The ongoing search for fuel alternatives in Mongolia was stepped up after a shortage in the summer of 2011, and energy sector leaders are now exploring alternatives and supplements to buying from Russian state energy firm Rosneft. One possibility is coal-to-liquids (CTL) technology, a good fit given the country’s huge coal reserves. Several companies are in the process of evaluating CTL’s potential in Mongolia, but as of late 2012 none had progressed beyond feasibility studies.

CTL is not a new process – petroleum-poor Nazi Germany used it, and the world’s largest operations are found in South Africa, another politically isolated country unable to rely on imported fuel. CTL provided about 90% of national fuels to Germany in 1944, and about 30% of transportation fuels in today’s South Africa.

Turning coal into liquid fuels can be done directly by dissolving coal in a water-based solvent and heating it to high temperatures, then refining the liquid to remove impurities. An indirect method involves extracting and capturing gaseous energy from coal (a combination of hydrogen and carbon monoxide) and then liquefying that gas using the Fischer-Tropsch Process, a method that is also deployed in gas-to-liquid (GTL) processes. Like CTL however, GTL is an old technology that was shelved until oil prices rose to the point where the method was considered financially competitive.

CUTTING CARBON: In addition to the costs involved, a significant objection to CTL projects is carbon emissions – the process is not clean. However Mongolia may present a unique set of factors, as its current energy profile is more emissions-intensive than the CTL process. Particularly on the outskirts of Ulaanbaatar, tent-dwellers who lack access to the electricity grid burn coal to stay warm in winter, and the resulting pollution makes the city one of the world’s most polluted during those winter months. If the CTL process were able to create fuels to replace that coal, or if CTL processes were able to aid in removing other bottlenecks to accessing electricity and heat, it could help reduce overall carbon emissions now coming from Mongolia’s energy use.

In the current economic climate, countries considering CTL are typically short on petroleum but long on coal resources, and that includes China. Shenhua Energy, a potential partner in Mongolia’s massive Tavan Tolgoi coal project, finished a CTL plant in the Chinese province of Inner Mongolia in 2008 that, once fully expanded, is expected to have a capacity of 1m tonnes per year. The company hired the South African chemicals-and-energy company Sasol to help build it.

UNDER WAY: In Mongolia, there are several existing CTL projects that have been reported to be at various stages of progress, and government officials said in 2012 that production would come within three years. MCS Group and Mongolyn Alt, two of the country’s larger conglomerates, are planning a project in cooperation with SOD Mongol Group, a fuels importer and distributor, for a CTL plant that would produce 420,000 tonnes of synthetic die sel fuel a year. MCS has also been reported to be in partnership with Petrovis, the country’s largest fuel importer and distributor, for an equipment-supply contract with Germany’s Lurgi AG to provide Fischer-Tropsch technology. Energy Resources, which falls under a corporate umbrella also containing a coal mine and a licence to build a railroad to the Chinese border, is working with South Korean steel company Posco Energy on a feasibility study for a CTL plant.

CONCERNS: One concern to investing in CTL is the potential for increased political risk. The National Security Council of Mongolia (NCSM) has interfered with the licencing process for CTL-related projects, urging that permissions be revoked at some points and granted at others, according to a report by the US embassy in Ulaanbaatar. US diplomats consider the council’s involvement in commercial matters to be “highly politicised’’.

“NSCM involvement was justified on the grounds that neither parliament nor the GOM [government of Mongolia] would be able to render appropriate, timely decisions on projects in question, necessitating definitive action by the NCSM in order to address perceived threats to national security,’’ said the embassy report.