Experts concerned about Vietnam's rush to build too many refineries

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Vietnam's only major oil refinery at Dung Quat meets 30 percent of local demand. Six more proposed projects in the industry have raised concerns that the country may soon be producing too many petrochemicals.

Experts are worried an influx of upcoming oil refinery projects will bring Vietnam more supply than demand, environmental troubles and financial problems. 

Oil and gas expert Nguyen Dong Hai questioned the economic effectiveness of plans to keep building refineries as the oil  sector, while receiving many incentives from the government, is likely to import most of its input material.

He said crude oil reserves are running out as Vietnam's major oil field Bach Ho has been exploited for 25 years, and other fields are of small account.

The reckless investment in a wide range of oil refinery projects might end up like the country's hydropower expansion plans, which have been fraught with environmental and social controversies, Hai said.

In July, the government suspended as many as 18 hydropower projects in the central province of Quang Nam due to negative impacts on the environment and local residents.

Analysts warned that foreign investors, who are tending to shift to bio-fuel production in their countries, could treat Vietnam as a factory to help them use up their outdated technology.

The country is set to see an infusion of at least 6 refineries added to its only existing plant Dung Quat in the northern province of Quang Ngai.

Work began on the the Vung Ro oil refinery in Phu Yen Province early this month. Britain-based investor Tachnostar Management Ltd had earlier increased its investment in the project to US$3.18 billion from $1.7 billion in 2007.

Work on the US$9-billion Nghi Son project in the northern province of Thanh Hoa will start later this month and is scheduled to wrap up in 2016. The plant, a joint venture by state-owned oil and gas group PetroVietnam and three foreign investors, will be operational in 2017 with an annual capacity of 10 million tons.

In May, Thailand's top energy firm PTT received the nod from the government to build the Nhon Hoi refinery with a proposed cost of up to $30 billion. The mega project is expected to churn out 30 million tons of oil products per year, more than four times Dung Quat's capacity, and half of the output is for exports.

Ha Tinh Province said it plans to license Taiwanese conglomerate Formosa Plastic Group to build a $12.5-billion oil refinery.

Economist Le Dang Doanh said the government should consider numerous aspects with extra care before approving any oil refinery projects.

Apart from the minuscule Cat Lai plant (with an annual output of 350,000 tons), Dung Quat is Vietnam's only refinery and it has faced a slew of problems as well.

Dung Quat, which meets only 30 percent the domestic demand for oil products, hopes to increase its capacity to 8-10 million tons per year from the current 6.5 million by 2015.

Not including the proposed refinery in Ha Tinh, the Ministry of Industry and Trade estimated that the infusion of new plants would make local supply exceed demand by 7 million tons by 2020, and the figure would rise to 11 million five years later.

Chairman Phung Dinh Thuc of PetroVietnam, which runs Dung Quat, told Tuoi Tre newspaper that the country's plan to develop the oil refinery sector through 2025 included only Dung Quat and Nghi Son, and a third project, Long Son, which is still in the first stages of pre-construction.

The state firm cited supply-demand imbalance to oppose the mega project Nhon Hoi invested in by Thai PTT, but its proposal was turned out by the ministry.

Indeed, supply-over-demand would improse pressure on the Asian region with oil and gas researcher Wood Mackenzie has pointed out that lower profits would also be a result.

Oil refineries in the region have reported a profit of $5-10 per barrel on average over the past three years, but the number is set to decline by $1.5 per barrel by this year's end, and by another 50 cents in 2014, the Scotland-based firm said.

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