Dung Quat no cost advantage over imports, says official

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Petrol products from Vietnam's first oil refinery will not be cheaper than imports due to the plant's high input costs, a project official said.

The first problem is that crude oil from Vietnam's major oil field, Bach Ho, is sold to the Dung Quat refinery at the same price as imports, said Nguyen Hoai Giang, deputy head of the Dung Quat refinery project management board.

The bigger problem is the distance from Bach Ho, located off the coast of the southern province of Ba Ria-Vung Tau, to the refinery in the central province of Quang Ngai. The two localities are separated by five provinces.

Then from Quang Ngai, the oil has to travel half way up or down the country to reach the nation's major markets in Hanoi and Ho Chi Minh City.

This trip is not much shorter than that between Vietnam and Singapore, where Vietnam gets 90 percent of its petrol products, so transport costs do not change either, Giang said.

The refinery opened late last month. At full capacity, daily output is expected to reach 6.5 million tons, or 148,000 barrels per day.

Its main products will include: LPG, unleaded gasoline, kerosene, jet fuel, feedstock for propylene plants, diesel and other petrochemicals like naphtha.

The refinery is expected to meet only 25-26 percent of the country's needs, Giang said.

State-owned PetroVietnam, or Vietnam Oil & Gas Group, financed the refinery and will operate it.

PetroVietnam CEO Tran Ngoc Canh said a ceiling price would be implemented on all products produced at the refinery.

During the refinery's trial period this year, its products will be distributed by the PetroVietnam Oil Corporation, said Canh.

Only once the operations become "stable" next year would other distributors be allowed to bid for contracts, he said.

Real benefits

The refinery will boost the central region's economy while securing the national energy supply and lessening dependence on imported fuel products, Giang said.

Vietnam exports around 14 million tons of crude oil annually but imports all its refined oil products.

In 2008, the country spent US$10.8 billion importing 12.7 million tons of petroleum products, down 1.5 percent in volume, but up 40.2 percent in value over 2007, according to the General Statistics Office.

"Dung Quat will create the momentum that will push central Vietnam's development," AFP quoted Le Van Dung, vice-chairman of Dung Quat Economic Zone Authority, as saying.

"I think in the next 10 years, heavy industry in central Vietnam will promote the industrialization and development of the whole country."

Giang said the plant would generate jobs for locals and spur investment in the region.

Official sources said they hoped the refinery and the industrial zone built around it would create 20,000 jobs as a boon to the local economy.

But Bruno Le Roy, an engineer overseeing the final stages of building at the refinery for French oil services company Technip, told AFP it could be hard to find skilled workers in the area. He said many workers at the site are often brought in from other parts of the country.

LOCAL OIL REVENUE SINKS ON PRICE SLUMP

Falling oil prices have cut Vietnam's year-on-year crude oil revenue by 30 percent over the past two months, according to the Ministry of Industry and Trade.

Vietnam's crude output rose 14 percent to 2.6 million tons, generating revenues of VND29.5 trillion (US$1.69 billion) in January and February, according to a statement posted on the ministry's website Monday.

As the global recession saps oil demand, crude oil futures in New York have fallen 70 percent to $43.34 a barrel Monday from the record price of $147.27 reached last July.

Vietnam's government said on December 31 that crude oil exports may decline 13.7 percent due to the opening of the nation's first refinery at Dung Quat. (Bloomberg)

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