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Vietnam's thermal coal imports seen resilient through 2021 despite funding challenges ahead

Highlights

Imports forecast to rise 22% on year in 2020

But new laws could impact power plant developments in 2021

LNG imports also gaining momentum for power generation

Singapore — Vietnam's seaborne thermal coal traders are optimistic the country's fossil fuel consumption will continue to rise through 2021 amid burgeoning demand for electricity production at the lowest cost, despite the funding and regulatory challenges that loom for new coal-fired power plants, market sources said Nov. 6.

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A new law on public-private partnerships that comes into effect in 2021 creates new hurdles for foreign coal investors that fail to conclude build-operate-transfer contracts and government guarantee and undertaking agreements before the end of 2020, according to analyst Thu Vu from the Institute for Energy Economics and Financial Analysis, or IEEFA.

Four of the 15 coal power projects currently in the pipeline in Vietnam -- Nam Dinh 1, Vung Ang 2, Vinh Tan 3 and Song Hau 2 -- have yet to reach the commissioning phase, and with their contractual agreements still pending official sign-off, they could be at risk of being called off due to the new law, according to Vu.

However, a trader in Indonesia said that while Vietnam's coal-fired power plant projects may be delayed by the new law, they would eventually take off.

"Developing countries that are growing at a fast pace will need cheaper power, which can only be obtained from thermal coal today," he said. "Restrictions on funding and timelines might also be eased if power prices are anticipated to tick higher," he added.

A coal producer in Indonesia noted that it was already not easy to conclude thermal coal trades to Vietnam unless it involved a strategic project with government involvement.

"The rate of the growth in coal consumption may slow down in Vietnam, but the overall volume will not dip," he said.

Southeast Asia's thermal coal imports are expected to rise 29% to 128 million mt in 2020 from realized imports of 99 million mt in 2019, according to S&P Global Platts Analytics. Imports to Vietnam are expected to comprise 55 million mt of the total, up 22% from 45 million mt in 2019, and increase further to 55.2 million mt in 2021, it added.

Vietnam received 45% of Southeast Asia's thermal coal imports in 2019 and with more coal-fired power plant projects in the pipeline, its low domestic coal production will continue to make it reliant on imports, predominately from Indonesia and Australia, market sources said.

"Power demand in Vietnam in September at nearly 30 GW was up over 7% from a year ago. Platts Analytics expects a continued recovery in coal-fired power generation in Vietnam, as well as Southeast Asia, but we do not expect a full recovery in the region until the second half of 2021," said Matthew Boyle, lead coal analyst from Platts Analytics.

TRADERS WARY

Seaborne thermal coal traders remained wary about the pace of development of Vietnam's new power plants and the timing of when they were likely to come online, and were preparing to make adjustments to export volumes if required.

One coal producer in Indonesia said he may need to lower his near-term export projections given the increasing difficulty for Vietnam's power plants in getting funding and coming online, which comes in addition to the Indonesian government ramping up efforts to allocate more local coal production to domestic requirements.

"This also comes at a time where there may be changes to Indonesian coal royalties, which could also change the dynamics between export and domestic markets," he said.

LNG initiatives in Vietnam are also continuing to gain momentum -- in competition with thermal coal for power consumption.

The Vietnam Energy Institute says the country has the potential to build 108.5 GW of LNG-fired power capacity, but this has yet to be confirmed by the country's National Power Development Plan VIII.

VEI estimates that Vietnam will import 1.2 million mt of LNG by 2025, 8.5 million mt by 2030, 17.2 million mt by 2035, 23.6 million mt by 2040 and 29.6 million mt by 2045.

However, limited coal to gas switching facilities may limit the potential upside of LNG imports and coal imports currently remain more competitive for power consumption, market sources said.