PetroVietnam's crude output exceeds target as regional refiners seek steady supply

PetroVietnam's January-August crude production surpassed its target for the period as the state-run Vietnamese oil company steps up efforts to ensure stability and longevity in the country's upstream operations amid end-users in Northeast Asia and Oceania regularly seeking its barrels, the company as well as industry and trade sources said Sept. 28-Oct. 5.

In the first eight months of 2023, PetroVietnam surpassed its upstream oil and gas, as well as power, urea, gasoline, LPG, and polypropylene production targets, exceeding the assigned plans by an impressive margin ranging from 3% to 29%. Notably, crude oil production reached 7.06 million mt, or around 51.7 million barrels, surpassing the plan by 14.5%, the state-run company said in a statement.

Although Vietnam is a small-scale crude supplier compared to many OPEC member nations, stability in its upstream output is crucial as many regional end-users are dependent on the Southeast Asian country to provide spot low sulfur crude cargoes regularly every trading cycle, according to Singapore-based low sulfur crude traders with close knowledge of spot Vietnamese trades, and refinery sources based in Tokyo and Melbourne.

PetroVietnam said earlier this year that it aims to produce 9.29 million mt, or around 68.1 million barrels, of crude oil from its domestic and overseas fields in 2023.

Vietnamese sweet crude grades like Chim Sao, Thang Long, Ruby and Bach Ho make up an important part of the refinery feedstock base in Australia, Japan and Indonesia, traders and refinery sources said.

For instance, Australian end-users such as Geelong refinery regularly rely on Vietnamese light and medium sweet grades for automotive fuel production, especially heading into the Southern Hemisphere's summer driving season in the fourth quarter. Japanese refiners also require a regular dose of Vietnamese crude for winter kerosene production, while some utilities take heavy Vietnamese crude for winter power generation in Northeast Asia, trading and refinery sources said.

Vietnam exported 76,486 b/d of crude in August, up 62% from a year earlier, the latest customs showed. In the first eight months, the country exported 58,970 b/d of crude, up 17% from the same period a year earlier.

Upstream challenges

PetroVietnam said it is actively pursuing strategies to ensure the continuity of oil and gas production, despite encountering various challenges in its production and business operations so far this year.

For instance, several key upstream operational units face constraints due to the impending expiration of oil and gas contracts, affecting field development and the extension of operational areas.

Some mining clusters also grapple with complex geological formations and mining technology, while Joint Operating Companies have to deal with equipment wear and damage after years of continuous operation.

PetroVietnam's CEO Le Manh Hung recently held a direct meeting with the company's operational units as well as its oil and gas contractors managing blocks and fields on the Vietnamese continental shelf to review the situation and propose solutions to ensure the successful execution of the 2023 oil and gas exploitation plan.

"Hung called for a thorough review and re-evaluation of limitations and risks, accompanied by the formulation of effective mitigation plans. He stressed the need to prioritize solutions aimed at enhancing management and operational efficiency, reducing costs and implementing technical measures to improve the oil recovery coefficient," PetroVietnam said.

Higher prices drive output, sales

In the meeting, Hung also highlighted the importance of effectively executing existing value chains, while collaborating to develop new ones, according to the state-run company.

"This collaborative effort is essential for realizing the full potential of the investment value chain, ultimately leading to increased revenue and profits," he said.

Looking to take full advantage of rising oil prices, Hùng also urged the upstream units to implement exploitation activities judiciously to seize opportunities for increased cash flow and profitability during favorable oil price periods.

Benchmark outright prices have shot above the $90/b mark in September. Platts Dated Brent averaged $94/b in the month while Vietnamese sweet crudes have been fetching healthy premiums in the Asian spot market.

Platts, part of S&P Global Commodity Insights, assessed Bach Ho crude at a premium of $10.25/b to Dated Brent on Oct. 2, marking the highest price differential since Dated Brent plus $10.45/b on Nov. 14, 2022. The differential was assessed at plus $10.15/b on Oct. 4.