Vietnam warned of refinery overkill

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Dung Quat, Vietnam's only oil refinery, in the central province of Quang Ngai. A series of new refineries is planned to be built in the country, but critics warn against it.

Energy-hungry Vietnam, heavily reliant on imported oil products, may face a completely different problem the next decade when a series of new refineries become operational.

Experts say that without a good strategy, the country will not have enough crude for the plants to process and it may end up with an excessive amount of fuel that it cannot sell.

Currently Vietnam only has one oil refinery, Dung Quat, which meets one-third of its demand for oil products. The plant aims to raise its capacity from 135,000 barrels per day to as much as 240,000 barrels per day. 

Oil and gas group PetroVietnam, the owner of Dung Quat, is also planning two more refineries the Nghi Son Plant in the central province of Thanh Hoa and a petrochemical complex in southern Vietnam.

Construction of the 200,000 bpd Nghi Son Refinery was originally scheduled to start in the first quarter of 2011 but has been delayed due to difficulties with preparation procedures. PetroVietnam, Kuwait Petroleum International, Japan's Idemitsu Kosan Co., and Mitsui Chemicals the four investors behind the US$7 billion refinery are expected to sign an engineering and construction contract this month to commence the project soon.

Tran Ngoc Nam, deputy CEO of Petrolimex, Vietnam's largest fuel distributor, said the company is looking for investors to build the Nam Van Phong Refinery in the central province of Khanh Hoa with a capacity of 200,000 bpd.

He said plans are being drawn up on raising funds and which crude sources will be tapped.

Thailand's PTT Pcl., is planning to build another US$28.7 billion refinery, also in central Vietnam, with a capacity of 660,000 bpd. Works on the plant, which would be one of the largest in the world, may begin in 2016.

Meanwhile, construction plans for the Vung Ro Refinery in central Vietnam were revised in October after a two-year delay. Investment in the plant, made by UK's Technostar Management Ltd., and Russia's Telloil, has been raised to $3.2 billion.

Another project in the Mekong Delta city of Can Tho has not made any progress since it received an investment license in 2008. The cost estimate for the plant has been cut from $500 million to $350 million, but no commencement date has been announced. 

Experts say once all these projects become operational, Vietnam may face a shortage of crude oil.

Tran Viet Ngai, chairman of the Vietnam Energy Association, said if the country does not find new oil reserves, current resources, which can provide 14-15 million tons of crude oil per year, would not be enough for the new refineries.

Dung Quat by itself needs large volumes of crude oil, he said, adding exports would have to be cut.

Statistics from PV Oil, an arm of PetroVietnam, show that it is supplying Dung Quat with 6.5 million tons of crude oil per year.

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Ngai said the plan is for new projects to process crude oil imported from the Middle East and South America for both local consumption and exports, but this is not likely to be a cost-effective solution.

Imported materials could make locally-produced oil products more expensive than refined products bought from other countries, he said.

Vietnam does need new refineries to be more energy independent and add value to its exports, instead of selling only crude oil, but the number of plants needed should be considered carefully, Ngai said.

All the projects announced so far, along with Dung Quat, will be able to produce a combined 60 million tons of fuel every year, including gasoline, diesel and liquefied petroleum gas.

Vietnam's consumption of oil products now stands at 15 million tons per year and is projected to rise to 27 million in 2025. That means the country's refining capacity will be more than double the domestic demand then.

An expert who asked not to be named said a large output is not necessarily a cause for worry. However, that means Vietnam has to position itself as a fuel supplier for neighboring countries too, he said.

Local plants, therefore, have to be capable of helping Vietnam compete against other fuel exporting countries in the region, he said.

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