Ever wonder what happens when a country almost runs out of gas? Well, Mongolia nearly found out in 2021 and might be heading that way again in 2024. Mongolia relies heavily on Russian fuel to keep its cars running, trucks moving, and jets flying. When you depend on just one supplier for something as crucial as fuel, you're always one bad thing away from a crisis.

In this article, I will dive into Mongolia's fuel situation. I'll examine what happened in 2021 when fuel stations almost ran dry and why 2024 might be an even worse situation. I'll break down the types of fuel Mongolia uses, where it comes from, and why a shortage could mean big trouble for everyone, from taxi drivers to grocery shoppers.

2021 Fuel Shortage¶

Mongolia nearly completely relies on imports from Russia to supply fuel to consumers. Mongolia uses three main fuels: diesel, AI-92, and TS-1 jet fuel. Diesel is primarily used for trucking and defense, while AI-92 is primarily used for passenger vehicles.

Fuel is, in many ways, the lifeblood of every economy. It impacts grocery store prices, vacations, getting to work, and much more. An economy running out of fuel means that the economy basically stops. In 2021, that is nearly exactly what happened in Mongolia, at least in Ulaanbaatar.

In 2021, due to a maintenance shutdown at a refinery in Russia, Mongolia faced a serious shortage of AI-92 fuel, the primary fuel for passenger vehicles. The government stated that there was a 4 day supply of AI-92 in Ulaanbaatar. Most gas stations placed a limit on the purchase of fuel and waiting times stretched over an hour in some locations.

In September 2021, I wrote about this situation on my now-retired site, Mongolian Data Stories. Using data they posted as of July 2021, I calculated fuel reserves of AI-92 based on historic import levels. Here is that chart:

Simply put, if fuel imports ever fell below 100% of previous levels, fuel reserves would hit 0. This was based on data from June 2021. I would have included data up until August, but something odd happened.

In July 2021, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) did not report fuel reserves, and they would not post fuel reserves again until October 2021. MRPAM usually posts fuel reserve data during the first two weeks of each month, and a gap like this was very unusual. At the time I believed that the lack of published statistics was intentional.

Eventually, the government was able to make up for the shortfall by working with the Chinese government to import more than 8,000 tons of AI-92 at the end of September.

Mongolia's Fuel Outlook for 2024¶

In 2024, Mongolia may face a similar issue, but for a different reason.

Ukraine's strategy of striking oil refineries in Russia over the last few months is starting to impact Mongolia. Fuel prices in Russia have risen by 20%, and Russia is expected to impose a fuel export ban starting on August 1st.

Mongolia has previously been exempted from this export ban, and there is no reason to believe this exemption will not continue even with the current state of affairs. Even so, it is important to look at the possible impact of reducing Mongolian fuel imports.

To understand this impact, I created a forecast of four scenarios of Russia reducing exports of fuel to Mongolia:

• 10% reduction
• 15% reduction
• 25% reduction
• 50% reduction

Using import and reserve data from the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) I calculated the estimated monthly consumption of fuel in Mongolia.

A few notes about reserves. Diesel fuel reserves are almost always the highest in Mongolia, followed by AI-92. TS-1 jet fuel reserves have increased significantly since 2022.

The 2021 dip in diesel and AI-92 is very troubling. A similar dip happened in 2020, but with reserves only dipping below 20,000 tons. Since 2021, AI-92 reserves have never dropped below 20,000 tons.

AI-80, not pictured, used to have high reserves but has been imported in very low numbers in recent years. Also not pictured is AI-95, a premium-grade fuel with highly variable import levels in 2024.

Since the beginning of 2022, fuel consumption for all fuel types has been increasing. April and May tend to have lower consumption of automotive fuel. Also note how consumption was not visibly impacted even with a very public shortage of AI-92 fuel in September 2021.

Using the calculated consumption data, I then took the average import level from the past 24 months and the estimated consumption to predict fuel reserves until the end of 2024. First, let's look at the forecast for AI-92.

Mongolia's outlook is reasonably good as long as fuel imports remain above 50% of average imports. If imports fall below this level, the country will likely run out of AI-92 fuel before the end of the year.

The diesel fuel forecast is similar. As long as imports remain above 50% of the average, there should not be a shortage.

With the increased reserves of jet fuel, Mongolia seems much more resilient to supply shocks.

As of the end of June 2024, I calculated an estimated 41 days of AI-92 in reserve in Mongolia. For diesel, 39 days are in reserve, and for jet fuel, 70 days are in reserve.

Mongolia's fuel situation has improved since the crisis of 2021, but significant vulnerabilities remain. The country has managed to increase its fuel reserves, providing a slightly larger buffer against short-term supply disruptions. However, Mongolia still faces considerable risks due to its heavy reliance on Russian imports.

This near-total dependence on a single supplier for such a critical resource leaves the country susceptible to supply shocks. Even with increased reserves, the forecasts show that a significant import reduction could quickly lead to fuel shortages. Any such shortage would seriously affect Mongolia's economy, affecting everything from transportation and logistics to daily commutes and the cost of goods.

While the current situation is more stable than in 2021, the country's fuel supply remains precarious, underscoring the need for continued efforts to enhance energy security.

Mongolia's Own Refinery Remains Distant¶

Mongolia's own refinery, enabled by a soft loan from India, is currently under construction and is expected to reach completion in 2027. Here you can see the construction progress through satellite imagery from July 2020 until July 2024.

Progress on construction seems remarkably slow, and a completion date of 2027 might even be optimistic. You should not bet on Mongolia's energy security, at least for now.