QATAR. Qatar and Vietnam have signed an agreement to set up a joint fund with a capital of US$1 billion to facilitate investments in both countries.

Vietnamese Ambassador in Doha Phung The Long said Qatar’s contribution to the fund, through Qatar Investment Authority (QIA), would be US$900 million and the balance would come from his country.

The two sides have discussed co-operation in oil & gas as well as agriculture. Already, “we have exchanged ideas about setting up an animal farm for breeding cattle and lambs,” the Ambassador said.
 
Vietnam has the potential to become a regional oil and gas supplier. Ongoing explorations have led to several oil and gas discoveries in recent years. Consequently, the government highly prioritises investments in both upstream and downstream production, which makes it an interesting market for Middle East companies.

Vietnam ranks the fourth in oil production among Asian countries, trailing only China, Indonesia and Malaysia. Provided that the current rate of development continues, Vietnam will become the world's 30th largest oil-producing nation. And perhaps the most interesting aspect about Vietnam, its gas reserves seems even more promising than its oil reserves.

Vietnams oil and gas industry has undergone a significant development since the first oil was produced from the Bach Ho oil field in 1986. Until then, Vietnam’s economy relied heavily on imported petroleum products from the Soviet Union. Later on, as Vietnam started exploration of its reserves, The Soviet Union also provided the equipment and expertise in all areas of production.

To date, Vietnam has produced 220 million tons of crude oil and 37 billion cubic metres of natural gas bringing a turn over of US$ 53 billion and contributing US$ 30 billion to the state’s budget.

Up to December 2007, the industry has attracted approximately US$5.8 billion of foreign capital for exploration and production. Additionally, a large amount of capital has been invested in the downstream sector and related infrastructure. Having no refinery capacity of its own yet, Vietnam exports all of its crude production and imports fuels and petrochemical products. In 2007, Vietnam exported over US$8.8 billion of crude oil mostly to Australia, Singapore, US, Japan, Malaysia and Indonesia. Meanwhile, refined products imports are over US$7.7 billion, more than a half of which was from Singapore.

Overall, Vietnam’s oil and gas reserves seem attractive. Comparatively, the gas reserves are considered more promising than known oil reserves with large confirmed amounts of gas in Vietnamese waters. Oil and gas has been found in 60 fields, of which more than 20 commercial fields have been developed.

To date, 57 oil and gas contracts have been signed between the Vietnam National Oil and Gas Group (PVN) and its foreign counterparts. Foreign companies active on the market mostly operate under Product Sharing Contracts (PSCs) or Joint Operating Contracts/Companies (JOCs) or Business Co-operation Contracts (BCCs) with PVN with registered investment capital of more than USD 7 billion. The international players are companies such as Shell, Total, BP, Mobil, Conoco Phillip, Unocal, among others. At present, 22 of the 57 oil and gas contracts have been completed and the remaining 35 contracts are being implemented.

Vietnam has 3.1 billion barrels of proven oil reserves. However, the exploration in Vietnam continues to yield new discoveries and the reserves may amount to 4.5 billion barrels. Currently, Vietnam has seven operating oil fields; Bach Ho (White Tiger), Rong (Dragon), Rang Dong (Aurona), Hon Ngoc (Ruby), Dai Hung (Big Bear), Bunga and Kekwa. Most oil exploration and production activities occur offshore in the Cuu Long and Nam Con Son Basin.

In 2006, crude oil production averaged 390,000 barrels per days (bpd), of which the Bach Ho was account for more than a half (200,000 bpd). Despite the Su Tu Den (Black Lion) crude field in October 2003 founded and owned by PetroVietnam in the drilling process as well as new finds in 2005-2007 (such as Su Tu Trang, White Lion field; Su Tu Vang, Golden Lion field; and Su Tu Nau, Brown Lion field) provide long-term output potential, the country is, however, hard to maintain these higher production levels of crude oil in the coming years and unlikely to exceed 360,000 bpd by the end of 2011 as predicted by the Business Monitor International. The main reason of its limited production capacity is due to lack of technology and investment.

Currently, Vietnam has no operating refineries, and consequently most fuels and other oil products (lubricant, bitumen) consumed in the country have to be imported. However, PetroVietnam is in the process of building its first refinery, named Dung Quat refinery, and expected to be in operation in 2009. The US$ 1.5 billion refinery is located in Quang Ngai province. It will have a yearly capacity of 6.5 million tonnes of oil (130,000 bpd), producing an estimated 3 millionn tonnes of diesel, 1.8 millionn tonnes of gasoline, 400,000 tonnes of jet fuel, among other products such as liquefied petroleum gas (LPG) and propylene. PetroVietnam and Zarubezhneft of Russia each hold a 50% stake in the 25-year project.

