Coal, copper and gold are Mongolia's key exports. Yet the windswept sands of the Gobi desert could soon see another resources boom as China transitions to renewable energy generation.

Elixir Energy, an Australia-listed gas exploration company, is conducting appraisal work on a natural gas reservoir in the Gobi and is also developing a pilot plant that would create green hydrogen for export to China.

"Hydrogen is vital to a net-zero in the next 30-50 years," Elixir Energy CEO Neil Young explained to Mongolia Weekly.

According to Young, high-intensity operations like manufacturing steel or cement require huge amounts of energy beyond the capacity of available renewable resources, meaning most future energy mix forecasts include hydrogen.

As China targets net-zero carbon emission by 2060, Elixir Energy is looking to export Mongolia's green hydrogen energy to customers in northern China, such as major steel operations in the Inner Mongolian city of Baotou.

Young says: "China is the world leader in steel manufacturing, and other than coking coal, hydrogen is the only identified alternative energy source for making steel. That market is enormous.

"We can validate the concept by creating a pilot plant that puts Mongolia's renewable energy through an electrolyser to create green hydrogen and truck it to a steel mill in Baotou, China, that would use hydrogen instead of coking coal."

Elixir Energy believes that green hydrogen created next door to China has significant competitive advantages over other sources, such as Australia, due to the sheer cost of moving hydrogen by sea.

"There's a global industry in moving liquified methane and in theory, you can do the same thing with hydrogen, but economically it’s far more expensive," Young explains. "It takes much colder temperatures to liquefy hydrogen and then you need certain high-quality metals to store it without causing embrittlement and cracking. It's four to five times more costly to move hydrogen by boat than methane.

"Mongolia is proximate to large demand nodes for green hydrogen in China and could supply it by pipeline. That's a huge cost advantage."

The planned 10-megawatt pilot plant would demonstrate the proof of concept, and if successful would underwrite the construction of a cross-border pipeline with possible development funding from private sector players and international financial institutions.

Young is also optimistic about Mongolian ethnic and cultural connections on both sides of the border, as his Mongolian colleagues would engage with the Chinese provincial government and ethnic Mongolians in China.

"The Chinese government has already initiated policies and put money into hydrogen," he says. "The ultimate risk is that the demand for hydrogen is contingent on governments legislating to follow through on their net-zero commitments. If they don't, it's a product that doesn't have a home.

"Let's assume they will because if so, the lowest-cost supplier wins – and for northern China, the lowest cost foreign supplier is Mongolia. Energy industry experts believe China will be a major hydrogen importer and an indigenous producer."

The government of Mongolia is indeed providing a supportive policy environment by pushing to diversify the country’s exports to China. During Prime Minister Oyun-Erdene's recent visit to Beijing, energy exports were a big-ticket item on his talking points with top Chinese officials.

In this sense projects like Elixir Energy's could propel green hydrogen investments into Mongolia while helping China meet its net-zero goals.

BY: Even Levick

Chinese buyers of coal are having trouble securing financing to buy coal from Russia, the world’s third-largest coal exporter, as China’s banks are wary of sanctions themselves after selected Russian banks were expelled from the SWIFT banking system.

“Most banks have stopped issuing letters of credit after the SWIFT sanctions. As almost all contracts are dollar-denominated, we have no other way to make the payment,” a trader dealing in Russian coal and based in China told Reuters on Tuesday.

Despite the fact that Russia’s large-volume energy exports are not directly targeted by sanctions, the other sanctions already in place—especially the SWIFT ban—is making a growing number of traders in all energy commodities reluctant to deal with Russia, all the more so that banks decline to issue letters of credit in U.S. dollars.

Chinese traders are discussing with Russian coal exporters payments in Chinese yuan, for the first time, according to Reuters’ sources.

There is an option for buyers to use the Chinese banking settlement and clearing system, CIPS, at some point in the future.

Right now, even China is wary of dealing with Russian commodities, according to traders.

“Loading of Russian coal has almost stopped at the moment because of uncertainty over payments given the sanctions,” a market participant told Argus.

Even before the SWIFT ban, Chinese large state-owned banks were reportedly moving to restrict financing for Russian commodities purchases after Russia invaded Ukraine last week.

China is the single largest buyer of Russian coal, while Russia is the second-largest coal supplier to China after Indonesia.

Considering that the heating season is nearly at its end, China is not expected to have short-term issues with coal supply, according to Reuters.

The uncertainty over the payments for Russian commodities has already started to reverberate through the global energy markets, sending coal prices to record highs and adding to the supply disruptions from Indonesia, which restricts exports.

