Frontier Seismic Survey Raises Prospect For Increased Fuel Security

BMI View : A 2-D seismic survey planned across two frontier blocks in western Mongolia could support an increase in domestic oil production if exploration proves successful . Should the planned construction of the country's first refinery occur, a boost in domestic production would contribute to the country's efforts to reduce its heavy and pricey dependence on imports of R ussian refined products .

Petro Matad has awarded the Mongolian geophysical contracting company Khet Co., Ltd the contract for the acquisition of 200km of 2D seismic on Blocks IV and V, in w estern Mongolia. The seismic survey is planned to commence in October 2013 and is expected to take around six weeks to complete.

The seismic shoot is designed to provide detailed coverage of two prospect ive areas previously identified as promising by earlier seismic work. Pe tro Matad hopes that the survey will confirm at least two drillable prospects for a campaign planned in 2014 .

Booming Economic Growth
Mongolia Real GDP Growth (% change year-on-year), 2010-2018

BMI View : A 2-D seismic survey planned across two frontier blocks in western Mongolia could support an increase in domestic oil production if exploration proves successful . Should the planned construction of the country's first refinery occur, a boost in domestic production would contribute to the country's efforts to reduce its heavy and pricey dependence on imports of R ussian refined products .

Petro Matad has awarded the Mongolian geophysical contracting company Khet Co., Ltd the contract for the acquisition of 200km of 2D seismic on Blocks IV and V, in w estern Mongolia. The seismic survey is planned to commence in October 2013 and is expected to take around six weeks to complete.

The seismic shoot is designed to provide detailed coverage of two prospect ive areas previously identified as promising by earlier seismic work. Pe tro Matad hopes that the survey will confirm at least two drillable prospects for a campaign planned in 2014 .

Promising Frontier Exploration Opportunity

To date, there has been no drilling in similar basins in Mongolia. Drilling has been contained to the s outh and the w est of the country.

The company is optimistic as the potential of the two Western Mongolian blocks. Commentin g on the seismic programme, Petro Matad's ex ploration d irector Ridva n Karpuz highlighted that the geology of w estern Mongolia is similar to that of the Junggar and Turpan basins in the Xinjiang province of China, along the s outh-western border with Mongolia. According to previous work, the two Chinese basins have been identified as structura l and depositional analogues to the two western Mongolian blocks.

This could be promising for this frontier play, as both t he Junggar and Turpan basins currently produce sizable amounts of hydrocarbons . For example the Junggar Basin produced 221,507 barrels per day of oil (b/d) in 2012 and recent discoveries in the area indicate the high pot ential of gas in the Jung gar Basin. In addition, the basin is believed to hold sizeable shale oil resources , some 11.9bn barrels (bbl) according to the US Energy Information Administration (EIA) . In an assessment , the EIA deemed the basin as having the 'best shale geology' in China, due to the 'favourably simple' structural geology of the basin compared to other shale formations in the country.

B ased on previous in-house basin modelling work, Petro Matad suggests the presence of a petroleum system for Blocks IV and V, called the Syn -Rift petroleum system which passes within the two blocks . The company estimated that the Syn -Rift petroleum system itself could hold some 1.7bn bbl of oil in place. Postulate

Reducing Dependence On Imports From Russia

Should a discovery be made, this could boost Mongolia's fuel security. Mongolia's economy had been experiencing considerable economic growth in the past years: the country's real GDP growth reached 12.3% in 2012, and our country risk team forecasts the economy will continue to grow strongly in the medium-term. In addition, the growth of the mining industry and an increasing population in Mongolia is expected to further fuel an increase in demand for refined products.

Booming Economic Growth
Mongolia Real GDP Growth (% change year-on-year), 2010-2018

Total consumption in 2012 was 23,300b/d according to EIA data, increasing at an annual average of 5% since 2002. Mongolian 2012 production only reached 9,900b/d. However, the country currently lacks any domestic refining capacity. As a result, crude produced domestically is exported, largely to China, and refined products are imported at a higher price. Mongolia meets the majority of its fuel requirement through imports from the following countries: Russia (90%), China (4%) and Kazakhstan (4%).

Rising Consumption Needs
Mongolia Oil Production and Consumption (000'b/d), 2000-2012

Mongolia has been pursuing several avenues in trying to reduc e its dependence on costly Russian refined products imports . For example:

  • In January 2013, Toyo Engineering Corp reached a final investment decision to build Mongolia's first refinery, with completion targeted for 2015. The plant will have the capacity to produce more than 40,000b/d. At that level, output would meet the entirety of domestic demand ( see, 'Moving Toward Domestic Refining', December 5 2011).

  • In March 2013, the Mongolian government announced that the country has made an agreement with PetroChina to exchange crude oil produced in Mongolia with refined products, in order to reduce dependence on imports of fuel of Russia. At the time, it was stated that imports would begin shortly and would reach 4,880b/d by September.

  • In June 2013, Mongolia-based coal and oil trader HBOil decided to extend its exploration and production operations into North Korea. Producing oil and importing fuel products from North Korea would further diversify its sources of fuels ( see, 'HBOil Takes North Korean Gamble', June 3 2013).

Increasing domes tic production is therefore only one of the ways in which Mongolia is trying to diversify its supply sources. The seismic shoot in the two frontier w e stern Mongolian blocks raises the prospects of increasing Mongolia's domestic production . Further upside to Mongolia's oil sector stems from other exploratory efforts in the country, such as Wolf 's ongoing p etroleum 2D seismic survey at its Sukhbaatar block , scheduled for completion in September 2013. Should the planned construction of the refinery in Mongolia come online , i ncreasing the country's domestic resource base and production will be a crucial component in reducing import dependence and the impact of high import prices.

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Sector: Oil & Gas
Geography: Mongolia, Mongolia
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