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to produce them. Modern coal chemical products, such as those listed above are also the commodity products from traditional petrochemicals, with the same product quality and downstream usage. Bank of China securities estimated that when the oil price is above $60/barrel, modern coal chemicals are feasible from a project economics point of view. On July 18, 2012, WTI oil climbed above $90 per barrel for the first time since May, which provides good opportunities for the development of a cost competitive coal chemical industry, and to realize the supplement and partial substitute for oil resources. Reliable – Coal-to-chemicals technology is seeing a large market growth, especially in China, indicating confidence in the technology. The quickly growing Chinese economy has given rise to a number of coal-to-chemical facilities. According to the US National Energy Technology Laboratory, there are currently 34 such facilities in operation with six slated to come on line and many more planned for the near future. OthER APPLICAtIONS Coal to oil: Some pilot projects (including those of China Shenhua) are already able to run on a large scale. According to the China International Capital Corporation Limited (CICC), coal-to-oil conversion is more likely to be just a technologically strategic move, and investors should not have high expectations for massive production in the near term. Coal to natural gas: coal-to-natural gas will likely be an important alternative to LPG and conventional natural gas because of the advantages. 1) Higher energy conversion efficiency of coal-gas; 2) water consumption is relatively small in the coal chemical industry. The production of chemicals from coal through gasification has already carved out a share of the chemicals market. One important example is the production of methanol, of which 9% worldwide is produced by gasification (Gasification, Higman C., Van der Burgt M., 2003). thREE DRIvERS FOR NEW COAL ChEMICAL INDUStRY DEvELOPMENt IN MONGOLIA 1) Abundant coal resources are providing low price coal feed Due to insufficient oil and natural gas, coal is and will remain the main energy resource for Mongolia. According to the Ministry of Fuel and Energy Mongolia, the country has abundant coal reserves, over 150 billion tons, (the world's third largest) and can produce cost competitive coal by large-scale, open-pit mining. 2) Surging demand for energy and chemical products Forced to import virtually all of its refined oil products and frequently facing chronic fuel shortages, Mongolia plans to start building an oil refinery early next year in an effort to meet domestic demand and reduce dependence on neighbouring Russia for energy supplies. In the meantime, Mongolia faces growing demand for chemical products imported from China and Russia like ammonia-based NOVEMBER 2012 Figure 3. Preliminary estimates of production volumes from the major mines in Southern Mongolia Mine Mineral Tavan Tolgoi Uhaahudag Baruun Naran Tsaggan Tolgoi Nariin Sukahit Ovoot Tolgoi Sumber Shivee Ovoo Coal Coal Coal Coal Coal Coal Coal Coal Life Production Employment (years) ('000 tons/year) estimate 200+ 40 20 20 40 50 50 200+ 15,000 10,000 6,000 2,000 12,000 5,000 5,000 14,000 1,500 1,000 500 150 150 400 400 600 Start date estimate 2012 2009 2012 2015 2003 2008 2015 2015 Source: World Bank Report – Southern Mongolia Infrastructure Strategy fertilizers and methanol, for direct use and as a building block in other chemical syntheses. 3) Government Policy and Support According to the Fuel Policy and Regulation Department of the Ministry of Fuel and Energy Mongolia, the government coal policy is "aimed to provide national security and sustainable development of Mongolia by introducing economic and environmental friendly clean coal technology and production such as coal liquefaction, coal gasification and coal-chemical industry development." The Mongolian government has been intending to limit fossil fuel imports for quite some time and instead plan to increasingly utilize its abundant domestic coal deposits. As a primary measure, the Mongolian government intends to build a coal-to-liquids plant in Mongolia to produce synthetic fuels from coal. In April 2012, the Mongolian government signed a Memorandum of Understanding (MOU) with Germany's ThyssenKrupp Uhde to implement a Coal-to-Liquid plant (CTL). The project's total cost is estimated to be EUR 1.7Bn (US $2.1Bn), and the plant's annual production capacity will be 1 million tonnes of gasoline and diesel and 275,000 tonnes of liquid gas using 6 million tonnes of brown coal, according to Eurasia Capital. ChALLENGES FOR DEvELOPMENt 1) Transportation: Carrying more than 90% of freight, the Mongolian railway system is 1,815 km long, of which 1,100 km are the main lines linking Russia to China. With the additional new prospect of transporting significant mining output to China, there is some concern that the existing single track railway, linking Russia to China through Ulaanbaatar, might not have sufficient capacity. The Government of Mongolia has been seeking to build a strong logistics network in order to enhance the country's competitiveness and has been taking steps to enhance trade facilitation. 2) Technologically Intensive: Most cutting-edge chemical production technologies are more complex than that found in the traditional petrochemical industry. New, coal chemical technolwww.resourceworld.com 51

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