By Charles Kennedy for Oilprice.com

February 24 marked the 50th anniversary of Mongolia and Japan’s establishment of diplomatic relations. Beyond the Japan-Mongolia strategic partnership in the political and economic fields, the two governments are dedicating 2022 as a Year of Friendship and Exchanges between the Mongolian and Japanese Children and Youth.

Since Japan’s first encounter with the Mongols in the 13th century, Mongolia and Japan’s bilateral relations were hindered by geopolitical instabilities and expansionist ideologies involving not only Japan but also Russia and China, followed by the years of Cold War spoils.

The Battle of Khalkhiin Gol of 1939 – known as the Nomonkhan Incident in Japan – was the culmination of the geopolitical competition between Japan’s Kwatung Army and Soviet Russia over the eastern territories, including Mongolia’s borders. In the words of Japanese historian Atsushi Kawai, “The defeat of the Battle of Khalkhiin Gol, for the Japanese government, was the turning point from the Northern Expansion Doctrine (Hokushin-ron) to the Southern Expansion Doctrine (Nanshin-ron) then to Pacific war.” The Battle of Khalkhiin Gol, often unheeded in the world history, was indeed a watershed moment in shaping the policies of the Northeast Asian countries.

It would take more than four decades for Mongolia and Japan to normalize diplomatic relations. It wasn’t until 1968 that Mongolia and Japan actively discussed bilateral friendship. The then- chairman of Mongolia’s Peace Committee, D. Adilbish, attended the opening ceremony of the Japan-Mongolia Friendship Association and a conversation took place that opened the door for future diplomatic relations. Later, in 1970, Mongolian People’s Republic (MPR) Prime Minister Tsedenbal Yumjaa reiterated Mongolia’s readiness to normalize relations with Japan.

On February 24, 1972, Mongolian Ambassador to Moscow B. Luvsanchultem, and Japanese Ambassador to Moscow Kinya Niizeki signed diplomatic accords to establish official diplomatic relations between the MPR (the predecessor state to today’s Mongolia) and Japan. Between 1972-1973, Kinya Niizeki was appointed as the first Japanese ambassador to Ulaanbaatar.

Since the establishment of diplomatic relations, Japan has made itself Mongolia’s important democratic supporter and financial donor, becoming Mongolia’s first “third neighbor” in Asia.

Following the establishment of diplomatic relations, the Political Bureau of the Mongolian government issued decree No.161, “Developing Mongolia and Japan’s economic cooperation.” Within that framework, the Japanese government provided major financial assistance and investment in Mongolia’s metallurgy, energy, cashmere, and mining sectors. For example, in 1977, “Japan granted aid for the construction of the [state-owned] Gobi Cashmere Factory, which was privatized in 2007.” Japan’s support ultimately jump-started the Mongolian cashmere sector to a larger market.

In 1991, Prime Minister of Japan Kaifu Toshiki visited Mongolia, where he witnessed a society in a transitional shock following the 1990 Democratic Revolution. The Kaifu government offered the first development assistance through cash grants for Mongolia’s economic recovery. In a joint effort, between 1991-1993, Mongolia’s Prime Minister Byambasuren Dash secured $320 million in economic assistance from Japan. Moreover, during the G-7 Summit in London in 1991, Kaifu urged international assistance for Mongolia, securing donor countries to establish Developed Countries’ Assistance Programs.

Japan is one of the few countries that contributed to Mongolia’s development not only financially but by contributing to tangible assets. In 1993, Japan provided technical assistance in railway transportation rehabilitation projects, the rehabilitation of a thermal power plant in Ulaanbaatar, and Baganuur coal mine. By 1996, Mongolia and Japan set a goal to build a comprehensive partnership.

While Japan’s assistance strengthened the two countries’’ political and economic relations, cultural and educational exchange enhanced people-to-people relations and became the bridge for further civil collaborations. Sumo wrestling has become a new mechanism for cultural ties. Oka Hiroki, professor of Asian history at the Center for Northeast Asian Studies, wrote, “For some reason, the Mongols always seem to catch the Japanese by surprise. The 13th-century Mongol invasion materialized out of thin air, as did the more recent ‘invasion’ of talented sumo wrestlers from Mongolia.”

Furthermore, Japan has become a favorable destination for Mongolian students, scholars, and intellectuals to study abroad. As of 2022, there are around 4,500 Mongolian students who have studied in Japan’s leading universities, such as Tokyo University and Kyoto University. According to the Embassy of Japan in Mongolia, Japan Overseas Cooperation Volunteers (JOCV), Official Development Assistance (ODA), Mongolian-Japanese Economic Partnership Agreement (EPA), and other educational and cultural organizations all played a role in strengthening Mongolia and Japan’s friendly relations.

