
During the last few weeks, Mongolia’s Jade Gas has made a number of significant announcements, together these announcements seem to indicate that the monetisation of the project or the company is getting closer.
We’ve have just seen the major shareholder UB Metan extend the duration of the MOU it has with Jade, as well as expand the agreement to specifically cover production of LNG from their gas fields into UBM’s LNG retailing network. This definitely puts Jades TTCBM project as the lead project in the country to be the solution for the switch to cleaner energy in the country.
Interestingly, Jade also announced an MOU with another of its partners, the Hong Kong listed, super successful and cashed up diversified mining conglomerate Mongolian Mining Corporation LLC (HKEX:975). That MOU is also centred on the use of Jade’s CBM at Tavan Tolgoi as an Liquified Natural Gas (LNG) feedstock for MMC’s wholly owned truck fleet that they use to send their coal into China. In fact Jade will potentially supply two products: LNG for heavy vehicles, and gas for electricity generation.

So we see two energy hungry giants from the South Gobi both positioning to secure the emerging CBM supply. Obviously the metrics of the CBM as a fuel source are impressive. We also are seeing significant support from the Government for these companies when they reduce their carbon intensity – especially important we think for MMC which as a listed entity on HKSE, needs to report these numbers.
We studied the diesel supply situation in the South Gobi – it currently sells for about 4000 MNT per litre. If there are truck operators already using imported LNG, we expect it must be competitive with diesel – which is significant on a $ per GJ basis. (Table 1).
Table 1. Fuel Prices of UBMs LNG vs Diesel

Based on some assumptions about fuel usage, for a fleet of trucks the size of the MMC fleet we estimate the revenue potential for Jade in the region of ~US$30m per year if it was priced about the same as diesel (on an energy equivalent basis). If we assume that Jade can also capture some of the rest of the market – up to 11,000 or 12,000 trucks in total, the revenue potential is enormous. (Table 2). As for volume consumed, we noted in the MMC half year report that MMC’s trucks made 120,000 trips into China and back in the first half – clearly this consumes a lot of diesel.
If Jade can develop and produce its own CBM at anywhere like standard global production costs (somewhere between $5 and $10/GJ – we used $7.50 in this example) and they can sustain and manage low production costs, which is likely seeing as the project will have little or no transport costs – as the field is right on top of the demand centre – then we think this CBM to LNG space for Jade can be a company maker.
Table 2. Annual Margin Estimate selling only into diesel truck displacement assuming $7.5/GJ product cost for Jade Gas

Based on these assumptions, if Jade can capture their partner MMC’s volume in the short term, and then expand to 1000 or 2000 trucks (still smallish penetration assumption), we estimate that Jade could be making a gross margin of $45-$90m per annum, even in the early stages of the development.
It appears that MMC and UBM may be strategising to either take a leading role in partnership with Jade or potentially consider acquiring the gas resource directly. Regardless of their approach, Jade stands in a favourable position to cultivate the field and reduce the significant dependence on diesel imports from Russia.
Disclaimer: The information provided herein is for general informational purposes only and should not be considered as financial advice. The writer of this content holds shares in the mentioned company and the views expressed are solely based on personal interpretations of previous announcements made by the company. Investing in stocks and shares carries a risk of financial loss and past performance is not a reliable indicator of future performance. It is important for investors to conduct their own research and consider seeking advice from an independent financial advisor before making any investment decisions. The writer bears no responsibility for any losses or damages resulting from decisions made based on the information provided. Readers are advised to draw their own conclusions and make investment decisions with caution.