Center for International Policy

As printed in The Gulf Times

December 6, 2005

North Korea Dreams of Oil-Funded Security
by Emma Graham-Harrison

BEIJING: Its capital Pyongyang lies nearly dark at night for lack of power, but North Korea could be sitting on enough oil to revive its moribund economy and fuel Chinese-style reforms, analysts and geologists say.

Years of isolation, which have earned it the nickname “the Hermit Kingdom”, mean most of its potentially oil-bearing areas are virtually unexplored. And where crude has been found almost no attempts have been made at commercial recovery.

Estimates of how much lies pooled below its soil and seas range from nothing at all to more than the reserves of some members of the Organisation of the Petroleum Exporting Countries (Opec).

With Pyongyang feuding with Washington over its nuclear weapons programmes, decades behind the rest of the world in oil exploitation technology, and barely able to feed its population, chances of firming the figures or extracting any oil seem slim.

But recent breakthroughs in talks aimed at dismantling its nuclear arsenal offer some hope that sanctions could be lifted. This could also mean the end of an international business climate in which co-operation with Pyongyang can be “politically poisonous” – according to one oil man who had worked there.

Allowing the reclusive regime international help in its hunt for crude could also help fuel a reform process like the one that transformed China over the past three decades, experts say.

“If we want to see Korea evolve from a military dictatorship, as happened in China, then it is desirable that they be allowed to look for oil,” said Selig Harrison of the Washington-based Centre for International Policy.

“There is no doubt economic controls are loosening but that’s creating big problems for the central government, and unless they can... become more solvent, the reforms could be economically destabilising,” he added.

Most geologists agree that if North Korea has sizeable reserves they are likely to lie under its sea, not onshore.

It has claims on the northernmost of three Yellow Sea basins thought to hold oil, and most of its offshore exploration to date has been focused there, despite a low-key dispute with China over the maritime boundary between the two countries.

Some geologists think it could have deposits similar to the rich reserves in China’s nearby Bohai Bay while shallow seas make drilling relatively easy.

One-third of 15 exploratory wells have shown oil, and Pyongyang may be sitting on information about larger deposits.

“North Korea has found on the continental shelf of the West Bay basin an area containing 3bn tonnes (21.9bn barrels) of oil and gas reserves,” Li Yandong and Mo Jie wrote in a 2002 issue of journal Marine Geology Letters.

North Korea says these are recoverable reserves pinpointed by its own scientists, said a Chinese expert with knowledge of the situation, who declined to be named.

Even a more modest estimate of 1.2bn barrels reported by Busuph Park, an expert in North Korea’s offshore efforts, would meet centuries of current consumption, although some academics say the peninsula has almost no commercial oil.

At the North Korean embassy in Beijing, an official dismissed with a laugh reports of up to 9bn tonnes of reserves and said the country was still investigating.

But even if the Yellow Sea fails to live up to hopes, there is also the vast and almost untouched East Korea Bay, where only two exploratory wells have been drilled and which has been compared geologically to Russia’s Sakhalin island.

Just as US sanctions have deterred Western oil majors, academics say the dispute with China – like many other overlapping claims around Asia – may have scared off others as well as ruling out co-operation with the country’s top ally.

“Joint drilling would not be possible as they have a lot of fear of the Chinese. They want things like rice and fuel from us – but not to co-operate,” said the Chinese source.

That leaves only small, ambitious Western firms willing to take a gamble on drilling through to a fortune in one of Asia’s last uncharted potential oil territories.

Most of them have lost. From the UK’s Leeward Petroleum in the late 1980s to Beach Petroleum and Norwegian services firm Global Geo Services earlier this decade, companies have announced glittering deals only to quietly shelve them.

The latest in the line-up is Britain’s Aminex, which said tighter global supplies, a commitment to building North Korea’s oil industry and a large dose of patience will give it an edge.

“We have involved their people and are training them, so we are trying to build ourselves into the framework of things,” Chief Executive Brian Hall told Reuters.

“They can take a very long time to do things, we have quite a high degree of frustration sometimes. You have to be prepared to tough it out... but the prize is worth persevering for.” – Reuters