In 2010, Japan became Mongolia’s strategic partner and signed the Economic Partnership Agreement (EPA). The EPA aimed to tackle legal and technical aspects of the trade, tax, customs, investment, intellectual property, and cyber trade as such.

In 2021, one of the major Japanese investments in Mongolia proved to be fruitful – Mongolia’s second international airport, located in Khoshig Valley, which required $493 million in investment, is now fully operational.

From a diplomatic relations standpoint, Japan-Mongolia relations advanced during the second Abe administration in Japan (2012-2020). In those eight years, Mongolia-Japan strategic partnership included military and defense elements. Since 2012, Japan’s Capacity Building Assistance to Mongolia has included training for military medical professionals during disaster relief. For example, five medical officers of the Mongolian Army received training on disaster medicine. Moreover, since 2014, the Capacity Building Assistance to Mongolia program has included training in civil engineering, land surveying methods, and techniques. In turn, Mongolia assisted Japan during the Great Hanshin earthquake and the Fukushima crisis. Mongolia donated $1 million and sent rescue supplies to Miyagi and Iwate prefectures for reconstruction in 2011.

For Japan and Mongolia’s 50th anniversary, the president of Mongolia, Khurelsukh Ukhnaa, received the Japanese ambassador to Mongolia, Kobayashi Hiroyuki. Both sides agreed on designating 2022 as the “Mongolian-Japanese Youth Friendship and Exchange Year.” Celebratory events such as high-level visits and exchanges of 50 young leaders will be held throughout 2022. The youth from both countries bear the responsibility to bring the partnership to a new level in the next 50 years.

The commemoration of the 50th anniversary highlights the two countries’ consistent and friendly relations. On February 24, the foreign ministry of Mongolia organized a symposium titled “The strengthening of Mongolia-Japan strategic partnership in business and economic development” and “Mongolia-Japan Strategic Partners-50, Years,” a photo exhibit that sheds light on the two countries’ bilateral relations. Mongolia’s first president, Ochirbat Punsalmaa, former prime minister Sodnom Dumaa, and former foreign minister Gombosuren Tserenpil were special guests to attend the diplomatic ceremony.

Since his appointment as a Japanese ambassador to Mongolia, Kobayashi Hiroyuki has been supportive of intellectual activities that were initiated by his predecessor, Takenori Shimizu. For example, the Mongolian Seminars, organized by Chuo University, play a role in continuing the Japan-Mongolia relations and its narrative. Moreover, in August, he paid a special visit to the memorials of the Japanese soldiers who did not make it home from the ruins of World War II. Recognizing both historical and contemporary developments are essential in continuing and strengthening the Japan-Mongolia strategic partnership.

The 50th anniversary of Japan-Mongolia diplomatic relations bestows an opportunity to reinvigorate the current strategic partnership between the two countries and its peoples. Mongolian Secretary of State Ankhbayar Nyamdorj stated in his opening remarks at the 50th anniversary event, “Mongolia-Japan strategic partnership not only includes strengthening bilateral relations but also will contribute to the peace and security of the region and its development.” As the Asia-Pacific region continues to be the center of global trade and economic hubs, both Mongolia and Japan will need to embrace and unlock potential for further cooperation.

GUEST AUTHOR

Bolor Lkhaajav

Bolor Lkhaajav is a researcher specializing in Mongolia, China, Russia, Japan, East Asia, and the Americas. She holds an M.A. in Asia-Pacific Studies from the University of San Francisco.

GUEST AUTHOR

Bolorerdene Bazarsuren

Bolorerdene Bazarsuren received an M.A. in International Relations from the University of Tokyo. She is the editor-in-chief of Trends.mn, an online magazine based in Ulaanbaatar, Mongolia.

In February, the gold purchase of the Bank of Mongolia (BoM) was 795.3 kg, raising the BoM’s total precious metal purchase of 2022 to 2.4 tons. The figure shows an increase of 464.6 kg as compared with the same period of the previous year.

In February, the BoM branches in Darkhan-Uul and Bayankhongor aimags bought 15.7 kg and 59.2 kg of precious metals respectively.

The average price of BoM’s purchase of 1 gram of gold was MNT 170,600 last month.

The Ministry of Health reported today that 255 СOVID-19 cases were recorded in the last 24 hours nationwide. In detail, 127 cases were reported in Ulaanbaatar city, with 128 cases in 21 provinces.

It was also reported that one COVID-19 related death has been reported in the past 24 hours, raising the country’s death toll to 2,235. Currently, there are 2,235 people are receiving hospital treatment for COVID-19 whilst 7,021 people with mild symptoms are being treated at home. Of the total patients currently undergoing treatment at hospitals, there are 575 patients in mild, 1,435 in serious, 195 in critical, and 31 in very critical conditions.

