Mongolia’s Coal Exports Faces a Fuel Supply Reality Check

Fuel shortages are emerging as a binding constraint on Mongolia’s coal exports, putting production targets and fiscal projections at risk.

Coal is the backbone of state revenue, yet persistent disruptions in fuel supply are colliding with plans to lift output.

This squeeze has intensified even as global oil prices softened in 2025, exposing how vulnerable Mongolia remains to external shocks.

The root cause is extreme import dependence. Mongolia sources all of its fuel from abroad, more than 90 percent of it from Russia, mainly via Rosneft. This concentration leaves Ulaanbaatar exposed to Russian domestic priorities, refinery maintenance cycles, and cross border logistics.

Cuts in Russian refining output, driven by both routine maintenance and external pressures, have repeatedly tightened supplies to Mongolia.

Fuel instability directly undermines coal exports, including the target of 100 million tonnesper year. Although the Tavan Tolgoi to Gashuunsukhait railway is operational but not fully used. Diesel trucks transport coal and still handle the critical final stretch into China. New rail links, including the Gashuunsukhait to Chinese Ganqimaodu border port, are unlikely to be fully operational before 2027. Until then, trucking remains essential.

Diesel shortages therefore translate into export bottlenecks, weaker state revenues, and disrupted coal deliveries to China. Mining consumes about 62 percent of Mongolia’s total fuel supply. Planned export growth could push national fuel demand up by a further 20 percent, toward 3 million tonnes a year.

Domestic weaknesses compound the geopolitical risk. Mongolia still lacks a functioning oil refinery, locking in import dependence. Strategic storage is thin, with reserves covering less than 30 days of consumption.

Rail capacity constraints and limited digital monitoring across 21 provinces weaken oversight and slow responses to shortages. Price caps on fuels such as AI 92 keep retail prices artificially low, discouraging importers from holding large inventories and creating artificial shortages when suppliers delay sales or favor industrial buyers.

The government is responding on several fronts. Authorities are rolling out digital monitoring at fuel stations to improve real time tracking. New regulations aim to build a 30 day strategic reserve, backed by concessional financing for importers. Officials are also seeking to diversify supply through China and exploring potential arrangements with Kazakhstan to reduce reliance on Russia.

High level talks with Russian officials reflect fuel security’s elevation to a diplomatic priority, helping stabilize winter supply through managed commitments.

Longer term, the government is pressing ahead with a domestic oil refinery, now reported to be more than 50 percent complete, while pursuing upstream exploration and discussions with PetroChina on alternative crude sources.

This is a structural crisis, not a temporary disruption. Short term fixes can ease volatility, but Mongolia’s energy security ultimately depends on completing its refinery and breaking its dependence on a single supplier. Until then, rapid growth in mining will continue to strain a fragile fuel system and weigh on economic ambitions.