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Vietnam’s oil and gas industry: Risks of supply shortage

Vietnam’s oil and gas industry: Risks of supply shortage

Tuesday 24, 01 2023
The risk of oil and gas supply shortage is looming over Vietnam, as one of the country’s biggest refineries is suspending production due to a technical problem.

Strained supply

According to information from the Ministry of Industry and Trade, Nghi Son Refinery (NSRP) is suspending its RFCC (Residue Fluid Catalytic Cracking) workshop to fix a technical problem of catalytic leakage at the regenerative thermobaric expansion joint.

Vietnamcredit Strained supply

The shutdown of the workshop will cause gasoline output in the first 10 days of January 2023 to be reduced by 20-25% compared to the plan, equivalent to about 125,000 m3. While it is expected that in January 2023, Nghi Son Oil Refinery will produce and supply 600,000 m3 of petroleum to the market.

Every month, the whole country consumes 1.6-1.8 million m3 of petrol and oil of all kinds. Of these, 40% of this is supplied by Nghi Son Refinery.

To avoid a repeat of the disruption and shortage of supply in the market, the Minister of Industry and Trade Nguyen Hong Dien sent an urgent request to the Vietnam Oil and Gas Group (PVN) to direct Nghi Son Oil Refinery to rectify the breakdown and stabilize production.

Specifically, two oil refineries including Nghi Son and Dung Quat increased capacity to the maximum, using reserves and other sources of goods to make up for the shortfall in the signed petroleum supply contract.

In January 2022, Nghi Son Refinery once cut output by 25% compared to normal production due to financial difficulties. This plant was later funded to operate again, but the petroleum market was still in turmoil.

In the second quarter of 2022, this factory continued to reduce its capacity to 50-55%. There was a period without production. This situation makes the petroleum supply extremely tight in Vietnam’s southern and western markets.

Some petroleum wholesalers said that due to a technical problem with Nghi Son, it would take from January 17 to January 20 to be resupplied. Meanwhile, Binh Son Refinery reduced capacity due to rough seas, leading to them being unable to receive crude oil, which also affected supply. Therefore, the supply of gasoline may not be interrupted, but it will be strained, and the discount will be low.

Mr. Bui Ngoc Bao, Chairman of the Vietnam Petroleum Association (Vinpa), analyzed that unexpected technical problems at production plants have more or less an impact on the petroleum market, possibly affecting the supply of petroleum products for key businesses. The market may be scarce in the short term.

Vietnamcredit petroleum imports

Vinpa believes that the trend of petroleum imports in 2023 will continue to increase, firstly in January 2023, because Nghi Son Refinery temporarily stopped the RFCC workshop. Besides, in June-August 2023, Binh Son Refining and Petrochemical Joint Stock Company (BSR) will carry out the 5th Dung Quat Oil Refinery's overall maintenance. The maintenance lasting for nearly 2 months will cause domestic petroleum production to decline, having to depend on imports.

Predictions for 2023

Vietnam’s oil and gas market in 2022 was full of fluctuations. At some point, the supply was disrupted, leading to a scarcity in the market. After the efforts of the management agencies and policy adjustments, gasoline supply and demand have been temporarily stabilized.

However, it is forecasted that in 2023, the domestic petroleum market will continue to be difficult, mainly because of finished petroleum products and most crude oil depends on the world market. Meanwhile, the world market still has many potentials for instability and unpredictable risks due to geopolitical conflicts.

Assessing that the petroleum market in 2023 still has many unpredictable developments, from the end of November 2022, the Ministry of Industry and Trade held a meeting with the Vietnam Petroleum Association and 35 petroleum trading enterprises to prepare the supply scenario in all scenarios for 2023.

Vietnamcredit petroleum market

The ministry has proposed two scenarios for the allocation of total petroleum resources at least in 2023: Scenario 1, the growth rate is 10% compared to 2022, equivalent to 25.9 million m3, tons; Scenario 2 grows 15%, equivalent to about 27 million m3, tons.

In 2022, the source of imported petroleum to Vietnam has increased sharply to meet domestic demand. According to the Ministry of Industry and Trade, Vietnam only imports 20% of finished petroleum products, while 80% is domestically produced.

However, out of the 80% of the supply produced by Binh Son and Nghi Son refineries, 50% still has to import crude oil for refining. As a result, Vietnam still has to import about 70% of raw materials and finished products, only 30% of which is the domestic supply from crude oil to finished petroleum products.

Since 70% of the supply of oil and gas in Vietnam comes from imports, the risk of disruption and shortage increases in some volatile times of the world market.

 

Compiled by VietnamCredit

 

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