“North Korea’s Exploration for Oil and Gas”
North Korea entered the 2000s having emerged from the “Arduous March” and economic collapse of the 1990s and, building upon its progress with the Hyundai Group, the country upgraded its efforts to secure investment for oil and gas exploration projects by engaging new companies in South Korea, Russia and China. It reached out to the latter nation not only to secure financial investment, but also to address simmering disputes over international sea borders and the extent of economic exclusion zones in the West Sea (Bohai Gulf and Yellow Sea) and East Sea (Sea of Japan).
According to South Korea’s Korea National Oil Corp (KNOC), by the end of 2000, two new foreign firms (reportedly Petrex of Japan and Phoenix Oil of Germany) had secured drilling rights to drill exploratory wells on the continental shelf of Sohae Basin—rights formerly assigned to other companies having expired or been abandoned.
During November 2001, the Singaporean company Sovereign Ventures Pte. Ltd. announced that it had secured a concession to drill for oil and gas in northeast North Korea. The reported 25-year-long concession covered approximately 6,000 square kilometers along the Tumen River bordering China—including the Kilchu-Myongchon Basin. By the end of 2003, however, international pressure stalled this effort before any wells were drilled.
Seeking to secure foreign assistance, North Korean Vice Premier Cho Chang Tok visited the Russian Far East during April 2002 and held talks to explore ways to promote economic cooperation between the two countries. Among the topics discussed was the joint exploration for oil on North Korea’s continental shelves. Five months later, South Korea’s KNOC indicated its interest in joint exploration for oil and gas in the Sohae Basin, but stated that it would first conduct a study to evaluate “…the chances for taking part in the business as part of the government’s efforts for economic cooperation with North Korea.” Subsequently, talk of this joint development stalled and has not progressed any further.
Desperate to prove the viability of its oil reserves and attract foreign investment, North Korea’s own Korea Oil Exploration Company (KOEC) signed an agreement with Global Geo Services ASA during October 2003 to conduct a large seismic survey, known as “Korean Dragon,” to cover the entire offshore of the country.
Following negotiations earlier in the year, in September 2004, the Irish-Anglo oil and gas exploration company Animex agreed to purchase 10 percent of North Korea’s state-controlled natural resources company, Kobril, for £200,000 in shares. Animex also signed a 20-year contract to help modernize and develop North Korea’s oil industry.
The CEO of Russia’s Gazprom, Alexei Miller, visited North Korea in January 2005 and met with Premier Pak Pong Ju to discuss cooperation in the oil and gas sectors. In spite of intermittent low-level follow-on meetings, nothing of significance has developed from this effort to date.
The issue of China’s concerns over North Korea’s oil and gas exploration efforts in the Sohae Basin came to the surface again in 2005, when the China National Offshore Oil Corporation announced its estimate that there were about 60 billion barrels of crude oil deposits in the basin. North Korea’s Prime Minister, Ro Tu Chol, signed a memorandum of understanding with China concerning drilling in the basin, but this arrangement floundered as China-North Korean relations deteriorated.
In what may be viewed as a minor step towards resolving the simmering disputes over economic exclusion zone borders, Chinese sources in December 2005 reported that they had signed an agreement with North Korea to jointly explore and develop oil fields in the Korea Bay. Repeated efforts towards this objective have been delayed in the past due to disagreements over sea boundary disputes between the two nations.
Five years later, during early 2010, Aminex and Singapore-based Chosun Energy formed a company, Korex Ltd., to reprocess existing seismic data and explore for gas and oil in North Korea. Subsequently, during May, Korex Ltd. succeeded in signing a production sharing contract for a 50,000 km squared block in the Tonghae Basin. Two years later, on May 16, 2012, Aminex announced that it had decided to withdraw from exploration in North Korea due to the volatile and unpredictable politics of the area.
