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Analysis: Vietnam's push for E5 92 RON gasoline sends 95 RON imports soaring

Singapore — Vietnam's gasoline import structure has seen a huge swing to 95 RON gasoline in 2018 as domestic demand shifts to the grade after the full rollout of E5 92 RON gasoline early this year.

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The replacement of conventional 92 RON gasoline with E5, which is 5% blended with ethanol, also turned Vietnam into a regular importer of the lower octane 90 RON gasoline for gasohol blending.

Vietnam rolled out E5 nationwide on January 1 and has been actively promoting its use.

However, more drivers in Vietnam are opting to fill their tanks with 95 RON gasoline instead, trade sources in Vietnam and Singapore said.

"Both motorbike and car owners think that 95 gasoline should be safer for their engines than E5," a Vietnamese fuel distributor said Friday.

"Consumption of E5 is not as high as expected; [it] accounts for just 50% of the total [sales]," a trade source in Vietnam said.

Previously, conventional gasoline accounted for the majority of gasoline sales and imports as motorcycles far outnumber cars in Vietnam and most of those cars do not require 95 RON gasoline.

The change in the domestic consumption structure created a radical swing in import grades from South Korea, Vietnam's largest gasoline supplier with a 90% share of its gasoline imports in 2017, according to customs data from the two countries.

During the first half of 2018, about 59% of exports from South Korea to Vietnam were of 95 RON grade, and 23% 92 RON -- a sharp reversal from a ratio of 30:70 last year, according to estimates by trade sources.

Average monthly shipments of 95 RON gasoline from South Korea to Vietnam in H1 almost doubled from full-year 2017 to around 1.25 million barrels, while average monthly 92 RON gasoline exports plunged 70% to about 480,000 barrels, according to traders' estimates.

This year also saw a surge in South Korea's shipments of 90 RON gasoline to Vietnam, which averaged 400,000 barrels/month or 19% of total imports in H1, presumably for E5 blending. South Korea's exports of this grade to Vietnam averaged only 17,000 barrels/month in 2017.

"Only majors can blend E5, such as PV and Petrolimex," a trader in Singapore said. "The rest are focusing on [importing] 95 RON now."

Motorists now appear to be willing to pay the extra cost in pump prices for 95 RON, which reflects not just the difference in octane, but also tighter specifications.

95 RON gasoline with Euro 4 equivalent specifications currently retails at Dong 21,370/liter (92 cents/liter) and 95 RON gasoline with Euro 3 equivalent specifications at Dong 21,170/liter.

In comparison, the pump price of E5 92 RON gasoline with Euro 2 equivalent specifications is a lower Dong 19,610/liter, or 92% and 93% of Euro 4 and Euro 3 equivalent 95 RON gasoline prices respectively, according to Vietnam's largest retailer Petrolimex.

Still, ample supply from Vietnam's 6.5 million mt/year (130,000 b/d) refinery at Dung Quat, which has significantly increased its operating rates since the government slashed the tax on its fuels from 20% to 10% in 2017, and the start of gasoline sales from the greenfield 10 million mt/year refinery at Nghi Son is curbing Vietnam's requirement for gasoline imports.

Exports from South Korea to Vietnam fell to an average 2.1 million barrels/month in H1 from an average 2.3 million barrels throughout 2017.

Petrolimex has not issued any tenders seeking spot gasoline since Nghi Son refinery started selling gasoline cargoes to domestic distributors in May.

The refinery can produce up to 46,000 b/d of Euro 4 equivalent gasoline at full capacity, according to official data. This comprises 92 RON gasoline not blended with ethanol and 95 RON gasoline of Euro 3 and Euro 4 specifications, according to trade sources in Vietnam.

But trade sources in Japan -- where two of Nghi Son's four joint venture partners are from -- believe the refinery's operating rates will not ramp up to a reasonably high level until next year. The reason for this was not clear.

However, it could explain why Vietnam's gasoline imports did not plunge in May and June. The country received 290,454 mt in May and 318,260 mt in June, largely in line with the monthly average of 305,000 mt over H1, Vietnam's customs data showed.

Separately, Dung Quat refinery may have to export Euro 2 equivalent gasoline if domestic demand for the grade falls below its output, a source close to the refinery's parent company, state-owned PetroVietnam, said earlier this year.

The refinery currently cannot produce Euro 4 equivalent gasoline. Its gasoline has sulfur levels as low as 150 ppm, though other parameters are unclear.

Its expansion and upgrade, which will enable it to produce up to Euro 5 equivalent gasoline and gasoil, is expected to be completed around 2022.

--Dexter Wang, dex.wang@spglobal.com

--Wendy Cheong, wendy.cheong@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com