Bloomberg News

Mongolia Pushes Russia, China to Re-Route Planned Gas Line

July 02, 2012

Mongolia is calling upon China and Russia to re-direct a planned natural-gas pipeline across its territory as the world’s fastest growing economy seeks to tap the cleaner-burning fuel.

Altering the route to pass through Mongolia would save 1,000 kilometers (622 miles) of pipeline, Mongolian President Tsakhia Elbegdorj said in an interview in Ulan Bator, the nation’s capital. It would also allow Mongolia to switch to gas heating in the capital, which ranks among the world’s most polluted cities due to widespread use of coal-fired stoves.

“This is economically beneficial,” Elbegdorj said. “We are trying to persuade our two neighbors not to exclude us from that project. The Chinese side has already agreed to discuss this and also the Russian side.”

Russia has discussed a gas pipeline to China, the world’s biggest energy user, for almost a decade without reaching a final agreement. Mongolia, squeezed between Russia and China, is struggling to end power shortages that threaten to hold back the development of the country’s resources industry, which helped its economy grow 17.3 percent last year.

Rio Tinto Group (RIO), the biggest foreign investor in Mongolia, is due to begin importing power from China this year to help run its $7 billion copper and gold mine in southern Mongolia when it begins. Western Mongolia runs entirely on electricity imports from Russia, according to a March report by London-based Oxford Business Group.

OAO Gazprom (GAZP), the world’s biggest gas company, has yet to agree with state-run China National Petroleum Corp. on the starting price of supplies, according to Alexander Medvedev, deputy chief executive officer of the Moscow-based gas producer.

‘Economic Feasibility’

Dmitry Peskov, a spokesman for Russian President Vladimir Putin, said he isn’t aware of the proposal to run the pipeline via Mongolia.

“We are staunch supporters for energy transportation routes to be based solely on economic feasibility criteria,” he said in a phone interview. Sergei Kupriyanov, a spokesman for Gazprom, didn’t reply to a text message.

Gazprom plans to supply about 30 billion cubic meters a year, less than a quarter of China’s consumption in 2011, via the so-called Western route. The pipeline would take gas from Gazprom’s biggest western Siberian fields directly to western China through a border line squeezed between Kazakhstan and Mongolia. The plans have been questioned by analysts as China needs most of its gas for its more populated and industrially developed eastern territory, meaning the route will span a longer distance to reach customers.

Price Issues

While having also considered a second pipeline from eastern Siberia, which would be shorter, Gazprom has made supplies of liquefied natural gas by tanker a priority from that region. Any pipeline would only be considered after LNG export plans have been determined, Medvedev said June 18.

Gazprom has suspended plans to build a link from eastern Siberia, which would be shorter than the western route, in favor of producing liquefied natural gas for shipment by tanker from Pacific ports, according to Chief Executive Officer Alexey Miller. Gazprom may build an LNG plant in Vladivostok as early as 2016 or 2017.

Gazprom and China will hold the next round of talks on gas supplies this month, Medvedev said June 24. To reach an accord, Gazprom is discussing advance payments for fuel supplies, which may lower the price, as well as a potential role in marketing and distribution in China and LNG shipments, Medvedev said last month.

Study Begins

Mongolia, which voted to elect a new parliament last week, plans to form a trilateral working group to study changing the gas route, Elbegdorj said.

The Asian nation, which relies on Russia for almost all of its oil supply, is also working on introducing technologies that would allow it to produce the fuel and also gas from coal. Elbegdorj oversaw the signing of accords with German companies that will help Mongolia produce its own fuel from coal reserves, he said.

China’s gas consumption increased 22 percent to 130.7 billion cubic meters last year, according to BP Plc (BP/)’s Statistical Review of World Energy. Mongolia hasn’t been singled out as a consumer of the fuel in the review.

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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