) An alternative to piped gas would be additional LNG 
supplies.  Cheong commented that it remains unclear how Russia will 
use the gas from Sakhalin I and Sakhalin III. Currently it appears 
likely that gas from Sakhalin I will be used for domestic 
consumption.  Gas from Sakhalin III may be available for export, he 
said, but indicated it is not certain whether Korea would be one of 
the recipients. 
 
¶11. (SBU) Cheong added that the disposition of one of Sakhalin III's 
four blocks, the Kirinskiy Block, remains uncertain.  Korea offered 
to participate in developing it, but believes that Russia sees it as 
a strategic asset and may keep it for development by itself. 
 
OIL AND PETROCHEMICALS ALSO DISCUSSED 
------------------------------------- 
 
¶12. (U) A Korean consortium, led by state-run Korea National Oil 
Corporation (KNOC) and comprised of private companies including 
GS-Caltex, SK, Daewoo International, Kumho Petrochemical and 
Hyundai, has been participating with Russia's Rosneft in the 
exploration of the oil fields of West Kamchatka.  The Korean 
consortium holds a 40 percent state in the field, which has reserves 
estimated at 10.3 billion barrels.  The two sides agreed during the 
Council meeting to drill two exploratory holes in West Kamchatka 
during 2008. 
 
¶13. (U) Russia invited Korean investment in Eastern Siberia to 
capture and use ethane and helium, byproducts of gas production. 
MOCIE will invite the Korean private sector to investigate that 
possibility. 
 
PRESIDENT-ELECT EXPRESSES KOREAN HOPES 
-------------------------------------- 
 
¶14. (U) Korea's hopes for energy cooperation with Russia were 
underscored when, just two days after his election sweep, 
President-elect Lee Myung-bak met with the Russian Ambassador. 
According to news reports, Lee expressed Korea's strong interest in 
joint energy development projects in Eastern Siberia, and alluded to 
the possibility of employing North Korean labor.  "I want this 
project to start in the early stage of my term," Lee reportedly 
said. 
 
COMMENT 
------- 
 
¶15. (SBU) Korea remains dependent on foreign sources for more than 
96 percent of its primary energy demand.  It is therefore no 
surprise that Korea pulls every lever, whether bilateral or 
multilateral, in the hope of securing new sources of supply to 
reduce its vulnerability to instability in the Middle East.  It is 
by no means clear that Russia sees a significant short-term interest 
in fulfilling Korea's hopes.  Talk of a gas pipeline reaching all 
 
SEOUL 00003610  003 OF 003 
 
 
the way to South Korea will never die, but even in the best case it 
will be many years before one materializes. End comment. 
 
YUN