Mongolian Oil Company HBOil Buys into North Korean Refinery

Landee Industry News 26 June 2013.

Mongolian oil trading and processing company, HBOil, has bought a 20% stake in North Korea's Sungri refinery. HBOil said that it plans to supply crude oil to the state-owned Sungri refinery for processing and then re-import the products to Mongolia.

The refinery will start operations in around a year. "There are certain risks, but other countries do business with North Korea so we are quite optimistic that the project will be successful”, HBOil CEO Ulziisaikhan Khudree said in an interview.

Mongolia maintains good relations with isolated North Korea. Ulaanbaatar 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. The company's turn to its isolated neighbour comes as Ulaanbaatar bids to reduce its reliance on fuel imports from Russia.

Mongolia currently relies on oil products imports from Russia and China. Almost over 98% of its fuel 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. In May, the first fuel produced from oil extracted within Mongolia, Mongol 93, was placed on the market. The crude was exported to China for processing, and the resulting oil products were then re-imported.