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.
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