Vietnam to See Petroleum Oversupply in 2018; Concerns Raised

The supply of petroleum products in Vietnam will likely surpass the demand by 2018, PetroVietnam warned.


                             A visual of the Dung Quat oil refinery. (Photo: Internet)

Vietnam is likely to experience an oversupply of petroleum products by 2018 when just two refineries come into operation, the Saigon Times newspaper reported, citing state-run Vietnam Oil and Gas Group (PetroVietnam), as more facilities are on the cards.

The supply of gasoline and oil products in the country is estimated to reach 17.6 million cubic meters by 2018, of which 7.27 million cubic meters will come from the Dung Quat refinery in the central province of Quang Ngai, and 9.62 million cubic meters from the Nghi Son refinery, which is under construction in the north central province of Thanh Hoa.

Meanwhile, the domestic demand for petroleum products, which is projected to grow 3% annually, will touch 17.33 million cubic meters by 2018, according to PetroVietnam.

The Dung Quat refinery, which has a capacity to process 6.5 million tons of crude oil per year, now meets 30% of demand for petroleum products in Vietnam while the remaining 70% are covered by imports.

The refinery, the first of its kind in Vietnam, plans to expand its capacity to 8.5 million tons per year.

Meanwhile, four other refinery projects are in the pipeline in the country. The Nghi Son petrochemical complex in Thanh Hoa province has an investment of $9 million and an annual capacity of 10 million tons of crude oil. It is scheduled to start operation in the middle of 2017.

Another facility which is about to be built in Vung Ro, in the central province of Phu Yen, has an investment of $3.2 billion and a capacity of eight million tons.

The other projects include the Nam Van Phong one with a capacity of 10 million tons in Khanh Hoa, the Nhon Hoi one with a capacity of 20 million tons in Binh Dinh, and the Long Son one having a capacity of 2.7 million tons in Ba Ria-Vung Tau.

Prof. Nguyen Mai, chairman of the Vietnam Foreign Investment Enterprises (VAFIE), was quoted by the newspaper as saying that the combined capacity of oil refinery projects is calculated at 65 million tons per year, far exceeding the domestic supply of crude oil.

Oil production in the country is around 15 million tons per year, thus refiners would need to import between 45 million tons and 50 million tons to feed their facilities, he estimated.

Countries that have advanced more than Vietnam have paid high costs for developing the petrochemical industry, which include environmental pollution, greenhouse effects, and the improper use of land resources. “Therefore, the extractive and petrochemical industry should be developed at a proper level,” Mr. Mai warned.

The Dung Quat refinery, the sole operational facility of its kind in the country now, has cost Vietnam hugely.

Economist Nguyen Tu Anh has estimated the opportunity cost of the refinery at $3.5 billion if other projects having more competitive edges or large spill-over effects had been carried out.

Meanwhile, the refinery received some 26.55 trillion dong (roughly $1.2 billion) worth of incentives granted by the government between 2010 and 2014, according to data offered by PetroVietnam.

Binh Son Refining and Petrochemical Company Ltd. (BSR), the operator of the refinery, would have incurred a loss of 27.6 trillion dong ($1.23 billion) from its commencement in 2010 to 2014 without preferences, according to PetroVietnam.

The preferential treatments, if maintained, for the facility would be around $2 billion in the 2010-2018 period, Mr. Anh said. “The amount would be much more is the incentives are prolonged until 2027. The cost would be uncountable to maintain the local petrochemical industry,” he added.

Thailand’s PTT Group and its partner Saudi Aramco are seeking for incentives to develop its long-delayed multi-billion-USD Nhon Hoi project.

The oil crash has hard hit developers of oil refinery projects in Vietnam and has made them reconsider whether to proceed with the ambitious plans.

Tuan Minh / BizLIVE