Mongolia announces that the Russia-China gas pipeline will be inaugurated in 2024
Mongolia expects Russia to begin construction of the “Power of Siberia 2” gas pipeline through its territory to China within two years, as Moscow prepares to connect its gas fields for the first time. Europe to Asia.
Mongolian Prime Minister Oyun-Erdene Luvsannamsrai told the Financial Times that while the war in Ukraine had clouded planning for the pipeline, he expected construction to continue.
The Power of Siberia 2 project has become essential for Russia as it faces the prospect of losing Europe as a market for its gas after its invasion of Ukraine and accusations that it has “weaponized” the supply to create a price crisis.
“The feasibility study for this project has been completed and we expect construction to begin in 2024,” Luvsannamsrai said.
The Prime Minister also said Rio Tinto’s massive Oyu Tolgoi mine project in Mongolia was on schedule and the country was making progress in preparations to meet the impending bond repayments.
Power of Siberia 2 will connect Siberian fields that supply Europe – which has pledged to end its dependence on Russian state-backed Gazprom – to China, where gas demand is rising.
Mongolia, which has more than 3.3 million inhabitants in a vast territory, is landlocked between China and Russia. Luvsannamsrai said being surrounded by two “superpowers” at a time of geopolitical tension created complications, but Mongolia was used to working closely with both.
Ulaanbaatar signed a memorandum of understanding with Moscow in 2019 to explore the Power of Siberia 2 gas pipeline, which would transport up to 50 billion cubic meters of gas annually through its territory.
Luvsannamsrai said there had been no significant increase in pressure from Russia to speed up construction of the line despite Gazprom’s plans to focus on Asia. Gazprom chief Alexei Miller has suggested that China will become its main customer in the future.
Luvsannamsrai said the line’s final route through Mongolia was still “deliberate”.
The 2,600 km pipeline is expected to enter service around 2030, but industry executives believe this could be brought forward given Moscow’s need to find markets for its energy supplies.
The pipeline transit fee will help Mongolia’s economy, which has been hit hard by the coronavirus pandemic. China, its biggest trading partner, has frequently shut down Mongolian export routes as it tries to control the virus.
Luvsannamsrai said he expects Mongolia’s economy to strengthen this year, helped by new rail links to China that will be used to ship commodities such as coal and copper.
Copper exports are expected to increase significantly over the next few years as miner Rio Tinto expands development of a huge copper deposit in the Gobi Desert.
The Oyu Tolgoi mine is Mongolia’s largest source of foreign direct investment and provides thousands of well-paying jobs, but its underground expansion has been hampered by delays and cost overruns that have sparked bitter disputes between Rio Tinto and Ulan Bator.
Last year, Mongolia threatened to halt work on the project, saying it would never receive a dividend from the mine because of the amount of debt incurred to develop it.
In December, Rio agreed to cancel more than $2 billion in loans and interest used by the government to fund its share of total development costs which were revealed on Friday at $7 billion, down from $5.3 billion. of dollars.
Luvsannamsrai, who met Rio chief executive Jakob Stausholm last week, said he was “confident” the mine was operating as planned, with underground production due to start in the first half of next year.
“I think it will be a clear example of how Mongolia can work actively and effectively with its investors,” the prime minister said, referring to the Rio deal.
Asked about Mongolia’s external debts, Luvsannamsrai acknowledged that Ulaanbaatar had some “problems” to resolve, but pointed to a recent agreement with Japan for the early redemption of a yen-denominated bond as proof of progress.
He said Mongolia has been “focusing on how we can improve our reputation” in capital markets.
Including the samurai bond, Mongolia has about $1.3 billion in bonds maturing in 2023 and $600 million in 2024, but low levels of foreign exchange reserves.
“We believe that the recent drop in commodity prices is a temporary shock. . . due to the pandemic and the Russian-Ukrainian crisis,” Luvsannamsrai said. “We have an optimistic view that copper use and production will not decline in the future but will increase.”