Kim Jong Il Dead - What About Energy?

Well, its official – North Korea’s “Dear Leader,” Kim Jong Il has died and gone to meet his ancestors.

Although you wouldn’t know it from the English language website of the Korean Central News Agency of the DPRK, which lists its last article as “December 17. 2011 Juche 100, Congratulations to Tunisian President.”

Dear Leader Kim Jong Il left a country on the ropes in many ways. Whilst Western pundits bloviate about whether the new regime will be more or less aggressive, etc. etc. etc., an intriguing element is virtually absent from the experts’ commentary.

What about the country’s energy issues?

The authoritative CIA World Factbook entry on North Korea, “Last updated on November 10, 2011,” paints a grim picture of the country’s energy situation.

“Electricity - exports: 0 kilowatt hours (2009 est.) Electricity - imports: 0 kilowatt hours (2009 est.) Oil - production:  118 barrels per day (2010 est.) Oil - consumption: 13,000 barrels per day (2010 est.) Oil - exports: 0 barrels per day (2009 est.) Oil - imports: 15,810 barrels per day (2009 est.) Natural gas - production: 0 cubic meters (2009 est.) Natural gas - consumption:  0 cubic meters (2009 est.) Natural gas - exports: 0 cubic meters (2009 est.) Natural gas - imports: 0 cubic meters (2009 est.) Natural gas - proved reserves:  0 cubic meters (1 January 2011 est.)”

North Korea publishes few statistics on its energy sector and the few quantitative estimates describing its energy sector activities by outside groups are ‘guesstimates.” Despite its professed “Juche,” or “self reliance,” philosophy, North Korea in fact has always been dependent on external powers for key energy infrastructure and fuel supplies.

Chronic electricity shortages in North Korea make it difficult to dig and transport coal used in the country’s thermal plants, leading to electricity shortages, while the nation’s hydropower plants also operate below capacity because the huge floods of the 1990s led to an accumulation of sediment in water storage facilities and little work has been done to clear away that sediment.

Another factor complicating North Korea’s dreams of energy self sufficiency  is inadequate maintenance of power generation equipment and transmission lines, making it difficult for North Korea to transmit electricity over great distances. Coal and electricity use in the residential sector has fallen due to the decrease in power production from the decaying electricity transmission and distribution grid. In the 1990s there was a proposal to build two KSNP reactors at Sinpo in North Korea, but nothing came of it.
 
Accordingly, Pyongyang is dependent on China for the majority of its imports of crude oil and oil products, which provides North Korea with around 500,000 tons of crude oil every year via a short cross-border pipeline to the Bonghwa Chemical Factory, a North Korean refinery on the northwest coast near Sinuiju. According to South Korean statistics, North Korea’s trade with China in 2010 was nearly $3.5 billion, but its bilateral trade with Russia was only $110 million.
 
So, what’s going to focus the attention of the Russian Federation, North Korea’s second largest trade partner?

A proposed pipeline.

In August Kim Jong Il, following a summit meeting with Russian Federation President Dmitry Medvedev in the Siberian city of Khabarovsk, expressed support for a proposed Russian project to send Siberian natural gas to South Korea through North Korean territory.

Following the Khabarovsk summit, Russian presidential envoy to the country’s Far East Federal District,Viktor Ishaev, quoted the North Korean leader as telling him that North Korea will permit the natural gas pipeline to transit its territory if Russia and South Korea eventually conclude a contract for the project, Ishayev told journalists, "If Russia and South Korea do sign a contract on gas deliveries, North Korea is ready to offer territory for the building of a pipeline and to receive income from the pumping of gas and rent for land. In order that we can deliver roughly ten billion cubic meters (bcm) of natural gas, new deposits will have to be developed. Only gas from the Sakhalin-3 project and Yakutsk deposits can be exported."

Salivating at the prospect, prior to his summit with Kim Jong-il, Russian President Dmitrii Medvedev directed the head of Russia’s state-owned Gazprom natural gas company Aleksei Miller to draw up a report on the problematic aspects of a natural gas project involving Russia and the two Koreas.

For South Korea the pipeline promises a supply of natural gas potentially 30 percent below current market prices and for North Korea the project presents the prospect of a significant infusion of hard currency from the estimated $100 million in annual transit fees the pipeline would provide.

But, nervous that Pyongyang would divert the revenues to its nuclear program, Seoul offered to construct a gas power plant and supply gas to North Korea in lieu of Russia providing North Korea the pipeline transit fees.

South Korea’s offer was lucrative, as the proffered aid represent five times North Korea’s current earnings from wages at the Kaesong Industrial Complex, a collaborative economic development with South Korea.

That said, it seems unlikely that the relatively massive hard currency revenue stream from the proposed pipeline would be possible for Pyongyang to refuse.

The reality is that without energy assistance, North Korea cannot meet its own goal of becoming a “strong and prosperous country.” Outside of the capital Pyongyang, the highest priority area for power, the countryside has severely limited access to power, with electricity often only available seasonally. The grim reality is that North Korea’s energy supply, industrial, and energy demand infrastructure is in poor condition, and if North Korea is to muddle through its dilemma then the new leadership will have to make addressing its shortfalls one of its highest priorities.
 
And China will be watching to see if its favorite energy welfare queen requires yet more assistance under Kim Jong-un, while Russia will want an answer on its pipeline proposal from the new administration.

A tall order for the “Great Successor.”

But not to worry, since the CIA World Factbook notes, “The year 2012 will be the 100th anniversary of Kim Il-sung's birthday,” a festive day undoubtedly to be celebrated across the nation, even if in the dark.

By. John  C.K. Daly of Oilprice.com