Since the beginning of 2021, demand for oil and gas has continuously increased as production has gradually recovered after the Covid-19 pandemic. Compared to other popular commodities in the world, prices of oil and natural gas saw the sharpest increase, by 111% and 70% respectively. Oil prices have set a new 5-year high and are heading towards the 2013-2014’s price range of above $100/barrel.
Oil supply is forecasted to increase slowly in the near future as the US and China reached an agreement at COP26 to limit the use of fossil fuels while OPEC and its allies have not shown their will to increase production. Meanwhile, oil demand has been recovering strongly. Specifically, in November 2021, world demand for oil exceeded 100 million barrels per day.
According to the US’ Energy Information Administration (EIA), oil consumption in the late 2021 period would be 96.58 million barrels per day compared with the total supply of 95.44 million barrels per day, a shortfall of more than 1 million barrels of oil per day. If OPEC delays the increase in production, the shortage will only get bigger.
OPEC is playing a decisive role in balancing supply and demand in the oil market and it may not be easy for this group to increase production output. Data shows that OPEC continuously reduced production as soon as oil prices were in a downtrend in 2018-2021. Therefore, the agency forecasts that oil prices will maintain high in 2022.
Mirae Asset Vietnam Securities Company (MAS) said that the average break-even point of offshore oil and gas projects in East Asia is about 55 USD/barrel. Therefore, at the current price, it is expected that exploration and exploitation projects will be restarted, creating excitement for the upstream stage in 2022. Businesses providing drilling services, drilling rig construction, and floating warehouse are expected to get new contracts with higher value.
Large domestic projects are also expected to be implemented quickly. In particular, the Block B O Mon project is showing positive signs. In this segment, listed companies are Oil and Gas Drilling and Services Corporation or Petroleum Engineering Corporation. In addition, the Vietnam Gas Corporation has also invested in the Su Tu Trang project.
Oil and gas transportation is entering a growth phase. Demand for oil transportation in 2022 will increase when that for petrochemical products from Dung Quat and Nghi Son projects recovers. From 2023 when the Long Son oil refinery project is completed, the oil transportation demand will continue to increase.
Liquefied petroleum gas (LPG) import in 2021 is expected to grow by over 20% and is forecast to maintain a growth rate of 20-22% until 2025. The demand for import of liquefied natural gas (LNG) will continue to promote the construction of a warehouse system. By 2025, it is expected that 4 more LNG projects will be constructed, of which the LNG Thi Vai Phase 2 project and the Son My LNG project phase 1 invested by GAS are highly feasible.
In addition, the trend of limiting coal-fired power plants forces the Government to pay more attention to the development of gas-fired power projects. A series of gas power projects are being implemented including Nhon Trach 3 & 4 (expected to be completed 2023 - 2024), Hiep Phuoc (2022), Son My 1 & 2 (2025). These projects are expected to add 17,600 MW to Vietnam's power generation system by 2027.
Assessing the profit prospect in 2022, SSI Securities Company estimates that the profit growth of the oil and gas industry will reach 20.6%, lower than the pre-Covid-19 level. The main growth drivers for the industry come from leading enterprises such as PetroVietnam Drilling and Drilling Services Corporation, Petrolimex or Vietnam Gas Corporation.
With the trend of building LNG infrastructure as the focus, the Government has now approved many LNG energy complex projects to solve the problem of gas supply shortage and increased electricity demand. Vietnam Gas Corporation is the leading company with LNG Thi Vai port starting operation at the end of 2022, supplying LNG for Nhon Trach 3 & 4 power plants. GAS will no longer have a monopoly in the gas industry in the future when many new companies such as Delta Offshore, Gulf, Sojitz, AES, and Petrolimex enter the LNG market.
According to the Development Plan of Vietnam's gas industry with a vision to 2035, the Government has set targets for gas supply and consumption. Domestic gas production is planned in the range of 17-21 billion m3 to 2035, with consumption volume of 23-31 billion m3. Imported LNG will offset gas supply.
The government aims to increase the share of gas-fired electricity to diversify power sources and reduce emissions. Specifically, Power Plan 8 for the period 2021-2045 (draft published in November 2021) estimates a strong growth in gas-fired power capacity. According to the draft, the target of gas power generation capacity is nearly 55,000 MW by 2035 (of which LNG power capacity is 40 GW). This is a large capacity compared to the current gas power capacity of only 9GW.
Therefore, SSI Research believes that enterprises like Vietnam Gas Corporation will benefit from the LNG development trend. This company has the advantage of being the first company to enter the LNG market with the first imported LNG batch expected to be delivered in Q4/2022, while businesses like PetroVietnam Technical Services Corporation can benefit from potentially large volumes of work with new LNG complex projects in the long term.
Source: Mirae Asset, SSI Research
Compiled by VietnamCredit