In June 2013, Mongolia’s HBOil JSC purchased a 20 percent stake in North Korea’s Sungri Chemical Complex for $10 million and signed an agreement to explore inland crude oil deposits and gas fields in the Rajin-Sonbong area on the northeast coast in cooperation with KOEC.
The following month, reports again surfaced that China was seeking to jointly develop an oil field off the west coast of the Korean peninsula with North Korea. While this possible initiative can be taken at face value, it may also be a Chinese signal to the North Korean leadership and potential foreign investors that it is growing impatient with the lack of progress in resolving the issue over the borders of the economic exclusion zones in the West Sea.
As of 2015, North Korea is continuing to work with several small foreign firms to ascertain whether it is sitting on top of economically viable oil and gas reserves. Answering this question will likely require a level of financial and technical assistance available only from a major international oil conglomerate or a national government. Such support, however, has eluded Kim Jong Un and the North Korean leadership due to a host of international political issues (e.g., human rights, nuclear proliferation, ballistic missile testing, etc.) that they are unwilling to address. Waiting behind this is the challenge of competing maritime claims with China, and possibly with South Korea.
Return to last section: Securing Foreign Investment, 1990s
“S.Korea says to study upstream oil projects in N.Korea,” Reuters, September 24, 2002.
“Singapore firm wins N. Korea Onshore Oil License, Reuters, November 16, 2001.
James Brooke, “Quietly, North Korea Opens Markets,” New York Times, November 19, 2003, p. 1; and Cameron Dueck, “Politics stall Singapore firm’s N.Korea,” Reuters, September 8, 2003.
“DPRK Vice Premier, Economic Delegation’s Visit to Russia Detailed,” Yonhap, April 13, 2002.
Charles Lee, “South Korea mulls North Korean Offshore Development,” Platt’s Oilgram News, May 20, 2004, p. 7; and “S.Korea says to study upstream oil projects in N.Korea,” Reuters, September 24, 2002.
The Korea Oil Exploration Company (KOEC) is sometimes referred to as the Chosun Oil Exploration Company. Ibid.; James Brooke, “Quietly, North Korea Opens Markets,” New York Times, November 19, 2003, p. 1; “Global Geo Services ASA signs 12-year agreement with North Korea’s Korean Oil Exploration Company,” Nordic Business Report, October 22, 2003; and “North Korea wants foreign lawyers,” Reuters, October 28, 2003.
Kate Mackenzie, “North Korea: A new oil frontier?” Financial Times, June 1, 2010; “North Korea’s Newest Profession: Foreign Entrepreneur,” Associated Press, November 5, 2006; and Rebecca Bream, “Aminex in North Korea deal,” Financial Times, January 6, 2005.
“Gazprom Chief Slips into N. Korea,” Moscow Times, January 24, 2005, p. 5.
Soo-suk Ko, “Another unfathomable in North is Oil Reserves,” JoongAng Ilbo, March 24, 2015, http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=3002247.
Ton-kwan Yi, “North Korea and China Have Already Confirmed Economic Feasibility of Oil Deposits in West Korea Bay Basin,” Yonhap, August 16, 2007; and “China, North Korea Agree on Joint Oil Exploitation,” VOA, December 25, 2005.
Animex, “Aminex withdraws from North Korean Exploration Programme,” May 16, 2012, http://www.aminex-plc.com/files/120516_IMS_2012_v2.pdf; and Kate Mackenzie, “North Korea: A new oil frontier?” Financial Times, June 1, 2010.
The investment in the Sungri Chemical Complex is intriguing since it has laid idle in caretaker status since the 1990s. Mike Rego, “North Korea—Hydrocarbon Exploration and Potential,” GeoExpo, Vol. 12, No. 4, 2015, pp. 22-27, http://www.geoexpro.com/magazine/vol-12-no-4; and Soo-suk Ko, “Another unfathomable in North is Oil Reserves,” JoongAng Ilbo, March 24, 2015, http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=3002247.
“N. Korea Moving To Import Oil from Iran,” Asahi, July 18, 2013.