Vietnam Airlines to buy Dung Quat refinery's jet fuel

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Vietnam Airlines will soon buy jet fuel produced by Dung Quat oil refinery, the country's only such facility, which will meet up to a third of the national carrier's annual fuel demand, state-run newspapers said on Friday.

The deal is expected to reduce the airline's reliance on jet fuel import and could contribute to trimming Vietnam's widening trade deficit registered at $6.65 billion in the first half.

The airlines has now appointed Dung Quat as its domestic fuel supplier after having accepted the quality of its jet fuel, said Tran Huu Phuc, Chief Executive of Vinapco, the carrier's fuel supply arm.

Vinapco will buy 250,000-300,000 cubic metres of jet A-1 fuel from Dung Quat a year, Phuc was quoted by the ruling Communist Party-run Nhan Dan daily as saying.

On Thursday, jet fuel swaps for July were valued at $125.22 a barrel, up $2.32, with the July regrade (the gap between jet and diesel prices) down 18 cents at 87 cents, as diesel and jet fuel stocks in Singapore onshore tanks fell 2 percent to a four-week low at 13.771 million barrels, its third-straight week of decline.

Vietnam Airlines has been using jet fuel imported by Vinapco from Asian markets even though the $2.2-billion, 130,500-bpd refinery, operational since May 2010, is capable of producing jet fuel and has exported the product to oil major BP .

Vinapco said on its website (www.vinapco.com) that it has been buying fuel from major suppliers such as Shell and China's Sinopec .

Vinapco, or the Vietnam Air Petrol Co, entered a broad agreement last year with PetroVietnam, the sole investor of Dung Quat refinery, over the jet fuel purchase.

It has now ended tests on the plant's technology, product standard and quality control system before talks on delivery details, the Nhan Dan daily reported.

The two sides are expected to complete talks on prices and volumes in two weeks, Chief Executive Nguyen Hoai Giang of the Binh Son Refining and Petrochemical Co, which operates Dung Quat, was quoted by Friday's Tuoi Tre newspaper as saying.

The refinery will shut operation for two months starting on July 15 for its first scheduled maintenance.

Dung Quat operators had said they have stocks of products to supply to domestic markets for several weeks. With the deal with Vietnam Airlines to be signed in two weeks, the first delivery could be from the remaining stock at the earliest.

Otherwise, Vinapco will need to wait until after Sept. 15 to get the jet fuel when Dung Quat reopens.

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