News that Thailand’s PTT was indefinitely postponing its planned US$20 billion, 400 kb/d refinery in petrochemical complex in central Vietnam is another setback in the country’s refining ambitions, aimed at reducing its dependence on imported oil products and tipping it to become a net exporter.
Vietnam has been a reliable ‘sink’ for oil products in South-East Asia, regularly absorbing surplus product from refineries in Singapore, Malaysia and Thailand for decades. Vietnam’s appetite for imports is a fixed variable that most export-oriented refining expansions in the region is based on. Even when the Dung Quat refinery opened in 2009, imports still flowed as the country developed economically. This is good news for the region’s refiners, as it makes Vietnam, along with Indonesia, a reliable buyer. On the flipside, it is something that Vietnam wants to change.
The grand plan for Vietnam’s refining ambitions is simple: three refineries, one in the south, one in the centre and one in the north, to supply the three main demand areas of the long, narrow country. Dung Quat is in the centre, and operational problems still persist to this day. The second, Nghi Son in the north, is scheduled to begin operations in 2017, but the joint venture between PetroVietnam, Idemitsu Kosan, Kuwait Petroleum and Mitsui Chemicals is widely expected to be delayed. The third, Phu Yen in the south, is ambitiously aimed for 2018, but with no traction on progression, likely to be further in the future.
Even if the three refineries do eventually come online, the expected capacity of some 550 kb/d is likely to be insufficient to satiate the country’s growing demand at that point in time. Add to this the byzantine Vietnam domestic tax structure that makes imported products cheaper than Dung Quat output, and the issues facing Vietnam’s refining ambitions get more complicated. Which is why private projects like PTT’s Binh Dinh and the dodgy Russia-linked Vung Ro project were welcomed, as it would ease the pressure on a scrambling PetroVietnam. But with the withdrawal of PTT last week, it appears the opaque market of Vietnam will remain underdeveloped for now, to the relief of export refiners in the region.
Let us know your thoughts if PetroVietnam is able to find another partner to continue its ambitions. A another player from the Gulf perhaps?
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Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b
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