Kim Jong Un is skirting sanctions and pursuing this energy strategy to keep North Korea afloat

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With President Donald Trump pushing hard to denuclearize North Korea, Kim Jong Un must contend with a major domestic crisis sparked by UN sanctions: how to fuel his ailing economy and military now that nuclear energy is off limits and the amount of oil and energy products he can trade has been restricted.

It’s a hard balancing act for the 35-year-old dictator whose goal now is to develop alternative energy — everything from wind and tidal power to transforming coal into liquid synthetic fuels.

Time is of the essence. Sanctions have squeezed many North Korean industries that rely on imports of gasoline and diesel fuel, including agriculture, transportation and the military. Factories have closed due to a lack of raw materials and an inability to keep the lights on. Additionally, the UN Security Council has banned key North Korean exports, including coal and iron ore — key revenue generators for the North Korean economy. As a result, many people are unemployed and food is scarce.

Collapsed talks in Hanoi between Trump and Kimin February have only made the situation murkier for North Korea. Trump demanded Pyongyang to give up its nuclear weapons. No agreement was made, and Kim needs sanction relief. It’s unclear what Trump will do next after tweeting last month that he wanted to remove new sanctions against North Korea.

In the meantime, North Korea has been doing illegal ship-to-ship transfers of petroleum products and coal, according to a UN report. Its operatives have been caught by cybersecurity McAfee hacking businesses around the world. The vast majority were in the U.S., including Houston, an energy hub, though McAfee did not name specific targets.

More than eight years into power, the young ruler Kim essentially is gunning for it all: A nuclear program and a viable energy state with reliable energy resources to fuel his army and spark top-down economic reform.

“The U.S. wants [Kim] to have to choose. He now has to figure out what North Korea has to give up — and at what price,” said Andray Abrahamian, a North Korea expert and Korea fellow in the Korea Program at Stanford University.

According to energy experts, Kim’s energy strategy includes transforming coal into synthetic fuels that can serve as substitutes for liquid petroleum fuels like gasoline and diesel. (This process is referred to as gasification of coal and can also be used to generate electricity.) North Korea also wants to take advantage of its coastline and use huge sea barriers with electricity-generating turbines to harness the power of the ocean’s tides.

Coal and hydropower are North Korea’s main energy resources. Pyongyang imports nearly all of its oil and petroleum products from China. North Korea has pursued some limited crude oil exploration, but it has no proven reserves of petroleum and other liquids, according to the U.S. Energy Information Administration. And even though North Korea has a nuclear weapons program, it does not use nuclear power for electricity generation.

It can be hard to fathom whether North Korea is even capable of developing a scalable, alternative-energy complex. The country’s infrastructure, including the power grid, are grossly outdated. The regime can’t even feed its 25 million people, and absence of a state food system helped trigger the rise of marketization activities that are tolerated by the regime and only growing.

But North Korea is far from an isolated nation. As any alternative-energy gains require knowledge and advanced skills, North Korean engineers have traveled outside the country for training in China and Russia, said Scott Montgomery, a geoscientist at the University of Washington and a longtime expert on the oil industry and North Korea.

North Korea essentially has begun a slow-but-steady workaround to reduce sanctions impacts.

“In the longer run, assuming the sanctions regime is effective in cutting off the bulk of prohibited oil imports, we suggested that DPRK would actively develop alternative sources of fuel, particularly for its transport sector,” according to David von Hippel and Peter Hayes of the Nautilus Institute for Security and Sustainability. Their insights were published in February.

North Korea, unlike South Korea, boasts an abundance of mineral resources including coal that was first extracted in the early 1900s during the Japanese occupation of the peninsula. North Korea’s coal reserves are estimated at 15 billion metric tons, according to the Nautilus Institute. The coal is also mainly anthracite, the most carbon-rich and high-ranking type of coal but also the least abundant in the world. It burns hotter and longer per unit weight than other types of coal and is the least polluting, producing little smoke and thus particulate matter.

