Mongolian oil company buys into North Korean refinery

By bne IntelliNews June 18, 2013

bne -

Mongolian oil trading and processing company HBOil has bought at 20% stake in the operator of North Korea's Sungri refinery. The company's turn to its isolated neighbour comes as Ulaanbataar bids to reduce its reliance on fuel imports from Russia.

HBOil said that it plans to supply crude oil to the state-owned Sungri refinery for processing, then re-import the products to Mongolia. The refinery will start operations in around a year, Bloomberg reports.

"There are certain risks, but other countries do business with North Korea so I am quite optimistic that the project will be successful," HBOil CEO Ulziisaikhan Khudree said in an interview with the newswire.

Mongolia maintains good relations with isolated North Korea. Ulaanbataar offered to help broker a solution between the Koreas after Pyongyang said in March that it was in a state of war with the south. The North Korean ambassador to Mongolia, Hong Gyu, also asked Mongolian President Tsakhiagiin Elbegdorj for food aid at a meeting in April.

Mongolia currently relies on oil products imports from Russia and China. The majority of its fuel - over 98% - comes from Russia. Not only is Mongolian oil production low, but the country lacks processing capacity. With domestic demand for fuel expected to grow strongly in the coming years, as the population grows and economy expands, the need for greater diversity is growing.

At a meeting in December, Mongolia agreed to drop imports of petroleum products from Russian state giant Rosneft by 25% in 2013. The two countries do not currently have a long-term agreement on fuel imports, although Ulaanbataar has asked to open negotiations on the issue.

In May, the first fuel - "Mongol 93" - produced from oil extracted within Mongolia was placed on the market. The crude, from the Tamsagbulag deposit near the Chinese border, is exported to China for processing, with the resulting oil products then re-imported.

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