Page 7 - AsianOil Week 17 2022

AsianOil COMMENTARY AsianOil

further co-ordinated efforts on Soyuz-Vostok the Erdenet copper mine, Mongolia would be
progress. bearing heavy, possibly unjustified cost bur-
The Power of Siberia 2, and by extension the dens, but make just enough for the project
Soyuz-Vostok pipeline, has a capacity compa- to break even, while not being able to secure
rable to that of the suspended Nord Stream 2 long-term benefits such as scalable discounted
project of about 50bn cubic metres a year and is gas supplies. Accordingly, negotiating on the
well-positioned to bring the Yamal peninsula’s transit fees, gas prices and project funding in
production, which was originally destined for an information asymmetry will be detrimental
European markets, to China, thus completing to Ulaanbaatar’s interests.
the unification of Russia’s gas transmission Moreover, there is little reason to believe
network. that Mongolia will be able to shield itself from
the political and geo-technical risks of Soyuz-
Tough bargaining Vostok, where a suspension of gas transmission
In spite of having no expertise in developing could delay cash-flows, devalue Ulaanbaatar’s
natural gas pipelines, until now Ulaanbaatar has investment and further indebt it. Political risks
not engaged any third-party advisors in evaluat- in this case do exist, not only from the Rus-
ing the technical and financial feasibility of the sian side, which continues to block Mongolia’s Gazprom appears
Soyuz-Vostok project. At the same time, Mon- attempts to build indigenous hydropower gen-
golia’s political leadership and Gazprom do not eration capacity, but also from China, which to have locked
seem to be interested in involving a third party in has a habit of closing borders and applying dip- in Erdenes
the project, which could arguably increase trans- lomatic pressure on Mongolia every time the
parency, provide additional capital and allow for Dalai Lama visits at the invitation of Mongolian Mongol for a
greater scrutiny of the financial, engineering and Buddhists.
environmental aspects. With the energy exports to the Western coun- pre-determined
As a result, Gazprom appears to have locked tries set to decrease, Putin’s urge to accelerate
in Erdenes Mongol for a pre-determined set of infrastructure connections to Eastern markets set of technical
technical and financial parameters, which will gives China a bargaining chip for a discounted and financial
allow it to shift the unwarranted amount of total pipeline gas supply deal. This new geopolitical
project cost onto the Soyuz-Vostok while leav- reality will put pressure on Gazprom to squeeze parameters.
ing itself, or the Power of Siberia 2 pipeline, the the most it can get out of the Soyuz-Vostok pipe-
lion’s share of the net profits. line, and leave Mongolia at a disadvantage.
Without a proper evaluation of the project Under the current circumstances, the risks of
and third-party involvement, Mongolia is agreeing to a deal with Gazprom entail increased
likely to take on a sizable loan from Russia, dependency of Mongolia on both Russia and
possibly on predatory terms, to finance its China without meaningful economic benefits
portion of the costs, while agreeing to pay it off while further exposing itself to political risks
from the gas transit fees. In this scenario, iron- and potential pressure on sovereign domestic
ically similar to the Soviet-era development of matters from its neighbours.™

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