In May 2005 Petro Vietnam and the French oil company Technip signed a contract for building the main part of the refinery. Other contractors in the consortium include the Japanese engineering company JGC and Spain's Technicas Reunidas.

Moreover, in October 2006 Petro Vietnam and its partner, Idenmitsu (Japan), completed an updated feasibility study on a setting up a Joint Venture for its second refinery project. The proposed US$ 5.25 billion Nghi Son petrochemical and oil refining complex will have a processing capacity of 180,000 bpd, and will be located in Thanh Hoa province, north of Hanoi. It should be operational by 2013. The refinery will use 100% imported crude oil from Kuwait.

This project is of great importance and it is expected to act as a catalyst for the Vietnamese economy in general and the northern Central provinces in particular, not only promoting the domestic petrochemical and commodity producing industries, but also ensuring energy security.

Finally, the government is approved for building a third refinery at Vung Ro in the southern Phu Yen province. The refinery will have a minimum capacity of 7 million tonnes per year and will be put into operation by 2015. The refinery will process mainly imported crude oil and only partly use oil domestically produced. Regarding the mode of investment, the Prime Minister of Vietnam, Nguyen Tan Dung, allowed a joint venture, a wholly foreign invested or a domestically invested entity to run the project.

In this context, it should also be noted that PetroVietnam has extended its focus beyond these huge projects. In terms of refineries, VTN-P Petrochemical Joint Venture Co is opening a small-scale refinery on a trial basis in the Mekong Delta City of Can Tho. The refinery may serve as a pilot-project for similar projects.

In addition, PetroVietnam’s business strategy includes oil-processing projects, which require smaller investment and shorter time for implementation. Moreover, as new refineries comes on-stream and begin consuming domestic crude supplies, crude oil exports is assumed to tumble to just 45,000 bpd in 2011 in comparison with 427,000 bpd in 2004.

In term of natural gas, Vietnam has proven gas reserves of 700 billion cubic metres (bcm), but it is expected to contain up to 3,000-4,000 bcm. Vietnam natural gas production is increasing steadily with further increases expected as additional fields come on-stream and in despite of current limited local demand as well as infrastructure. In 2007, Vietnam produced around 6.86 billion cubic metres (bcm) of natural gas. According to Business Monitor International’s forecast, the production is expected to reach 17 bcm by 2010.

The Cuu Long basin, a source of associated gas from oil production, is the largest Vietnamese production area of natural gas. Only two fields have been developed specifically for their natural gas potential: Tien Hai, with a potential output of 1,76 million cubic feet per day (mmcf/d) and Lan Tay/Lan Do of Nam Con Son with a production of 5 mmcf/d. Naturally, this strategy of raising gas production will require a substantial development of the infrastructure transporting the energy.

Pipelines are being built with surplus capacity to accommodate new discoveries and rising consumption later in the decade. The BP-operated Lan Tay gas fields are expected to produce for 15 years. Gas deliveries commenced in 2002 and rose sharply in the last few years. BP in 2005 increased its gas supplies from the Nam Con Son project to around 3bcm. The group is apparently considering a second Vietnamese gas pipeline to cope with increasing supply and demand.

In December 2002, a consortium headed by South Korea’s KNOC signed an agreement to install facilities to be used to pump and supply up to 3.7 millionn cubic metres per day (mcm/d) of gas, located in the Rong Doi and Rong Doi Tay fields. This gas will be purchased by PetroVietnam for 23 years. Sales commenced in 2005. PetroVietnam is in turn expected to sell the gas to Electricity of Vietnam (EVN).

Earlier this year, PetroVietnam announces that it will build and bring the US$70 million Phu My gas pipeline project from Phu My to Nhon Trach into operation in the first quarter of 2008 . The pipeline was initially planned to transport associated gas from the Bach Ho and Rong fields for power generation.

The Vietnamese government controls both the oil and gas upstream and downstream sectors. PetroVietnam, now named the Vietnam National Oil and Gas Group (PVN), is the dominant player on the market. It has a full monopoly on all upstream exploration and exploitation and plays a significant role in downstream operations as well. Any foreign oil company working on upstream projects will have to deal with PVN in some capacity.

