Could North Korea Be the Next Energy Superpower?

Pyongyang's advances in oil and natural gas could help fuel a still-ambitious military.

The “hermit kingdom” of North Korea has struggled to feed its own people in recent years, let alone sustain its energy needs. Yet with reports emerging of the hard-line Communist state’s potential oil and gas resources, South Korea and other U.S. allies in the region may soon face a far more capable military adversary.

Writing in the petroleum geoscience publication GEOExPro, exploration consultant Mike Rego suggests that the secretive Asian state offers “good hydrocarbon potential, both on and offshore…for those who are prepared to take ‘first mover advantage’ the rewards are there to be had.”

Rego points to the “relatively low cost and low risk exploration opportunities in a low competition environment, with nearby energy-hungry markets” as adding to the exploration potential.

North Korea is currently reliant on Chinese and Russian fuel imports, which Rego considers surprising given the “abundant evidence for the presence of working hydrocarbon systems both onshore and offshore, and past exploration efforts dating back to the 1970s.”

The state reportedly has seven underexplored geological basins, with three basins said to have “proven working petroleum systems,” although only twenty-two wells have been drilled.

Rego identifies the offshore West Korea Bay Basin and East Sea Basin, along with five onshore basins as offering exploration potential. According to Rego, the West Korea Bay Basin has seen the most foreign involvement, principally Chinese and Russian. At least ten exploration wells have been drilled in the West Sea, with some showing “good oil shows” along with the identification of a number of potential reservoirs.

“The West Sea definitely has oil, and has flowed oil at reasonable rates from at least two exploration wells when they were drilled and tested in the 1980s,” Rego told NK News.

Meanwhile, the East Sea has seen Russian exploration efforts previously including the drilling of two wells, “both of which encountered encouraging shows of oil and gas.”

Onshore, the author states there has been little exploration to date, apart from efforts by the Korean Oil Exploration Corporation and also recently by Mongolia’s HBOil JSC (HBO). Among five main onshore sedimentary basins, the largest is south of the capital, while unconfirmed reports point to a 1-trillion-cubic-foot (tcf) discovery in 2002. (In the United States, 1 tcf is sufficient to heat fifteen million homes for a year).

“Most have signs of oil and/or gas. [They would be] relatively cheap to explore, [the] major issue is logistics, and shooting more seismic prior to drilling, although it should be possible to do so without relying on too much advanced technology. The Zaeryong Basin is probably the most likely to have oil,” Rego told NK News.

In 2013, HBO reportedly acquired a 20 percent stake in the North Korean entity operating its Sungri refinery, with the goal of exporting crude to Mongolia. Located in the special economic zone of Rason City, the refinery has a capacity of two million tons a year and is connected to the Russian railway system.

“Mongolia has had diplomatic relations with North Korea for many years,” Ulziisaikhan Khudree, HBOil’s chief executive officer, told Bloomberg News. “There are certain risks, but other countries do business with North Korea so I am quite optimistic the project will be successful.”

In July 2014, NK News reported that HBO planned to open up a data room on the nation’s oil and gas sector to interested parties, in hope of attracting outside investment. A British geologist, Quentin Rigby, reportedly was employed to assist the process under the management of KOEC International Inc, the international subsidiary of North Korea’s state-run oil company.

According to the report, HBO’s onshore interests lie southwest of Pyongyang in the Zaeryong Rift Basin, with the Mongolian company seeking to gain access to both upstream oil and gas production and downstream refinery capacity.

However, Australian, British, Malaysian and Singapore-based firms have reportedly also previously investigated North Korea’s energy potential, with Australia’s Meridian Oil becoming the first Western firm to obtain an exploration license in 1990. However, after Meridian’s seismic data was sent to a London processing center, North Korea reportedly failed to pay for the processing and the exploration effort failed to progress further.

London-based Aminex also reportedly signed a deal with North Korea in 2004, which it subsequently withdrew from in 2012, citing the “volatile and unpredictable politics of the area.” Notably, Rego reportedly served as an exploration consultant for Aminex on its North Korean investment.

Foreign aid:

However, the lack of recent reported investment suggests Western companies have been reluctant to invest in the totalitarian state, which remains subject to international sanctions over its nuclear weapon and ballistic missile programs from the United Nations, as well as from the United States, Britain, Canada, China and Japan.