Mongolia seeks China gas accord to boost foreign investment

By MICHAEL KOHN and YURLY HUMBER
Bloomberg

Mongolia is seeking to sign a gas project and supply accord with China next month, in a deal that would help the world’s second-largest economy expand energy supplies and potentially revive foreign investment in Mongolia.

The agreement will cover construction of two coal-to-gas plants with 95% of output going to China through pipelines, Erdenebulgan Oyun, Vice Minister for Mining said in an interview in Ulaanbaatar. Gas production is expected to begin in 2019, he said.

A preliminary contract with China Petrochemical Corp., known as Sinopec Group, may be signed in August during an expected visit by Chinese President Xi Jinping, Chuluunbat Ochirbat, said Mongolia’s Vice Minister for Economic Development.

Final details including cost, size and who will mine the coal needed for the plants, are yet to be agreed, he said.

Any deal with Mongolia would come after Russia in May reached a $400 billion deal to supply natural gas to China as the Asian nation secures supplies abroad to meet rising domestic demand.

For Mongolia, an accord would come amid slumping foreign investment that’s down 64% this year and may help shift the nation’s reliance on the Oyu Tolgoi copper and gold mine.

October MOU

“Sinopec has taken several trips to do due diligence in Mongolia and it is still under way,” Chuluunbat said in Tokyo, where he’s attending an investment summit. “Mongolia has coal reserves which are suitable for gasification.”

Xi will visit Mongolia on Aug. 21 said Chuluunbat. China has not officially confirmed the visit. The Ministry of Foreign Affairs in Beijing today didn’t reply to a fax about Xi’s trip to Mongolia.

Sinopec GroupcChairman Fu Chengyu signed on Oct. 25 a memorandum of understanding for a coal gasification project in Mongolia with Jigjid Rentsendoo, Secretary of State of the Ministry of Mines of Mongolia, according to a statement that month on the Chinese state-controlled group’s website that didn’t give further details.

A Sinopec Group’s Beijing-based spokesman didn’t answer two calls to his office seeking comment.

About 80 million metric tons of lignite coal will be extracted annually to produce the gas at the plants, Erdenebulgan said. According to both vice ministers, the plants could produce 15 billion cubic meters/year of gas. Chuluunbat estimated the cost of building a project of that size at $3 billion to $5 billion, and said the scale of the development could be increased.

By comparison, China’s gas contract with Russia is for 38 billion cubic meters a year.

“We have an ambition to sell more products to China, other than just raw materials. We want to export finished products like natural gas,” said Erdenebulgan. “Lignite can’t be exported, but we can convert it to gas and export it.”

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