It has been nearly a decade since Mongolia has become an oil exporting country. Most of the oil exploration has been performed in Central and Eastern regions of the country. After the discovery of Tamsag basin when the Chinese companies Petro China Dachin Tamsag and Donshen spent USD1.5 billion in exploring and developing the reserve the companies expressed their disappointment of the volume of the reserve. However, since 1996 these companies exported 800,000 barrels of oil through roadway causing a significant amount of damage in the local environment. Last year, the court ruled that Petro Dachin Tamsag is a subject to a penalty of MNT1.3 billion which is approximately USD1 million at the time.
Also, last year Mongolian government have entered into a swap agreement with the Chinese side to import 10,000 tons of petroleum every month. It has been a first step to try to decrease the complete dependency from Russia. This is the first agreement by Chinese side to export petroleum after China became a net oil importer since 1993. Mongolia imports 1.1 million tons of petroleum annually and expected to reach 1.3 million by 2016. The growing oil demand and the rational need of decreasing oil dependency from Russia, it was logical that Mongolia would invest in building oil refineries and coal liquefaction plants.
Mongolian authorities have issued 1292 operation and 1763 exploration licenses in the mining industry. It comprises 9.7% of overall privately permitted fields. There are 16 companies operating in 20 fields under Profit Sharing Agreement with the government. Mongolia produced 13.9 million barrel or 1.8 million ton of oil and exported 13.3 million barrel.
However, in opposition to this Chinese oil producers have proposed to build oil pipes from Mongolia to China. It has been said that the main reason is the increasing oil production in Tamsag basin and also logistic costs. The authorities are yet to respond to the request and thorough research is being performed by the Petroleum Authority of Mongolia.