Stop alarming Foreign investments --Shale gas on slow track in Mongolia
--No clear regulatory agency for Mongolia shale gas projects
--Government unlikely to renegotiate Oyu Tolgoi, attorney says
BEIJING--The development of the shale gas industry in resource-rich Mongolia has been hampered by the lack of a clear regulatory jurisdiction over the sector, a Ulan Bator-based senior attorney with global law firm Hogan Lovells said Friday.
Mongolia has seen a recent mining boom led by coal, gold and copper, but shale gas--a natural gas trapped in a type of rock called shale--has yet to fully emerge as a viable investment, although deposits have been identified in the landlocked country.
Apart from the global economic slowdown that has weighed on mining commodities, the lack of policy attention to the sector in Ulan Bator has left shale gas development on the "slow track," Michael Aldrich, a Hogan Lovells partner who previously advised corporate clients on the country's landmark Tavan Tolgoi coal project, told Dow Jones Newswires.
"The regulatory regime has not identified the authority for approving shale gas project. Prior laws envisaged a separation of petroleum and mineral resources, but shale gas falls between the cracks. It's not something that's been addressed very clearly thus far," he said, adding that shale gas has "extraordinary" potential.
Shale gas would require deep drilling and massive amounts of water for underground extraction, which would pose additional investment challenges as known deposits are in the Gobi desert.
Exploitation of shale gas and shale oil in the U.S., which pioneered the technology that allows huge amounts of hydrocarbons to be extracted, has transformed the energy trade profile of North America.
Mongolia's previous government had declared its intention to pursue shale gas development, but the recently-elected coalition has been weighed down by a weak global economy, depressed resources prices and a fragile balance of power at home.
The run-up to the elections triggered a groundswell of populist sentiment that Mongolia's resources boom may overly favor foreign mining companies, a development that has been blamed for the collapse of a deal to sell Mongolian coal miner SouthGobi Resources Ltd. [1878.HK] to China's state-owned metal producer, Aluminum Corp. of China Ltd. ACH -1.71% .
"The members of the Democratic Party are divided in this ongoing debate as well," Mr. Aldrich said. "It may appear that the government is less receptive to foreign investment, but for most in the cabinet, it's out of the question that there's any turning away from foreign capital and knowhow."
While some factions in the government have kept up the pressure to renegotiate a deal with global mining giant Rio Tinto PLC RIO -0.37% on the country's crown jewel, the copper-gold Oyu Tolgoi mining project, Mr. Aldrich said the push isn't likely to succeed in cutting Rio Tinto's interest in the project to 49% from 66% now.
"I don't think the government is that intent on [renegotiating the Oyu Tolgoi agreement]," he said. "Elements of the government keep bringing it up, but others wish to stop alarming the foreign investment with this controversy."