The Role of North Korea in Northeast Asia Energy Relations David Dusseault Eurasia Energy Group Aleksanteri Institute 11th December 2006 Some Basic Ideas вЂў N. KoreaвЂ™s energy situation is dire; вЂў Causes include common regional constraints as well as domestic economic strategy; and вЂў NK is a crucial actor in regional energy relations due to location & potential knock on effects derived from regimeвЂ™s survival strategy. The Scope of the Issue Energy Imbalance Interdependency: Enabling and Constraining Conditions 1. Physical Constraints: uneven resource distribution, finiteness of natural resources, existence of energy sector infrastructure, geography, climate, accessibility of resources; 2. Informational Constraints: elites do not possess full information regarding their resources or how to fully maximise their benefits accrued from natural resource wealth; 3. Financial Constraints: finite financial resources for investment and resource exploitation, commodity prices, market size; 4. Actor-based Constraints: number of competing actors, how actors perceive their interests and how they determine to develop their interests; and 5. Institutional Constraints: ability of state institutions to flexibly determine the rules of the game over time without marginalising actors or seeking rent. Regional Assessment Constraint Northeast Asia Physical Unique geological conditions; Lack of pipeline and other basic infrastructure; difficult climatic conditions in Eastern Siberia, Yakutia, and Sakhalin; Financial High costs of new field development due to geological & climactic conditions; ill developed financial sector in the country, could lead to high dependence on international financial consortia; somewhat unclear investment climate for attracting FDI Informational Compatibility of domestic know-how with demands encountered in exploiting the new fields; quality information as commodity; high variation of information concerning optimal regional energy development strategy; access to information & level of communication amongst relevant actors. Institutional Unpredictable legal and institutional environment could lead to energy supplies being dealt with on a bi-lateral as opposed to a multi-lateral regional basis. Existing institution free environment allows for creativity in determining future institutional regimes. Actor-based Economic logic partly intertwined with a traditional geopolitical approach in projects like the ESPO pipeline as a result of the statesвЂ™ role in the energy sector development. IOCs and state backed energy companies share a partial, but not common ideological basis for energy sector development projects. Unresolved legal issues regarding the control over resources between federal & regional authorities. Conditions: North and South Korea Factors Physical Enabling Constraining Strategic corridor for transit to markets in the south Distance from significant reserves; North: Lack of necessary infrastructure to supply for demand Informational South: Long term strategy, strategic reserves Strategy still relies on the state as major player in sector decisionmaking process, direction of future development. Financial South: Possess significant financial resources to support international energy sector projects; represents large market making super projects more attractive Price dependency, market volatility, level of demand South: State energy sector undergoing a process of diversification State as primary actor South: Restructuring of institutional rules of the game North: Institutional framework?? Actors Institutional The Nuclear Issue in the Present Energy Context вЂў Nuclear stand-off on the peninsula is tied to regime survival; вЂў NKвЂ™s regime survival strategy has been directly linked to external aid (food and energy (KEDO)); вЂўEnergy can still form the basis for a flexible long term strategy to incorporate NK back into the international community. Priorities & Strategies US Priorities: Regime Change вЂўEconomic Sanctions (Uni - & Multi-lateral) вЂўMilitary вЂњAxis of EvilвЂќ (Sum zero) ? NK Priorities: Regime Survival вЂўNuclear Threat (Sum zero) вЂўFDI, financial credits, WB loans; (Bi & Multilateral) вЂўKEDO energy package, UNDP development aid. (Bi-& Multi-lateral) Regional Priorities: Catastrophic Regional Conflict Avoidance вЂўFDI, financial credits, ROK Japan loans; (Bi & Multi-lateral) вЂўRegional Development aid (Bi & Multi-lateral) Conclusions вЂў Re-think of US sum zero regime change strategy; вЂў Development of mutually beneficial, long term plan to incorporate NK into the international community; вЂў In the short term: resumption of HFO shipments and incremental easing of economic sanctions in return for negotiations over nuke issue; вЂўIn the medium term: step by step programme for verifiable dissolution of nuclear programme in return for increased financial and technical assistance; вЂўIn the long term: inclusion in regional based development initiatives with further cuts to conventional forces on the peninsula.