In this interview with the MMJ, N.Boldkhuu, Deputy Director of the Fuel Policy Department at the Ministry of Mineral and Energy, gives detailed information on the upcoming oil refineries. We have been hearing of four possible refineries. Where will they come up? Before answering this question, let me give you a history of this sector. Mongolia has been using oil products for 92 years. Mongol Trans consortium was established in 1925, and began importing petrol from Russia in small amounts. In 1941, Mongolia started exploration for oil and in 1949 an oil refinery was built with the help of the Soviet Union. From 1949-1969, this Zuunbayan oil refinery supplied 30 per cent of domestic oil consumption. Since 1969, however, we’ve again been importing 100 per cent of our petrol demand.
A new law passed in 1992 opened the doors for foreign investment. The last five years have seen intensive oil exploration in Mongolian territory. This led to the grant of 17 special permissions for an oil refinery but none of them has been built. In 2008, the new coalition government established a working committee with 17 members. Its task was to speed up oil production, and also to study ways of getting fuel from coal bed methane, biodiesel, gas and shale. We have studied in detail the reserve amount, feasibility and other factors.
We granted the special permissions after ascertaining that eco-friendly technology would be used, and production would be efficient and of the proper quality. We also studied how the Government can support the project, the possible role of public-private partnership, and economic benefits. It is not true that we became aware of the issue only this year. We have been working for many years on how best to meet 100% of the national demand with domestic supply.
So who have been issued the licences?
First, there is Khet Company, which proposes a refinery with an annual production target of up to 150,000 tons. It will use US technology. The Government and the company are now in talks over setting up Dornod Oil, which will be a public-private partnership.
Second comes the Mon Oil Gas LLC. It will basically renovate the old refinery in Zuunbayan. Exploration by foreign companies has revealed that the Zuunbayan basin holds about 200 million tons of oil. After upgrading, the refinery will have an annual capacity of 300,000 tons. Initially the company will import crude but this may not be necessary when domestic oil production increases.
Another licence holder, M-Oil, plans to build a refinery in central Mongolia with an annual capacity of 300,000 tons. It will import crude as our railway does not have the resources to transport the crude produced in the Gobi to the central area. Things may change once the railway raises its capacity. We also plan to build a pipeline.
The last of the four licences is held by the Sod Mongol Group which proposes to build its refinery in Sainshand, with a capacity of 0.5-1.5 million tons.
Apart from these four, there is the Mongol Sekiu refinery in Darkhan that has been under discussion since 2008. Thus, at the moment, we have the prospect of five refineries -- in Dornod, Darkhan, Zuunbayan, Sainshand and the Central area.
How much is our domestic demand and how much of this can be supplied by our own capacity?
Oil consumption has been on the rise and will keep rising. Last year we used 870,000 tons, and this will reach one million tons this year. The projection for 2015 is 1.5 million tons and for 2020, 2 million tons. We plan to meet 70 per cent of the likely demand in 2015 with output from domestic refineries. Each has its own construction time table, but all five should be on full steam in 3 years from now. We shall insist that the construction and the technology are world standard and eco-friendly.
Where will the crude come from?
We have 200 million tons of proven reserve, and 10% or more of this can be processed annually. However, our crude is not very high grade and that is why we want to import Russian crude. They have responded positively. Besides, Kazakhstan has agreed to supply 200,000-300,000 tons of crude every year, and Kuwait one million tons. Of course, we shall try to make maximum use of our own reserve. At present, 14 exploration companies are working in 17 fields, and 5 or 6 of them have found oil.
What about other sources for fuel?
We can get oil from shale oil and coal, too. We have started a study of our shale oil possibilities. We have also analysed the coal in Tsaidam Nuur, Tugrug Nuur, Aduunchuluun, Baganuur and Shivee-Ovoo, and have also conducted pre-feasibility studies. Once the funding issue is resolved, we shall begin work on the economic and technical feasibility. Oil demand increases but supply is falling, so we need to think seriously about using our coal and shale oil resources. Our shale oil reserve is estimated to be 22 billion tons, while we have a coal reserve of 200 billion tons and 22 trillion cube meters of methane gas.