New oil refineries to quadruple Vietnam capacity 2023

The Dung Quat refinery in the central province of Quang Ngai operated by the state-owned PetroVietnam’s subsidiary Binh Son Refinery Limited (BSR) remains the sole facility now, with a crude oil processing capacity of 148,000 barrels per day (b/d).

Dung Quat will soon be joined by Nghi Son refinery in the central Thanh Hoa Province. Nghi Son is currently testing at full capacity and is scheduled to start commercial operations this month.

The $9 billion Nghi Son project is owned by the Nghi Son Refinery and Petrochemical LLC (NSRP), a joint venture between PetroVietnam, Kuwait Petroleum, Japan’s Idemitsu Kosan and Mitsui Chemical. It will have a designed capacity of 200,000 b/d of crude oil.

Meanwhile, the long-delayed construction of the Long Son refining and petrochemical complex in the southern province of Ba Ria-Vung Tau resumed in February this year, putting it on track to go on stream by the first half of 2023.

Licensed in 2008 and initially slated to begin operations in 2014, Long Son hit a roadblock due to site clearance issues and disagreements over the development strategy between the project partners.

This caused Qatar Petroleum to withdraw from the project in 2015. Thailand’s Siam Cement Group (SCG) increased its stake to 71 percent after it bought the 25 percent stake owned by Qatar Petroleum, while PetroVietnam held the remaining 29 percent.

In May this year SCG agreed to acquire PetroVietnam’s 29 percent. The refinery is expected to cost $5-6 billion. Once completed it will be able to process 200,000 b/d of crude oil and produce 1.6 million tons of olefins annually.

"The two new refineries would increase competition in the domestic fuel market, which could require refiners to upgrade, cut costs and move up the value chain to win market share," Fitch Solutions said in a report released Monday.

This also spells an end to Dung Quat’s status as the country’s sole refiner, which it has enjoyed since 2010.

Competition from Nghi Son will be stiff as the government has granted a host of incentives to successfully commission its second standalone refinery, including tax concessions, tariff exemption on crude imports from primary feedstock provider Kuwait and an offtake guarantee from PetroVietnam for the first 15 years of operation.

The Quang Ngai provincial government in early November sought the same incentives for the Dung Quat refinery to ensure "fair competition".

BSR is also planning to invest $1.8 billion over the next three years to expand Dung Quat’s capacity by 23,000 b/d and upgrade the quality of its fuels to Euro 5 from the current Euro 2.

Fitch Solutions said the upgrade would enable Dung Quat to process higher-sulphur crudes, helping reduce its dependence on Vietnamese light, sweet crudes, mostly from the Bach Ho field, which is depleting and thus becoming more expensive.

Besides the competition between themselves, the refineries also face significant pressure from imports, mostly from South Korea and Southeast Asian countries, which are of higher quality and priced competitively due to free trade agreements, the report noted.

"Competition is likely to peak in 2024, when tariffs on fuel imports from ASEAN and South Korea are scheduled to be cut to zero. Concerns about mounting competition have also led both Dung Quat and Nghi Son to consider exports to countries like Laos, Cambodia and Indonesia.

"Vietnam’s improving self-sufficiency in refined fuels would reduce its need for imports, reorienting trade flows from some of its major fuel suppliers to alternative markets."

While insufficient to entirely meet domestic demand, this nevertheless would weigh on the market positions of Singapore, Malaysia, South Korea, Thailand and China, which account for nearly 95 percent of Vietnam’s fuel imports, according to Fitch Solutions.

Malaysia and Thailand have the highest exposure to Vietnam’s fuel market -- 11 percent and 16 percent of imports.

Major international fuel suppliers are also likely to find room for growth in the Vietnamese market increasingly hard to come by as their quality advantage over locally produced fuels dissipates with the ongoing upgrades, the firm added.