Oil in Mongolia

The geoscientific study carried out in 1892 in central Asia by Russian Scientist V. A Obruchev marked the beginning of Mongolian geology. A few decades later, oil exploration in Mongolia begun with the classification of Mesozoic and Tertiary sediments, and the discovery of oil shale outcrops in the Gobi region. Around 1940, the Zuunbayan oilfield was identified in the East Gobi by Mongolian and Soviet geologists. At that time, the Zuunbayan and Tsagaan-Els oilfields reserves were estimated at 6.2 million tonnes. In 1950, construction of the country’s first ever refinery was completed and it started refining oil produced from the Zuunbayan field. Both fields yielded 586 thousand tonnes of oil until 1969, when the refinery and productions ceased activities due to declined rates, a fire at the refinery and economic factors. Since then, Mongolian oil exploration and production activities were idle for over 20 years.

 

The collapse of the Soviet Union in 1989 had far-reaching impacts for Mongolia, politically, economically and socially. A parliamentary democracy was put in place, the development of upstream petroleum operation recommenced and the Petroleum Law of Mongolia and related regulations were put into effect in 1991. The government initiated the “Petroleum Program” classifying prospective petroleum areas into contract blocks and releasing them for international bidding.

 

In 1993, the first Production Sharing Contract (PSC) was signed with SOCO from the USA and the first exploration well of 3,000 meters depth was drilled a year later.  In 1997, well 19-3 on Block XIX was recorded as the country’s first free flowing oil well. Soon after, oil was exported from Mongolia by trucks to China.

 

From 1993 to 2013, a total of 31,130 km of 2D seismic, 5,920 km² of 3D seismic, gravity survey covering 390,880 km2 area, 17,920 km of magnetic survey were conducted and more than 1,200 wells have been drilled.  Investments totaling over USD1.5 billion were made in petroleum exploration in Mongolia by contractors during this time.

 

Since petroleum production (re)started in 1998, a total of 35.5 million barrels of oil have been produced by the end of 2015, of which 33.5 million barrels have been exported to China for refining as there is no in-country refinery.

 

The Petroleum Law of Mongolia was adopted on 18 January, 1991. The law was revised in 2014 providing clear and transparent legal environment and creating more favourable conditions for investors. The law regulates the operations of Mongolian and foreign entities or individuals on exploration, production, transportation, storage and marketing of petroleum in Mongolia. The Petroleum Authority of Mongolia, established in 1990 as the state petroleum agency to oversee the implementation of the Petroleum Law of Mongolia. In 2016, PAM has merged with the Mineral Resources Authority to form the Mineral Resources and Petroleum Authority of Mongolia (MRPAM).

 

Petroleum exploration and production in Mongolia are performed under Production Sharing Contracts  signed over each petroleum block between the investor and Government of Mongolia. As of 2015, there are 31 petroleum blocks and Mongolia has concluded PSCs with 20 domestic and foreign companies on 24 petroleum blocks. 3 of these blocks are currently producing while the others are still being explored. There are no national oil company in Mongolia.pic1

In 1998, Zuunbayan oilfield, Mongolia’s first oilfield located in south-east Gobi now under PSC Block 97 began reproducing. Toson-Uul oilfield, PSC Block XIX, located in eastern Mongolia also started production in 1998. Since then oil production has been increasing each year, reaching a daily production of 24,000 barrels of oil in 2015. Block XXI, the third producing block, began production in 2009. For the last few years, more than 90% of the oil production has been from Blocks XIX and XXI of Tamsag basin in eastern Mongolia.

Figure 1: Crude oil production in Mongolia      

Figure 2: Crude oil production in  Blocks XIX and XXI  

 

Sources: Petroleum Authority of Mongolia, Mongolia Extractive Industries Transparency Initiative, Ministry of Industry of Mongolia.

Domestic consumption of refined oil products has increased every year. The demand has been met by only imports as there is no in-country refinery. Nearly 90% of the imported oil products come from Russia and the remaining are imported from countries such as China, Republic of Korea, Malaysia, Japan, and Singapore.To reduce its dependence on imports, the government is evaluating building refineries in Mongolia.  In 2015, exported crude oil reached 8.1 million barrels (ca. 1.1 million tonnes).

 

 

Figure 1: Oil products import

Figure 2: Crude oil export

 

Sources: Petroleum Authority of Mongolia, Mongolia Extractive Industries Transparency Initiative, Ministry of Industry of Mongolia.