The central management of PVN is located in Hanoi. The group, as a parent company, will hold 100% of charter capital from six subsidiaries and half of the charter capital from 11 other affiliates in line with the current Prime Minister’s Decision stipulating the group’s organistional and operational regulations.

PVN is in the process of adding seven to ten new oil & gas fields from 2005 to 2010 in order to secure national energy demand. In the production sector, PVN aims at maintaining the oil production from current fields and to triple gas production from developing fields.

PVN also increases concentration on construction of infrastructure, especially to develop the gas market (power plants, petrochemical plants) to meet with potential gas supply. The refinery projects previously mentioned are explicit means to pursue this strategy.

For 2008, PVN plans to attain an output of 23.5 million tonnes of oil equivalent, including 16 million tonnes of crude oil, 7.5 billion cubic metres of gas, and 740,000 tonnes of fertiliser. The group also plans to supply enough gas to fuel electricity projects and people’s consumption.

Production wise, the strategy is to double volume of the Su Tu Den oil field, Vietnam's second largest oil field, and to keep the production at around 150 mmbo and 250 billion cubic feet of gas.

To exploit the gas and oil fields off the southwest coast of Vietnam, the group has set up the Southwest Gas Project, which is expected to supply gas to the national Ca Mau Gas-Power-Fertilizer Complex in the southernmost Ca Mau Province and to neighboring economic zones.

In order to implement its strategy, PVN expects to invest around US$15 billion to US$21 billion until the year 2020. With regards to foreign investment in the industry, international oil company upstream involvement is significant, in partnership with PVN. While Russian state company Zarubezhneft is the biggest foreign oil producer, in the Vietsovpetro JV with the group, BP is now the leading IOCs in terms of investment, followed by Petronas and ConocoPhillips.

Most of Vietnam’s crude oil is lifted from the Rong (Dragon) and Bach Ho (White Tiger) fields by the joint venture company Vietsovpetro. This is a 50-50 joint venture between PetroVietnam and Zarubezhneft, a company formed under the former Soviet Union. This is the sole joint venture company in upstream exploitation. It has been lifting oil in the Bach Ho field since 1986. It has the only operational gas pipeline and delivers roughly two to three million cubic feet of gas per day to Vung Tau.

Overall the Vietnamese oil and gas industry shows promising potential. There is a need for future investments in both upstream and downstream production in order to tap the country’s recourses effectively.

Regarding upstream operations, the opportunities appear large. The ongoing explorations continue to yield new discoveries of oil and gas reserves. PVN is increasingly aiming at attracting foreign investments for locating and tapping oil and gas reserves and to effectively implement contracts signed with foreign partners.

However the field is competitive and contract-negotiations lengthy. Moreover, there is no separate petroleum authority, meaning that PVN determines the rules of the game, but is at the same time a commercial enterprise. Several foreign organisations have, however, lobbied heavily for improved operating conditions for oil and gas companies, and the efforts have resulted in some improvements of the business climate.

Regarding machinery and services, Vietnam has shown a strong demand for basic and less expensive products. Due to this strong and increasing demand, a substantial amount of imported oil and gas machineries is required. Moreover, given the country’s need to develop the oil & gas industry in the coming years, more sophisticated machinery and services will inevitable be required.

Thus, Middle East companies can find opportunities to provide machineries for platforms of various types and sizes, oil rigs, drilling equipment, operations and maintenance, fire-fighting, underwater tools, towing and rescue vessels, and so on.

Local production of oil and gas machinery in Vietnam includes primarily basic and low-end equipment of oilrigs, platforms and pipelines.

These machinery and services are mainly provided by subsidiaries of PetroVietnam such as PetroVietnam Exploration and Production Company (PVEP), Petroleum Technical Services Company (PTSC), PetroVietnam Engineering and Construction Company (PVECC).

It should be noted that Russia has established a strong base in exporting its offshore oil and gas machinery and services to Vietnam due to its long-established history in Vietnam. Korean, Japanese, Indian and US companies are also active players on the market.

In terms of investment and financing capacity, PVN has an exceptionally large cash flow in comparison to other Vietnamese companies. Consequently, PVN has worked out measures to continue attracting foreign investments for locating and tapping oil gas in the offshore areas, and it also seeks to invest in oil and gas exploration and exploitation in the Middle East and other parts of the world.

source:bi-me.com