Mongolia sits in a unique position where its energy situation is deeply intertwined with both its economy, which is mostly driven by raw material exports, and its geographic location between two major countries. However, there is a lack of acknowledgement of the reality of the energy situation accounting for geopolitical factors within the Mongolian government, or at least within its ministries.
The Mongolian government should immediately develop comprehensive long-term energy security policies in accordance with the prevailing geopolitical realities. The necessary steps would include transforming the electricity sector from coal-fired to renewable energy, shifting away from a reliance on coal exports to becoming a renewable energy exporter, and attracting foreign infrastructure financing.
Mongolian economic policy, energy policy, and national security policy are deeply intertwined. A failure to recognize the impact of mineral resources such as coal and copper on Mongolia''s energy policy is deeply flawed and potentially dangerous. According to data from the Mongolian National Statistics Office, last year 86 percent of the country''s exports were raw materials, including coal, copper concentrate, and gold. More than half of Mongolia''s exports were coal.
It is no secret that the country needs to shift from an export-based economy, which is heavily dependent on the global market, to a diversified economy. Mongolia''s government itself readily acknowledges this.
In another alarming datapoint, just one trading partner, China, accounts for 80 percent of Mongolian exports. The vulnerability of the current economic picture puts Mongolian national, economic, and energy security alike at immediate risk.
In the long run, Mongolian economic and foreign policy must recognize the fact that the sale of coal is not sustainable. The international community is eager to move from fossil fuels as the climate emergency becomes ever-more dire. Therefore, Mongolia''s current and future administrations must tailor their policies toward value-added processing – something the country has been struggling to achieve – or even the potential replacement of coal as a revenue source.
Notably, Mongolia can tackle both its energy and economic security concerns with one approach. Mongolia has the potential to sustain its domestic electricity demand through renewable energy sources such as solar, wind, and hydro. It should also view exports of renewable energy into neighboring countries as an alternative source of economic security.
Mongolia''s electricity and heating production is overwhelmingly based on coal-fired thermal power plants, according to the Ministry of Energy. As of 2018, the Energy Regulatory Commission reported that close to 93 percent of Mongolia''s power plants were coal-fired, while only 7 percent generated renewable energy.
In terms of energy policy, Mongolia''s main priority should be to target supply close to 100 percent of domestic demand when it comes to electricity and heating production – even if this power is generated by fossil fuels.
There are growing efforts by the international community to capture carbon emissions or remove them, which need to be studied and implemented immediately, including by shifting toward renewable energy sources. In the long run, however, it is only realistic to assume coal-fired plants are not a sustainable solution given the climate emergency. As a result, ambitious efforts to pursue renewable energy will be the future.
Perhaps one of the greatest information gaps for average Mongolians or even policymakers is the tendency to look at critical petroleum products such as diesel and gas in isolation, excluding the energy factor, which is deeply tied to national security.
Mongolian industrial and other consumers are 95 percent dependent on imported petroleum products, despite the country having crude oil deposits. Indeed, petroleum products make up the biggest share of imports in terms of value. Data from the Mongolian National Statistics Office indicated that diesel and petrol ranked first and third, respectively, on the list of commodities Mongolia imported in 2022, together accounting for 35 percent of all imports.
Around 90 percent of all imported petroleum products come from Russia, which creates a geopolitical dependency. The general public has seen disruptions of Russian oil supplies from time to time and shares a common feeling of uneasiness about the fact that Mongolia''s economy is dependent on foreign actors'' discretion. Despite Mongolia having 43 million tons of proven crude oil reserves and production, the lack of in-country refineries has forced it to export its oil to China since 1998.
According to the Mineral Resources and Petroleum Authority of Mongolia and other news agencies, the construction of Mongolia''s own refinery and oil pipelines are underway, funded by a soft loan from the Indian government. They are expected to be operational in 2027.
The current plan is to be able to produce up to 20 percent of domestic petroleum product consumption and have six months of country reserve to boost Mongolia''s resilience to disruptions or price spikes. If the plan proceeds on schedule, the Mongolian government will gain significant leverage in foreign policy. However, the size of the oil reserve is relatively small, and the fact that 8 million tons out of 43 have already been extracted suggests that the potential leverage from this infrastructure development will be temporary and short-term.
In the long term, the government of Mongolia should join the rest of the world in electrifying its transportation sector, supported by domestic renewable energy production.
Mongolia''s latest long-term development policy known as "Vision 2050" sets the tone for future government policy in energy security but again lacks the necessary national security element. There are a number of significant goals, such as "becoming self-sufficient in electricity production," "increasing export-oriented sources and becoming an energy exporter,” and "developing an independent integrated energy system," but the strategy ultimately failed to inform or reiterate why those goals are fundamental to Mongolia''s national security and dependency.
In 2021, in the midst of COVID-19 and the greater economic impact of the pandemic, the Mongolian Parliament announced a "New Recovery Policy" as a part of Vision 2050. In addition to the number of action plans to increase the existing capacities of thermal power plants and a proposal to build a hydropower plant in the recovery plan, a couple of debatable proposals were mentioned: a natural gas pipeline from Russia to China via Mongolia, and a potential Northeast Asian integrated power grid.
The potential new gas pipeline, Power of Siberia 2, has been under discussion for years, if not decades, although progress was frozen temporarily during the pandemic. According to a recent Reuters report, the Russian deputy prime minister announced that construction may begin in Mongolia starting in 2024 on a pipeline to carry 50 billion cubic meters of gas a year.
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