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Energy transition and its impact on Vietnam’s oil and gas industry

Energy transition and its impact on Vietnam’s oil and gas industry

Wednesday 26, 10 2022
Vietnam has committed to reducing net emissions to zero by the middle of the century and is with the world on the energy transition trend. How will this transition affect the oil and gas industry of Vietnam?

Energy transition in Vietnam

A research report on energy transition trends and policy implications for the oil and gas industry in Vietnam was published by the Vietnam Center for Economic and Strategic Studies (VESS) on October 19.

Pham Van Long, the representative of the research group of VESS, stated that the trend of energy transition in the world had been directly affecting different industries.

VietnamCredit oil and gas industry in Vietnam

With the accelerated energy transition in the world, with many major powers actively participating in the transition process, industries have made changes to adapt to the changing market and the requirements of society. A typical example is the transportation sector, with its strong growth in the field of electric vehicle manufacturing.

As the world shift toward renewable energy sources, gas retains its vital role as an intermediate energy source, supporting the transition to clean energy sources. Gas power is forecasted to have a growth trend in the future. It is assessed to be more stable and helps the power system operate more smoothly than variable renewable energy.

Vietnam is also not outside of the global energy transition trend. The report of VESS shows that the driving forces leading to the energy transition in Vietnam revolve around two main issues: environment and socio-economics.

Vietnam relied heavily on coal and oil energy during its 30 years of urbanization and industrialization. It has created a large amount of greenhouse gas emissions, one of the leading causes of cause climate change.

The World Bank estimated that Vietnam lost 10 billion USD in 2020, equivalent to 3.2% of GDP, due to the effects of climate change. In 2021, Vietnam ranked 61 out of 115 countries in terms of readiness for the energy transition in the World Economic Forum's Energy Transition Index with a score of 54/100, climbing up 8 ranks and 3 points compared to the 2020 rankings.

Vietnamcredit The World Bank

Viet Nam was one of the first countries to submit an update of the Nationally Determined Contribution (NDC) to the UNFCCC in 2020. Energy sectors such as electricity and transport tend to change the most to meet Vietnam's commitment to reducing greenhouse gas emissions. With its function of providing input fuel for the above sectors, the oil and gas industry is also facing opportunities and challenges in the context of the global energy transition.

Oil and gas industry faces challenges

The research report of VESS shows that, at present, Vietnam's oil and gas industry is facing many difficulties.

The representative of VESS said that with the current rate of exploitation, a few decades from now, the oil and gas fields being exploited in Vietnam would be exhausted, making it difficult to increase oil reserves to make up for annual production.

At the same time, attracting investment in the field of search and exploration is also not very promising. There are many potential risks, and it is unattractive when profit margins are low.

In addition, policies aimed at reducing fossil fuels will create more barriers to the future development of the oil industry in Vietnam.

Vietnamcredit oil and gas exploration

In the immediate future, crude oil prices are forecasted to have a stable increase after COVID-19 is under control. That will create more favorable conditions for oil and gas exploration projects and help seismic explosion, drilling, and recovery activities. However, the biggest challenge now is attracting more foreign investment with reasonable preferential policies and a transparent and fair business environment.

According to Mr. Long, the upcoming Draft Petroleum Law is expected to create opportunities and promote the process of investment, search, discovery, exploration, and exploitation of new oil and gas fields quickly and conveniently. However, the 4th draft (August 22, 2022) still has some shortcomings.

 

Compiled by VietnamCredit

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