Mongolia’s first oil refinery goes under construction

BEIJING, Jun 23 — Wearing white gloves and wielding two pairs of scissors, Mongolia Prime Minister Khurelsukh Ukhnaa and Indian Home Minister Rajnath Singh on June 22, 2018, literally cut a strip of red tape, a move intended to symbolize Mongolia’s first oil refinery to launch its construction. Numerous people gathered to attend the groundbreaking ceremony of a long-awaited project with the help of a USD 1 billion loan from India at Altanshiree soum, Dornogobi province, Mongolia.

“Mongolia as an important strategic partner,” Indian Home Affairs Minister Rajnath Singh pointed out. “India wants to realize the huge potential of bilateral relations with Mongolia” he added. In a moment rich with pomp and symbolistics, Khurelsukh Ukhnaa emphasized the importance of the project and proudly proclaimed his decision was “historic”. This word implicates that his effort to accomplish for a tricky task to end the country’s dependence on Russia fuel.

Presidential Dream

The first real discussion regarding construction of an oil refinery began under the first president of Mongolia Ochirbat Punsalmaa who marked his ivory deel with the “black gold” when crude oil was pumped out of the ground for the very first time at Tamsag, Dornod Province in 1997.

Ochirbat Punsalmaa, the first president of Mongolia, shared his fantasy at Daily Newspaper that described by the situation when he refuel to the bank of his car by the first bucket of gasoline from the oil refinery and put a smile on his face and said “Crude oil — I was intentionally stained my handprint onto the ivory deel — refined into a gasoline.”

 

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Indian Home Minister Rajnath Singh (in left) and Mongolian Prime Minister Khurelsukh Ukhnaa broke the ground.      Photo by: Government of Mongolia

In other to accomplish the first President dream, Khurelsukh Ukhnaa is not alone in chasing after the national dream which is producing oil in domestic. Before his cabinet, four oil refinery projects were approved by different administrations only in last decade and supposed to begin construction but never reached that stage. Thanks to Indian Prime Minister Narendra Modi’s visit in Mongolia in 2015, India has essentially guaranteed to finance, the biggest obstacle in building an oil refinery has been addressed. But the location of oil refinery was still under the discussion until it finalized at Altanshiree soum.

The most recent one, excluding the proposed oil refinery in Altanshiree, Dornogovi Province — was the one planned to be built in Sainshand soum, 25 kilometers away from a current location under former Prime Minister Erdenebat Jargaltulga’s administration. Before that, his precedence Saikhanbileg announced the decision to built an oil refinery at Bor-Under soum of Khentii Province which is Northern part of Mongolia, nine months after Modi’s visit.

Another proposed oil refinery in Darkhan City, Darkhan-Uul Province – a central area of Mongolia – was approved by two other Prime Ministers, Su.Batbold and Altankhuyag.N in 2011 and 2013. Su.Batbold also approved the project for another refinery in Dornod Province, Eastern part of Mongolia in 2011. Former Prime Minister N.Altankhuyag approved a refinery with the capacity to produce two million tons of petroleum in 2013. According to his cabinet plan, the refinery was supposed to become operational by 2015, but just like all the others, it failed.

Comparing to the other locations, Altanshiree has had numerous advantages including water reserves, near to the border and close to the users, said officials of Ministry of Mining and Heavy Industries at iToim.

A long-awaited project

Once operational, the refinery in Altanshiree, Dornogovi will have a processing capacity of 1.5 million tons of oil per year. In additionally it will produce 560,000 tons of gasoline and 107,000 tons of liquefied gas, as well as  670,000 tons of diesel fuel in an annually. A capacity of oil refinery will help Mongolia to fulfill its needs of petrol and diesel for the near future, with a heavy emphasis on diesel production reflecting a reliance on heavy-duty vehicles, particularly in the extraction sector, which accounts for close to 20 percent of GDP and more than 80 percent of exports. Petroleum Agency of Mongolia is expecting its crude oil output to rise over the years before the refinery’s start-up.

The refinery – to become operational by 2022 – is expected to boost Mongolia’s gross domestic product by 10 percent, said in the statement of Mongol Refinery — a state-owned enterprise. ‘Wolf” economy of the landlocked country sandwiched between Russia and China has struggled in recent years and has been propped up by a $5.5 billion IMF bailout. Regarding international standards, the refinery will be small and compared with other Chinese facilities which processing thousands of barrels of crude in a daily basis, and India’s Reliance Industries are running one refinery at a record 1.2 million bpd.

Alongside the oil refinery, Mongolia intent to build oil and gas pipeline from Russia to China via Mongolia. Russian President Vladimir Putin expressed his strong support during the trilateral meeting on SCO summit. “Our Mongolian partners have come up with an initiative to build major oil and gas pipelines from Russia to China. In general, we support [this initiative], it is a good idea. However, there is a need to conduct a thorough feasibility study, as always in such cases,” said Putin, the Kremlin press service reported.

Saudi Arabia in Asia

Mongolia currently exports all of its crude oil to China while importing petroleum product from Russia. Many Mongolian as believed they had had a potential to be a wealthy country like ‘Saudi Arabia of Asia.’ The sparsely populated and landlocked country – surrounded on one side by Russia, the other, China — has proven oil reserves of 2.4 billion barrels which are on a scale with Britain’s and Argentina’s.

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PSC Petroleum Blocks as of 2015, source: PetroMatad

There are 31 petroleum blocks, and Mongolia has concluded Product Sharing Contracts with 20  companies on 24 petroleum blocks. Three of these blocks are currently producing while the others are still being explored. Mongolia’s oil fields are primarily located in Dornod province in eastern Mongolia, about 570 kilometers northeast of Altanshiree. PetroChina and fellow Chinese group Sinopec, which are exporting approximately 50 million barrels through the last 20 years to China by road, according to the National Statistical Office.

Concerning last year’s data, Mongolia produced 7.6 million barrels of oil, amounting to 6 percent of its total export earnings and also imported 410,800 tons of gasoline worth $243 million and 805,300 tons of diesel worth $428 million. More than 97 percent of the petrol and diesel was imported from Russia, in particular, the state-owned Rosneft, according to the Petroleum Agency. Recent five years, annual average production of crude oil has been reached the level of domestic use of fuel product which is around 1.2 million tonnes, according to the study of Professor Tseveenjav Jadamba, Mongolian University of Science and Technology.

“By establishing this strategically important oil refinery, the national economy will become independent from energy imports, and fuel and commodity prices will be stabilized,” said in the company’s press release.

The grand opening ceremony will be held, if everything goes according to the plan, with the massive applause of numerous Mongolians in four years later at the remote corner of Southern of Mongolia. At this time, the impossible task of Mongolian cabinet will be accomplished, and the first president dream comes true.

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