“There is a new focus on increasing the amount of power in North Korea,” said Montgomery.

Coal, however, generally isn’t seen as a good oil-product substitute due to costs of such conversion. The last time coal was converted into liquid form on a substantial scale was by Germany in World War II and during apartheid South Africa when those nations were isolated from normal trade in crude oil and related products.

However, North Korea is inching forward to reduce oil sanctions impacts. According to research from the Nautilus Institute, a single gasification unit imported from China to convert coal to oil “could be used to produce synthetic fuels in volumes on the order of 10 percent of recent DPRK petroleum supplies.”

North Korea is also eyeing more hydroelectric power, including tidal power. The country’s western coastline is quite narrow and well suited to capturing tidal power. Hydro and tidal power are similar in that they convert moving water to spin turbines to produce electricity.

Montgomery noted that successful hydropower operations require a lot of cement to build large dams, access to turbines and storage facilities. Montgomery added that there’s a good chance North Korea will become more capable in producing hydropower as well as synthetic fuels from coal — but it’s a long game.

Additionally, development of atomic energy is unlikely in the near term. Overall, North Korea watchers say any additions to the country’s energy resources will take years to scale, especially as sanctions prohibit outside foreign investment. “Producing liquid fuels from coal, whether by indirect or direct coal-to-liquids approaches (the latter a much less mature technology), would be an interesting addition to the DPRK’s energy repertoire, but on a large scale it would likely take years to implement,” according to von Hippel and Hayes of the Nautilus Institute.

Whether we’re talking about coal or hydroelectric power, the bulk of North Korean energy is destined for industries or military operations. Ordinary North Korean citizens scrape by on cheap solar panels imported from China for their daily energy needs. Some North Korean entrepreneurs are even producing their own solar panels.

All told, North Korea’s energy insecurity is both a key driver and factor in a negotiated settlement over the North’s nuclear weapons. Viral satellite pictures of North Korea at night, which were captured in 2014, revealed a country shrouded in darkness compared to its well-lit neighbors.

North Korea’s broad infrastructure, including its energy complex, could benefit immediately from its neighbor South Korea. Moon Jae-in, South Korea’s president, has expressed interest in economic interactions with the North starting with the Kaesong industrial park. Located inside North Korea just north of the demilitarized zone from South Korea, the Kaesong area includes both North and South Korean workers and is a prominent showcase of economic cooperation between the two nations.

South Korean officials have discussed refurbishing North Korea’s rail system and troubleshooting the North’s problems with electricity generation and distribution. The North’s electricity grid alone would cost tens of billions of U.S. dollars to modernize, according to estimates by Nautilus. Some of the generation and transmission equipment dates back several decades.

“South Korea is very interested in helping North Korea refurbish its infrastructure. Seoul has been waiting for a breakthrough to unlock a wave of interactions between the two countries,” said Abrahamian, a Stanford University Koret fellow. Abrahamian is also the former executive director of Choson Exchange, a Singapore-based nonprofit that supports North Korean entrepreneurs and knowledge-sharing with foreign executives.

Added Abrahamian, “If North Korea can find a breakthrough with the U.S., they’ve got a partner in South Korea that’s willing to undertake these megaprojects.”

Further down the line, there may be more opportunities for foreigners to invest in North Korea if and when the border between the two Koreas opens. Potential sectors for investment include mining, agriculture and tourism, according to Singapore-based U.S. investor Jim Rogers. Foreigners, including those from China, have invested in North Korea’s mining industry in the past, though it hasn’t always been easy to get profits out of the country.

Speaking on an NK News podcast last month, Rogers said details related to extracting money out of the North need to be worked out. Overall, Rogers, who first visited North Korea in 2007, is optimistic about the country’s investment potential. He told NK News that curiosity and the newness of the region could lure many visitors to both North and South Korea in the future. He’s also been named as an outside director of Ananti, a South Korean company that owns a hotel and golf course in the Mount Kumgang resort area in North Korea.

“Tourism is going to be staggering,” he said.