How Mongolia plans to resolve the crude oil supply gap with PetroChina5 Jun 2026 07:57
Mongolia plans to resolve its looming crude oil supply gap by renegotiating production-sharing terms with PetroChina, expanding domestic exploration, and preparing infrastructure to import Russian crude if necessary.As Mongolia nears the completion of its first major $1.7 billion oil refinery (now targeted for 2028), a massive structural deficit has emerged. The refinery is designed to process 1.5 million tons of crude annually (about 30,000 barrels per day). However, due to natural depletion and operational challenges, Mongolia’s domestic crude output has plummeted to roughly 713,000 tons annually (around 14,375 barrels per day), covering less than half of the refinery's intended capacity.To bridge this massive deficit, the Mongolian government is pursuing several strategic paths:1. Renegotiating with PetroChina (CNPC)Most of Mongolia's existing crude extraction is managed by PetroChina Daqing Tamsag under long-standing production-sharing agreements (PSAs). Under these terms, the majority of the extracted oil has historically been exported directly to China.The Strategy: Mongolia is actively trying to renegotiate these contracts to force PetroChina to divert its share of crude directly to the new domestic refinery rather than exporting it. Alternatively, the government will have to purchase PetroChina's share back at international market prices.Long-Term Fuel Supply Agreements: The Ministry of Industry and Mineral Resources initiated high-level talks with PetroChina's parent company, China National Petroleum Corporation (CNPC), to establish long-term frameworks to stabilize local energy supplies and streamline oil transit.2. Legal Alignment and Unlocking Independent ProducersTo resolve parallel tax and operational disputes holding up supply, Mongolia's regulatory body (MRPAM) successfully aligned its 2026 Oil Sales Agreements with national petroleum and tax legislation.This move cleared compliance blocks at PetroChina's headquarters, freeing up trapped domestic volumes from independent explorers like Petro Matad.These independent operators are utilizing advanced 3D seismic testing and radial/horizontal drilling to lift domestic field capacities in areas like Block XX.3. Infrastructure ConnectivityA major bottleneck in utilizing local oil is logistics. Mongolia is constructing a 530-kilometre pipeline connecting the Dornod oil fields (where PetroChina operates) directly to the refinery. Until this is finished, trucking crude across the steppe remains economically unscalable.4. The Backup Plan: Importing Russian CrudeIf negotiations with PetroChina or new domestic exploration fail to fill the gap by 2028, Mongolia's only alternative is to import crude oil from Russia.The Catch: The new refinery was specifically built to process light domestic crude. Relying on Russia would require costly technical reconfigurations of the refining units.Geopolitical Risk: Swapping its
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