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Vietnam oil & gas industry report: an insightful overview

Vietnam oil & gas industry report: an insightful overview

Monday 16, 08 2021
Out of 52 countries in the world which have oil and gas resources, Vietnam takes the 28th position. By the end of 2013, Vietnam's verified crude oil reserves were about 4.4 billion barrels, ranking first in Southeast Asia, while Vietnam's verified gas reserves were about 0.6 trillion m3, ranking third in the region.

Overview of Vietnam’s oil and gas industry

Low competition due to significant barriers to entry

As a specific business related to national energy security, the oil and gas industry of Vietnam is under the direct management of the Vietnam Oil and Gas Group (PVN) and the supervision of the Ministry of Industry and Trade.

PVN has established subsidiaries and associated companies operating in the oil and gas field, and organized operation in the form of a parent-subsidiary model. The group supervises and manages the activities of these businesses from exploitation to product distribution.

PVN

It is not easy to enter Vietnam’s oil and gas industry due to strict barriers which require large investment capital and an approval by the State. In particular, policy barriers are the main reason that restricts businesses from entering Vietnam's oil and gas industry. Many businesses have almost a monopoly in their field of operation, which brings great advantages.

Directly affected by fluctuations in global crude oil prices

Business activities of the oil and gas industry are closely related to crude oil and products processed from crude oil, therefore, fluctuations in global crude oil prices will have a direct impact on business activities of companies operating in the industry. This means that rising crude oil prices will have a positive effect and vice versa.

Fluctuations in crude oil price are based on the supply-demand relationship, however, there will be a subjective will to some extent. Specifically, there are a number of countries that exploit large oil reserves, accounting for most of the world's supply, and an organization called OPEC+ (Organization of Crude Oil Exporting Countries) was founded. This organization is a block that can change oil prices: if it wants to increase crude oil prices, OPEC + will agree to cut crude oil production, tighten supply, which has been happening in the recent period. The spectacular reversal of crude oil price from 20 USD/barrel in April 2020 to approximately 70 USD/barrel in April 2021 mainly results from the commitment to cut crude oil production by OPEC + countries.

Value chain of the industry

Companies in Vietnam's oil and gas industry participate in all stages from input (exploitation, exploration) to output (processing, distribution). Crude oil and wet gas are raw materials that are exploited offshore, processed inland and distributed to customers.

The operating models of enterprises in the oil and gas industry are closely linked, creating a complete value chain. After crude oil is processed to make gasoline, finished oil is delivered for distribution. Enterprises both specialize in their own business activities and support other enterprises in the industry, contributing to the sustainable development of Vietnam's oil and gas industry. The exploitation stage is the first stage in the value chain of the oil and gas industry and plays the most important role.

Value chain

Oil & gas company in Vietnam

In 2020, Vietnam’s oil and gas industry suffered from a "double crisis", which are the COVID-19 pandemic and the deep drop in oil prices.

Oil and gas enterprises had to focus on responding to the epidemic which led to low and shrinking market demand, and to cope with the unprecedented decline in crude oil prices in the history.

Oil price witnessed a 20-year record low, especially for the first time in the history of world oil and gas, on April 20, 2020, the price of WTI oil was negative 37.6 USD/barrel.

According to data from financial statement of companies in the industry, in 2020, only four out of eleven domestic oil and gas enterprises experience growth in revenue, including Petrovietnam Drilling and Well Service Corporation (PVD), and PetroVietnam Technical Services Corporation (PVS), PetroVietnam Coating Joint Stock Company (PVB), and PTSC Offshore Services Joint Stock Company (POS).

Net revenue

PVD, POS and PVB all saw profit growth in 2020. Particularly, POS recorded both revenue and profit increasing by triple digits.

Profit after tax

As for PVD, they company has experienced a difficult time over the past 4 years as their annual profit has been below 200 billion USD. Previously, in the period of 2011 - 2015, PVD's profit was over trillion VND.

In 2020, PVD's profit increased by 5% to nearly 8 million USD in the context of the COVID-19 epidemic and the sharp drop in oil prices which caused many businesses in the same industry to struggle.

For PVS, although its revenue increased by 18% to 873.7 million USD in 2020, the company's profit after tax decreased by 26% to 32.4 million USD.

PVS leaders said that due to the dual impact of the COVID-19 epidemic and the drop in oil prices, PVS's service activities were delayed, service demand decreased and projects had to be put off as required by customer.

Sharing the same difficulties with PVS, Vietnam LPG Trading Joint Stock Company (LPG) transport and PetroVietnam Transportation Corporation (PVT), which holds 30% of the oil transportation market share of the country, had to reduce prices of all petroleum products. This led to a decrease of 4% and 7% in annual revenue and profit, respectively.

The double impact also made the gas giant, PetroVietnam Gas Joint Stock Corporation (GAS), shaken.

In 2020, net revenue and profit after tax of PV GAS decreased by 14% and 34% compared to 2019, reaching 2.8 billion USD and 349.3 million USD, respectively. The company's profit in 2020 also recorded the lowest level in the past 4 years.

Compared to the plan, PV GAS still achieved 97% of the revenue target and exceeded 19% of the year profit plan.

In the group of petroleum production, processing and trading, PetroVietnam Oil (OIL) and Binh Son Refining and Petrochemical Company Limited (BSR) suffered from record losses in 2020, while Viet Nam National Petroleum Group (PLX) recovered after a big loss in the first quarter of 2020.

The profit of this group comes from the difference between the selling price of gasoline and the price of crude oil. The company always maintains a high inventory of crude oil, so a decline in price of crude oil would lead to a decrease in selling price while production costs were still high.

Besides, the supply of finished petroleum products was higher than the demand in the context of the COVID-19 epidemic, which negatively affected business results. Therefore, in 2020, BSR lost 125.5 million USD while in 2019 its profit was 126.6 million USD.

Source: vietnambiz, finashark

Compiled by VietnamCredit

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