Mongolia is calling upon
China and Russia to re-direct a planned natural-gas pipeline across its
territory as the world’s fastest growing economy seeks to tap the cleaner-burning
fuel.

Altering the route to pass through Mongolia would save 1,000 kilometers (622
miles) of pipeline, Mongolian President Tsakhia Elbegdorj said in interview in
Ulaanbaatar, the nation’s capital. It would also allow Mongolia to switch to
gas heating in the capital, which ranks among the world’s most polluted cities
due to widespread use of coal-fired stoves.

“This is economically beneficial,” Ekbegdorj said. “We are trying to
persuade our two neighbors not to exclude us from that project. The Chinese
side has already agreed to discuss this also the Russian side.”

Russian has discussed a gas pipeline to China, the world’s biggest energy
user, for almost a decade without reaching a final agreement. Mongolia,
squeezed between Russia and China, is struggling to end power shortages that
threaten to hold back the development of the country’s resources industry,
which helped its economy grow 17.3 oercent last year.

Rio Tinto Group (RIO), the biggest foreign investor in Mongolia, is due to
begin importing power from China this year to help run its $7 billion copper
and gold mine in southern Mongolia when it begin. Western Mongolia runs
entirely on electricity imports from Russia, according to a March report by
London-based Oxford Business Group.

OAO Gazprom (GAZP), the world’s biggest gas company, has yet to agree with
state-run China National Petroleum Corp. on the starting price of supplies,
according to Alexander Medvedev, deputy chief executive officer of the
Moscow-based gas producer.

Economic feasibility

Dmitry
Peskov, a spokesman for Russian President Vladimir Putin, said isn’t of the
proposal to run the pipeline via Mongolia.

“We are staunch supporters for energy transportation routes
to be based solely on economic feasibility criteria,” he said a phone
ineterview. Sergei Kupriyanov, a spokesman for Gazprom didn’t reply to a text
message.

Gazprom plans to supply about 30 billion cubic meters a year, less than a
quarter of China’s consumption in 2011, via the so-called Western route. The
pipeline would take gas from Gazprom’s biggest western Siberian fields directly
to western China through a border line squeezed between Kazakhstan and
Mongolia. The plans have been questioned by analysts as China needs most of its
gas for its more populated and industrially developed eastern territory,
meaning the route will span a longer distance to reach customer.

Price issues

While having also considered a second pipeline from eastern Siberia, which
would be shorter, Gazprom has made supplies of liquefied natural gas by tanker
a priority from that region. Any pipeline would only be considered after LNG
export plans have been determined, Medvedev said on June 18.

Gazprom has suspended plans to build a link from eastern Siberia, which
would be shorter than the western route, in favor of producing liquefied
natural gas for shipment by tanker from Pacific ports, according to Chief
Executive Officer Alexey Miller. Gazprom may build an LNG plant in Vladivostok
as early as 2016 or 2017.

Gazprom and China will hold next round of talks on gas supplies this month,
Medvedev said June 24. To reach an accord, Gazprom is discussing advance
payments for fuel supplies, which may lower the price. As well as a potential
role in marketing and distribution in China and LNG shipments, Medvedev said
last month.

Study begins

Mongolia, which voted to elect a new parliament last week, plans to form a
trilateral working group to study changing the gas route, said Elbegdorj.

The Asian nation, which relies on Russia foe almost all of its oil supply,
is also working on introducing technologies that would allow it to produce the
fuel and also gas from coal. Elbegdorj oversaw the signing of accord with
German companies that will help Mongolia produce its own fuel coal reserves, he
said.

China’s gas consumption increased 22 percent to 130.7 billion cubic meters
last year, according to BP Plc (BP/)’s Statistical Review of World Energy.
Mongolia hasn’t been singled out as a consumer of the fuel in the review.

Source: www.bloomberg.com