South Korea enters the Great Game in the Caspian

May 13, 2006 02:00 AM

by David Nguyen

On May 5, Kazakh government officials confirmed receiving three Kilurki-class (Sea Dolphin) patrol boats donated by South Korea. The boats were received at a handover ceremony in Turkey and will likely become a part of the Kazakh navy's Caspian flotilla.
The recent completion of the Baku-Tbilisi-Ceyhan (BTC) pipeline reflects growing international interest in securing access to the large natural-gas reserves around the Caspian Sea, primarily those in Azerbaijan and Kazakhstan. As regional neighbours such as China and Japan frantically search for new sources of energy, so does South Korea, which imports 97 % of its energy needs, according to the World Nuclear Association brief.

South Korea's gross domestic product (GDP) is expected to grow at 6 % this year, which, though a less torrid pace than in previous decades, still leads to rapidly growing energy demand to sustain the economy. Since the late 1970s, electric consumption has increased a hundredfold, from 36 TWh in 1978 to 365 TWh in 2005.
(The terawatt-hour is a very large unit of electrical energy, equal to 1 bn kilowatt-hours.) Oil consumption has quadrupled since 1980, while natural-gas consumption, non-existent three decades ago, has skyrocketed to 900 bn cf per annum.

Adding to domestic energy demands, South Korea has offered to supply energy to North Korea should the North abandon its nuclear arsenal. To satisfy the rising energy demands from its economy, South Korea has developed a very active civilian nuclear program, which calls for the construction of eight new nuclear power plants between 2000 and 2015.
Virtually all petroleum needs are met through imports, primarily from Saudi Arabia and the United Arab Emirates, both of which are expected to reach peak oil production within the next decade. To diversify its energy sources away from growing instability in the Middle East, Korea has begun aggressively courting emerging energy markets in Russia and the Caspian Sea states, primarily Azerbaijan and Kazakhstan.

While China has entered into joint development contracts in Canada and Iran, and Japan has secured the construction of Russian pipelines, South Korea has not been very prominent as a global energy player. Despite being a large economy in its own right, Korea does not wield the same political influence when acquiring energy contracts as its neighbours do. Russia has primarily courted China and Japan when seeking investments on developing Siberian energy deposits.
Elsewhere, energy deals between countries such as Iran and China, or Saudi Arabia and the US, are on a much grander scale, as China and the US provide both a large consumer base and the ability to provide security needs through military hardware and/or their influence in the United Nations Security Council.

Despite such setbacks and disadvantages, South Korea continues to expand its ties with the Caspian nations, and may well have little choice but to do so if it is to maintain energy security. Korea has been quick to become a participant in the BTC pipeline, which now allows the landlocked Central Asian nations to export their oil to Turkish ports instead of relying on pipelines traversing through China and Russia, and avoiding routes through Iran altogether.
On May 4, President Roh Moo-hyun visited Azerbaijan seeking to improve bilateral economic cooperation, with intentions of acquiring a stake in the development of Azerbaijan's petroleum and natural-gas reserves by Korean companies.

Across the Caspian Sea, South Korea has long had ties with Kazakhstan, partially stemming from the large population of ethnic Koreans in that country. In 2004, Kazakhstan and South Korea signed a memorandum of understanding to develop Kazakh uranium mines jointly in Budennovsk, which will help Korea to increase its nuclear-energy production.
In the petroleum sector, South Korea has expressed interest in the joint development of oilfields in western Kazakhstan, but has so far been unable to achieve the same success as Chinese or US firms operating in that country. Despite such setbacks, it is clear that Korea will continue to expand its economic interests in Kazakhstan by offering further investments and military hardware.

Ultimately, South Korea may need to consider riskier investments that have not caught the interest of other nations. The vast Sakha Republic in Siberia, a constituent in the Russian Federation and home to a plethora of resources, has yet to see large-scale development of its oil and gas fields.
Much of the reluctance to invest in Sakha is due to the climatic conditions and lack of infrastructure required to export these resources. Another risky proposal was the construction of a Russian pipeline to South Korea, which would require crossing into North Korean territory.

Overcoming these obstacles would require significant investment and risk, driving potential investors to look for more appealing locations.
With peak oil production expected to hit Middle Eastern supplies, as well as competition from larger, moreinfluential nations, South Korea will need to diversify its energy sources by investing in risky energy ventures while aggressively securing more development rights in the emerging energy markets around the Caspian Sea.

David Nguyen is a University of Hawaii alumnus with a degree in political science and Asian studies.

Source: Asia Times Online
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