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North Korea could copy Nazi Germany if a total oil ban takes effect

An undated photo from the North Korean News Agency released in August 2017 shows Kim Jong-un visiting a Korean People's Army unit, in an undisclosed location.

BALKIS PRESS/ABACA PRESS/TNS

By DAVID TWEED AND STEPHEN STAPCZYNSKI | Bloomberg | Published: September 16, 2017

HONG KONG (Tribune News Service) — As the U.S. and its allies look to impose even stricter measures against North Korea, leader Kim Jong Un could find inspiration from oppressive regimes of yesteryear in Nazi Germany and apartheid-era South Africa.

Both managed to survive oil blockades with the help of liquefying coal, a technology that dates to the 1920s. North Korea has ample reserves of the fuel, at one point leading the world in anthracite coal exports.

U.S. Secretary of State Rex Tillerson raised the prospect of cutting off North Korea’s oil supply less than two hours after North Korea fired another missile over Japan on Friday. In a statement, he called on authorities in Beijing and Moscow to take new measures against Kim’s regime, noting that China supplies North Korea with most of its oil.

“The trouble is that North Korea does not, strictly speaking, need oil from China,” Pierre Noel, a senior fellow for economic and energy security at the International Institute for Strategic Studies in London, said by phone. “The idea that an oil embargo would be so drastically painful that they will say, ‘Sorry, we’re back the negotiating table,’ is just totally not credible.”

North Korea would need to liquefy about 6 million tons of coal in order to cover an amount equal to its 2015 oil imports, according Noel’s calculations in an IISS report published this month, which were based on output statistics from U.S. and Chinese coal liquefaction plants. In 2015, North Korea shipped 25 million tons of coal to China, and is restricted to exporting 7.5 million tons a year under UN sanctions in 2016 — leaving plenty left for fuel conversion.

China and Russia resisted a full oil embargo in U.N. sanctions announced this week following North Korea’s most powerful nuclear test, instead only agreeing to limits on fuel sales. Russian leader Vladimir Putin last week rebuffed a request from South Korea’s President Moon Jae-in for an oil ban, saying it would probably hurt the ordinary people more than the regime’s leaders.

China strictly implements U.N. resolutions, Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing on Thursday in rebuffing Tillerson’s call for more action.

“China is not the key to the North Korean problem,” she said. “It’s irresponsible and unhelpful to unjustly blame others and shirk responsibilities in any form.”

While coal liquefaction is possible, it’s also expensive. A 2012 study led by Christodoulos Floudas, a professor of chemical and biological engineering at Princeton University, concluded it would cost the U.S. on average about $95 a barrel to use a combination of coal, natural gas and non-food crops to make synthetic fuel to replace crude oil — which is now trading around $55 a barrel.

“That’s a steep price, but it’s a far more attractive deal than going without oil altogether,” Paul Musgrave, assistant professor at the University of Massachusetts, Amherst, said by email. “It’s the economics that usually make this process unfeasible.”

North Korea can also order its compliant citizenry to cut down on energy consumption, energy analysts Peter Hayes and David von Hippel wrote in a report this month for the Berkeley, Calif.-based Nautilus Institute for Security and Sustainability. They estimated that North Korea would be able to reduce its non-military oil consumption by about 40 percent of its annual use via substitution or simply using less.

“These sanctions are likely to be counterproductive immediately,” Hayes said by email of the latest U.N. measures. “And in the long term — tactically and strategically stupid, which is quite an achievement.”

To be sure, it’s unclear whether North Korea can totally replace oil with coal, according to William Brown, an adjunct professor at Georgetown University, who served as a senior Asia adviser in the Office of the Director of National Intelligence. The country already makes fertilizer and chemical fibers from coal, he said.

“To do more really stretches them at the margin into less efficient activities,” Brown said.

China supplies North Korea with 10,000 barrels a day of crude oil, according to the Energy Information Administration, equivalent to less than one percent of daily consumption in the U.S. North Korea had reserves of about 600 million metric tons of coal in 2014, according to BP Plc, compared to recoverable reserves of 251 billion tons for the U.S. and 244 billion for China.

While it’s unclear whether North Korea has the facilities to immediately start liquefying coal, it’s probable that Kim’s regime has mastered the technology, according to Noel from IISS. In 2006, North Korea built a coal gasification plant as part of an upgrade of the Namhung Youth Chemical Complex.

Noel expressed skepticism that Tillerson wouldn’t be aware of North Korea’s ability to withstand a cut-off in oil supplies, given his past experience as chief executive officer of Exxon Mobil Corp., the world’s biggest publicly traded oil company.

“It is not credible to believe people like Tillerson are not intelligent enough not to draw the conclusions,” Noel said. “It is just impossible that they truly believe in this oil embargo thing.”

David Tweed reported from Hong Kong and Stephen Stapczynski from Tokyo.

©2017 Bloomberg News
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