Vietnam Upstream Sector Outlook Brightening

Vietnam Upstream Sector Outlook Brightening
Vietnam's upstream sector outlook is brightening, according to analysts at BMI, a Fitch Solutions company.
Image by frentusha via iStock

Vietnam’s upstream sector outlook is brightening as the government aims to accelerate progress on two substantial offshore projects integral to ambitions for a clean energy transition.

That’s what analysts at BMI, a Fitch Solutions company, stated in a new report sent to Rigzone, which highlighted the Block B-O Mon and Ca Voi Xanh (Blue Whale) projects.

In the report, the analysts outlined that the Block B-O Mon development is targeting gas resources across three offshore blocks in the Malay-Tho Chu Basin, adding that the project is expected to require an investment of approximately $10 billion.

“A 431km pipeline, the longest in Vietnam, will be constructed to transport the gas from the offshore blocks to four gas-fired power plants along the country’s southern coast,” the analysts said in the report.

“The project infrastructure will also include a central processing platform, a floating storage and offloading vessel for associated liquids, a flare tower and several wellhead platforms,” they added.

Since the project’s discovery in the early 2000s, it has faced ongoing issues advancing towards completion, the analysts said in the report.

“This was reflected when Chevron divested entirely from the project in 2015 after failing to reach an agreement on gas pricing with the state-owned operator, PetroVietnam, who has since acquired a controlling share in the project,” the analysts added.

“The new partners also failed to make significant progress due to regulatory hold-ups, delayed development of associated infrastructure, and disputes among project partners,” they continued.

“However, with the contracts for the procurement and construction required on the verge of being awarded, there is greater belief the project will continue to make progress towards a final investment decision (FID) this year,” they went on to state.

Block B-O Mon is targeting first gas by 2026 with a peak production capacity of 6.4 billion cubic meters of natural gas per year, the analysts outlined in the report.

Looking at Ca Voi Xanh (Blue Whale), the analysts noted in the report that this project is touted to be Vietnam’s largest gas project, “estimated to hold approximately 150 billion cubic meters of reserves in block 118 offshore Vietnam”.

“That is three times bigger than the country’s two current largest gas fields combined and would be capable of powering the city of Hanoi for over 20 years,” the analysts said in the report.

“The project with an estimated peak production between 7-9 billion cubic meters of natural gas per year, entails an offshore fixed platform, subsea pipelines for gas and condensate, onshore pipelines, an onshore gas treatment plant and offloading facilities for condensate,” they added.

“Discovered back in 2011, ExxonMobil’s $10 billion flagship development in Vietnam has dawdled towards first gas due to its enormous infrastructure requirements and various regulatory obstacles to overcome,” they continued.

The analysts noted in the report that the project currently does not have an expected operational date, nor a timeframe for making an FID.

“The Minister of Industry and Trade has instructed various ministries, local authorities, PetroVietnam, and Vietnam Electricity (EVN) to speed up the pace of preparatory work for both projects,” the analysts said in the report.

“Neither project has been included in our forecast at present due to the extent of the delays and uncertainty surrounding both developments,” they added.

“However, if the Block B-O Mon project can achieve FID this year, we will re-include it within our forecasts and it will build momentum for Vietnam’s other upstream projects,” they went on to state.

Further Upside

In the report, the BMI analysts said the approval of Vietnam’s Power Development Plan (PDP) VIII provides greater upside risk to the country’s gas projects “due to the integral role of natural gas over the coming decade within Vietnam’s energy mix”.

“The Power Development Plans are the country’s national commitment to forward-looking electricity development by mandating targets for various energy sources to guide the transition from fossil fuels to renewable and low-carbon alternatives,” the analysts stated in the report.

“The latest iteration, PDP VIII, saw the proposed proportion of natural gas in Vietnam’s energy mix by 2030 increase from 14.7 percent to 24.8 percent. Furthermore, the passing of Vietnam’s National Energy Master Plan has set targets of between 5.5 billion cubic meters – 15 billion cubic meters of natural gas production by 2030, which will increase to 10 billion cubic meters – 15 billion cubic meters by 2050,” they added.

The BMI analysts noted in the report that widespread target range is due to the uncertainty “surrounding both of the substantial natural gas ventures, but the master plan cites developing both projects to boost the country’s energy security”.

“This tilts the risk for the completion of both projects to the upside, due to their instrumental role in Vietnam’s future energy plans,” the analysts said in the report.

In addition, the BMI analysts stated in the report that improvements to the regulatory environment offer further upside to Vietnam’s upstream developments.

“Back in November 2022, revisions to the Law on Petroleum (2008) were ratified by the National Assembly of Vietnam by 472 votes out of 475,” they said in the report.

“These changes will come into force from July 1, 2023, and offer greater incentives for oil and gas companies to invest in Vietnam’s upstream sector,” the analysts added.

“The amendments include a reduction in the corporate tax rate from 32 percent to 25 percent, a reduction in the crude oil export tax from 10 percent to five percent and an increase in the cost recovery rate from 70 percent to 80 percent for blocks and fields entitled to special investment incentives,” they continued.

“In addition, the length of petroleum contracts has also been extended from 25 years to 30 years and projects entitled to special investment incentives can attain contracts up to 35 years, up from 30 years,” they went on to state.

The analysts noted in the report that evidence of the impact of these changes is already noticeable.

Vietnam Gas, Renewable Production

According to the Energy Institute’s (EI) first, and the overall 72nd, annual statistical review of world energy, Vietnam produced 7.8 billion cubic meters of natural gas in 2022.

This figure marked an 8.3 percent year on year increase and 0.2 percent of global natural gas production last year, the EI review outlined. The country’s natural gas production has decreased 1.5 percent year on year from 2012 to 2022, the report showed.

Vietnam’s natural gas consumption also stood at 7.8 billion cubic meters in 2022, which was 8.3 percent higher than last year and represented 0.2 percent of global natural gas consumption last year, the EI review highlighted.

The country’s natural gas demand has decreased 1.5 percent year on year from 2012 to 2022, the report revealed.

Vietnam’s renewable energy generation figure stood at 0.33 exajoules in 2022, which marked a 22.4 percent year on year growth, the EI review outlined.

This figure represented 0.8 percent of the 2022 renewable energy generation total, according to the review, which highlighted that Vietnam’s renewable energy generation has grown 76.5 percent year on year from 2012 to 2022.

The country’s renewable energy consumption was also 0.33 exajoules in 2022, which also represented a 22.4 percent year on year increase, the EI review showed. Vietnam’s 2022 renewable energy consumption figure represented 0.7 percent of global renewable energy consumption in 2022, the review highlighted.

Vietnam’s renewable energy consumption has also grown 76.5 percent year on year from 2012 to 2022, the EI review showed.

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