Are there too many oil refineries in Vietnam?

Vietnam has been warned that if it cannot well calculate pluses and minuses, it may face risk when developing oil refineries, especially when the crude oil price is on the rise, while the investment rates on oil refineries become big.

According to the Ministry of Industry and Trade, about 10 petrochemical refinery projects with the total design capacity of 60 million tons a year have been developed, or have been waiting for investment licenses.

Of these, the Vietnam National Oil and Gas Group (PetroVietnam) is the investor of three big projects, including Dung Quat in Quang Ngai, Nghi Son in Thanh Hoa and Long Son in Ba Ria-Vung Tau. The conglomerate is considering building the fourth oil refinery in Quang Ninh. If counting on the fourth project, the total capacity of PetroVietnam invested projects would be 40 million tons a year in total.

Meanwhile, other investors are moving ahead with four other projects in other localities with the total designed capacity of over 20 million tons.

Worries persisting

To date, only the Dung Quat oil refinery has become operational with the capacity of 6.5 million tons a year, which is expected to increase to 10 million tons a year after the scheduled expansion. Meanwhile, other projects remain on paper.

The Nghi Son project, a joint venture among PetroVietnam and Idemitsu (IKC), Mitsui (MCI) and KPI, capitalized at seven billion dollars, is now under the capital arrangement. The project is expected to be completed by 2015 which would have the capacity of 10 million tons a year. Especially, the Kuwait partner KPI has committed to provide crude oil to the oil refinery for its whole life.

As for the Long Son project, Vietnamese PetroVietnam is seeking partners for the joint venture. It is estimated that the total investment capital of the oil refinery is 10 billion dollars, while the refinery would run with the oil sourced from Venezuela.

Meanwhile, many questions remain unanswered at other oil refinery projects. The Can Tho 2 million ton project, developed by Vietnamese Vien Dong Trade and Investment Corporation and the US Semtech Limited B.V.I, is an example. The join venture got the nod from the Prime Minister in 2008 and got the investment license in the same year.

However, the investors have later changed the project’s scale, reasoning that they have chosen a new technology for the refinery. The land area of the project has reduced from 250 hectares to 50 hectares, while the estimated investment capital decreased from 538 million dollars to 350 million dollars. Especially, the foreign partner has withdrawn from the joint venture.

The Can Tho City People’s Committee has many times extended the project. However, to date, there has been no information about how the project will be implemented.

The Vung Ro oil refinery project in Phu Yen province has not been kicked off, though it was licensed three years ago. Meanwhile, sources have said that the investors – the British Technostar Management Limited and Russian Tell Oil Group – have asked for the permission to raise the investment capital to 2.5 billion dollars from the previous level of 1.7 billion dollars.

The Nam Van Phong petrochemical refinery complex, capitalized at two billion dollars, registered by Petrolimex and other partners, has also not been started yet, though the project has been expected to become operational since late 2013.

Experts have warned about the difficulties investors would have to face when developing oil refinery projects. The crude oil prices keep rising on the world market, while the profits from oil filtration are not high, just about 20 dollars per ton. Meanwhile, non-PetroVietnam investors will not get investment incentives from the State.

Oil refinery capacity redundant?

Opinions still vary about how many oil refineries Vietnam should have. Some believe that the total capacity of 60 million tons a year would much exceed the domestic demand. It is expected that the total demand for petroleum products would be 15-20 million tons in 2011-2015 and 27 million tons a year by 2025, which means that the supply would be double the demand.

However, according to Tran Ngoc Toan, former Head of the Oil and Gas Institute, the forecast demand of 27 million tons is too low, if comparing with the demand in other countries, including China and Thailand.

With the announced oil reserves, Vietnam is listed among the countries which are poor in oil natural resources. In general the countries choose to develop downstream industries, using the profits from oil refineries and distribution services to settle the problem of energy security. – Vietnamnet

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