Singapore — Vietnam is poised to actively venture into Africa to secure a regular dose of light and medium sweet crude supply for the coming years, as the country's domestic crude production continues to decline due to naturally aging fields, while state-run Binh Son Refining and Petrochemical, or BSR, finds Nigerian and Angolan grades cheaper than Southeast Asian oil.
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BSR, the operator of the 148,000 b/d Dung Quat refinery in central Vietnam, is under pressure to find a steady stream of feedstock supply from external sources as the supply of various domestic crude grades that primarily feeds the plant is running dry.
State-run oil firm PetroVietnam produced 11.47 million mt of crude oil in 2020, down 12.4% from 2019 and marking the fifth consecutive yearly decline. Vietsovpetro, a stakeholder and operator of some of major domestic upstream projects, produced estimated 3.42 million mt of crude oil in 2020, down 8.8% from a year ago, the company said.
Dung Quat was originally designed to process primarily domestic crude grades, including Bach Ho Light and Bach Ho Heavy, Su Tu Den, Chim Sao, Thang Long, as well as some import grades from neighboring producers, including Malaysia's Labuan and Brunei's Seria Light.
BSR had in the recent past picked up a few odd light sweet crude cargoes from the Mediterranean market and the US to cover Dung Quat's short position, but for a more steady and regular flow of feedstock procurement, the state-run company is looking at Africa for the right answer.
BSR told S&P Global Platts that the company is currently testing Qua Iboe crude from Nigeria and Cabinda crude from Angola, for its Dung Quat refinery.
The trial testing of the two West African grades is part of BSR's strategy to diversify its feedstock choices and reduce dependence on domestic grades including Bach Ho, the company said.
Qua Iboe is classified as a light sweet crude with a specific gravity of around 36 API and a sulfur content of 0.13%. Vietnamese Bach Ho Heavy has an API gravity of around 35 and sulfur content of 0.05%, while Malaysian Labuan has an API of around 30 and sulfur content of around 0.08%.
Reflecting Vietnam's faltering upstream output and its growing dependence imports for refinery feedstock requirements, the country imported 11.74 million mt of crude oil in 2020, up 51% from 2019.
In November 2019, the government had removed 5% import tax on crude oil to support the refining sector's growing reliance on more feedstocks from external sources and suppliers.
BSR said it will test total five new crude grades in the first half of this year and will choose those which have competitive prices for long-term purchase plan.
BSR's decision to shift its focus to African supply from Southeast Asia and North America for regular feedstock procurement is a prudent move, as West African grades may come at a discount to some of Vietnam's major imported light sweet grades from Malaysia, Brunei and the US, industry sources and trade participants said.
The official selling price spread between Qua Iboe and Malaysian Labuan averaged minus $2.78/b for cargoes loaded in February and minus $2/b in January, Platts data showed.
Meanwhile, the outright price spread between Qua Iboe and WTI Midland (FOB Scapa Flow basis) averaged 65 cents/b to date in 2021, Platts data showed. However, considering the fact that West Africa-Southeast Asia voyage is much less than the US Gulf Coast-Vietnam route, the Nigerian grade would be a more cost effective feedstock option for Dung Quat, a sweet crude trader at a European trading house with close knowledge of Asia's monthly North Sea and West African crude procurement said.
Shifting oil product slate
BSR said the Dung Quat refinery is operating at 108% of capacity this month to take advantage of the increase in crack margin, which it said is in an upward trend currently.
The plant has also been adjusted to produce more gasoline and diesel but much lower jet fuel.
As demand for jet fuel continues to suffer from the drastic decline in air passenger numbers amid the prolonged coronavirus pandemic, the refinery will keep the aviation output to a minimum and lift production of diesel instead, according to BSR.
BSR plans to produce 6.497 million mt of products in 2021, up 9.6% from 2020. Around 150,000 mt of the 2021 output would be petrochemical products and the rest would be transportation fuels and other refined oil products.