Plan to be Led by Government, “Back to Square One”

Due to the Korea Railroad’s failed attempts to invest in the Sakhalin-6 oil field, the international community is taking increasing interest in the oil field project led by the Russian government. The project began with a consortium of private companies, but under President Vladimir Putin’s “Energy Industry Protection” policy, the project is now being led by the government, which is hindering the plans of the participating countries. Korea has agreements with the Russian government in the Sakhalin-6 oil field development and four other important energy projects, but because of the Russian government’s policy changes, nothing substantial has been achieved.

Russian Gas Field Project to be “State-Owned”?-

Importation from Siberia’s Kovykta Gas Field, which was highly anticipated by Korea, is in danger of being canceled.

The Russian government is currently weighing the possibilities of supplying all the gas produced in this field domestically. It is likely that the manager of this project will change from British Petroleum to the Russian National Gas Company (Gazprom).

In the beginning, it was planned that Korea, Russia, and China would jointly develop the gas field situated near Siberia and supply gas to China and Korea with a 4200km gas line connecting Irkutsk, China, the West Sea, and Pyeongtaek. Korea was to be supplied with seven million tons of pipeline natural gas (PNG) every year for thirty years starting 2008.

Korea and Russia agreed on this plan in May of 1999, when President Kim Dae-jung visited Russia, and feasibility studies were completed in November 2003. President Roh Moo-hyun reconfirmed the agreement during his state visit to Russia last September.

However, since Russia and China’s price negotiations broke down and the Russian government is planning a United Gas Supply System (UGSS), there is a high possibility that this project will be aborted. Instead, the Russian government is planning to suggest supplying Sakhalin gas to Korea and China.

Will a Part of the Gas Project Proceed as Planned?-

The plans to bring LNG from the Sakhalin-2 oil field to Korea are expected to go as planned. The Korean Gas Company has already decided to import 1.5 million tons gas every year starting in 2008, and is planning to reach an agreement by the end of the month.

The Korean Natural Oil Company and Russia’s state-owned oil company (Rosneft) agreed last year on two joint oil explorations and exchanged MOUs. However, KNOC has decided not to participate, deciding that out of the three Sakhalin mines, the Voninski Mine was comparatively unprofitable.

Korea decided to continue with the oil field developments in West Kamchatka, and in February signed a financial support agreement for the geological exploration. Estimates amount to 750 million tons in West Kamchatka. According to sources in the Russian energy industry, it has been agreed that KNOC will own 40% of the oil field development in exchange for the financial support for exploration.

Ki-Hyun Kim kimkihy@donga.com