As of today, the coverage of 1st dose has reached 69.8 percent (2,271,676), 2nd dose – 66.8 percent (2,173,057), and 3rd dose or a booster shot of COVID-19 vaccines – 31.0 percent (1,024,816) of the total population. In addition, 105,019 people (3.2 percent) have received the 4th vaccine dose.

Construction work to connect border checkpoints by auto roads in the framework of the Government’s ‘New Revival Policy’ has commenced.

Minister of Road and Transport Development L.Khaltar became acquainted with the progress of the ADB-funded project ‘Western regional road corridor investment programmе-2’. As part of the project, a 25.8 km paved road is being built in route of Tsagaannuur- Ulaanbaishint in Bayan-Ulgii aimag.

The construction work, which is scheduled to be completed by August 30 this year, is currently at 60-70 percent except for the pavement foundations.

“With the commissioning of the road, the amount of freight to be imported to Mongolia will increase. Aside from this, it will create an opportunity to conduct international transport between Russia and China through the territory of Mongolia. As traffic intensifies, there will be a lot of service points along the road, creating more jobs,” highlighted Minister L.Khaltar.

According to the Bank of Mongolia’s forecast in December 2021, the Mongolian economy is expected to grow by 5.1 percent this year.

The central bank projected the economy to grow by 4.5 percent in 2021. However, the actual performance was 1.4 percent. It is explained that the unpredictable and sudden “shocks” in the internal and external environment have led to assumption’s deviation from the reality. For example, the scale and duration of China's policies have led to the export disruptions and the rise of transportation costs and inflation.

Spread of the pandemic and the emergence of new variants are still posing challenges.

Although supply-side inflation is on the rise, the central bank emphasizes that inflation is likely to be driven by demand by the end of the year as the economy recovers from the pandemic. Therefore, in January, the decision was made to increase the policy rate by 0.5 percentage points, said Governor of the Bank of Mongolia B.Lhagvasuren.

Iron ore prices climbed on Monday over concerns that a prolonged armed conflict between Russia and Ukraine could curb global supply.

The most-traded May iron ore contract on China’s Dalian Commodity Exchange ended daytime trading 2.7% higher at 705.50 yuan ($111.82) a tonne.

On the Singapore Exchange, iron ore’s most-active April contract rose as much as 3.3% to $141.25 a tonne.

According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $138.09 a tonne during morning trading, up 2.6% compared to Friday’s closing.

iron ore price

“Any prolonged military campaign will severely impact annual iron ore exports totaling almost 70 million tonnes from Russia and Ukraine, eventually tightening the global balance,” said Atilla Widnell, managing director at Navigate Commodities in Singapore.

While Russia and Ukraine are not major suppliers of iron ore to China, the two countries now at war usually export the steelmaking ingredient to other European countries.

Russia’s top steelmakers have seen exports drop since the incursion began, while nickel shipments have also been affected, people with knowledge of the matter told Bloomberg.

Russia’s metal shipments are falling and buyers are “hesitant in the context of sanction uncertainty and escalation,” Goldman Sachs analysts said in a note.

Ukrainian iron-ore miner Ferrexpo Plc said on Friday the availability of rail capacity to ship its pellets to customers in Europe was unclear. The London-listed company, which operates three mines in central Ukraine, said it’s delaying the publication of its full-year results.

As this month’s Beijing Winter Olympics has ended, rebounding Chinese blast furnace capacity utilization rates, which should result in the quicker drawdown of iron ore inventories at Chinese ports, are also expected to offer further price support, Widnell said.

Support for iron ore remained intact even as China’s state planner kept a close eye on market activities following the recent strong price rally.

The National Development and Reform Commission, which has warned against iron ore hoarding, market speculation and disinformation, on Monday reminded traders of regulators’ increased supervision of both spot and futures markets to ensure stable prices.

(With files from Reuters and Bloomberg)

On February 28, Deputy Prime Minister S.Amarsaikhan and Chairman of the Management Committee of Gazprom Company Alexey Miller signed an agreement on launching blueprint development and engineering exploration works for the construction project on the natural gas pipeline connecting Russia and China through the territory of Mongolia.

According to the agreement, certain works such as issuing employment permissions and exempting Russian subcontractors from workplace payments will be carried out in April, while corresponding bills and draft resolutions will be completed by early 2023.

‘Gazoprovod Soyuz Vostok’ LLC and ‘Erdenes Mongol’ LLC will be in charge of jointly carrying out engineering-geodesy, engineering-ecology, and archeological exploration works, which will be completed by November 30, 2022. As for the matter concerning the issuance of land for facilities for the natural gas pipeline, the Government of Mongolia is expected to have it resolved by December this year.