Vietnam hopes to become self-reliant on oil products with 2027 mega refinery target

Vietnam is setting its sight to become self-reliant on oil products within the next decade as Hanoi aims to slash high middle distillate import costs and better manage domestic retail fuel supply, prompting state-run oil firm PetroVietnam to draft a strategy to double the country's refining capacity, industry sources said.

Although Vietnam is one of East Asia's rare crude suppliers capable of producing more than 300,000 b/d, the country with a population of close to 100 million has a total refining capacity of around 350,000 b/d, which is only enough to cover just about half the country's oil products and chemicals demand.

During the latter half of 2022, Vietnam witnessed a severe gasoline supply crunch at retail outlets as many small-scale trading companies struggled to borrow or finance dollars from local banks to conduct their import and distribution businesses amid dollar's rally and high oil prices.

Additionally, Vietnam's attempt at fixing domestic retail fuel prices to manage inflation without providing subsidies to domestic importers, discouraged small-scale trading and distribution firms from importing automotive fuels, S&P Global Commodity Insights previously reported.

In an effort to significantly enhance the nation's fuel supply security and sharply reduce its reliance on imports for essential fuels, PetroVietnam is seeking the government approval to build a mega refinery and petrochemical complex, as well as a facility to accommodate national crude oil and refined products reserves in Long Son in Ba Ria Vung Tau province, according to local media reports and industry sources with close knowledge of the state-run oil firm's refining business.

The capacity of the project is about 12-13 million mt/year, or around 300,000 b/d, and will be constructed during 2024-27, the industry sources said.

PetroVietnam could submit a complete proposal to the central government for consideration later in the month. A feasibility study report will be prepared from June to December 2023 and the final investment decision will be approved in the first quarter of 2024. After that, the EPC contractor will be selected and the project will be built from January 2024 to December 2027, according to the sources close to the company.

The preliminary estimate of the total investment of the whole complex in phase 1 is from $12.5 billion-$13.5 billion and in phase 2 is $4.5 billion-$4.8 billion.

The complex will process most of the domestic raw materials of crude oil, gas and condensate. The remainder of crude oil materials will be imported from the Middle East and the US, depending on the actual capacity, industry sources told S&P Global.

Government approval

The Ministry of Industry and Trade said it has so far gathered positive comments from various ministries and agencies about PetroVietnam's proposal to build a refining and petrochemical complex worth $19 billion in southern Vietnam.

The Ministry of Planning and Investment said the addition of a complex with a capacity of around 12-13 million mt/year over 2024-2027 is in accordance with the country's long-term energy plans.

The Ministry of Transport wanted PetroVietnam to clarify the plan to build a seaport for the project, while the Ministry of Natural Resources and Environment asked PetroVietnam to pay attention to the project's sustainability and impact to the surrounding environment amid Vietnam's net-zero pledge.

The Ministry of Industry and Trade believed ensuring national energy security is necessary, and the government should ask PetroVietnam to consider the ministries' comments and further study the project.

South Korean supplies

South Korean refiners indicated that Vietnam would likely remain one of their top middle distillate export outlets at least until Vietnam manages to achieve 100% oil products and chemicals self-sufficiency.

South Korea has traditionally been Vietnam's biggest oil products supplier over the past two decades. The Northeast Asian supplier exported 25.4 million barrels of oil products to Vietnam in the first 11 months of 2022, more than double the 12 million barrels sold to the Southeast Asian importer over the same period a year earlier, latest data from Korea National Oil Corp. showed.

South Korean refiners told S&P Global they are eager to maintain their strong middle distillate sales momentum in Vietnam, even though export margins and product cracks in 2023 may not be as lucrative as last year.

"Building mega new refinery and turning from a net importer to exporter is easier said than done," said a middle distillate marketing manager at S-Oil.

"Sales to Vietnam will likely remain strong in 2023, especially since Vietnamese end-users and customers are well accustomed to South Korean products. Export margins may not be stellar this year, but oil product cracks remain well above the 3-year historic average," the marketer added.