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Vietnam Natural Gas Profile

February 2011



1. Economic and energy overview Vietnam is a rapidly developing economy. While average per capita GDP was only US$1,200 in 2010, the economy is growing quickly. In 2011 the GDP growth rate target is 7 - 7.5% and in 2011-2015 the annual target is 7.5 - 8.5% (Hien, 2010). Population is 88.6 million. Figure 1 Vietnam GDP and per capita income in the period 2006-2010

Source: (Hien, 2010) According to Omoteyama (Omoteyama, 2009), Vietnam has low energy use and non-commercial energy sources such as biomass make up 40% of energy used. However energy use (particularly commercial energy) is growing quickly, more quickly than GDP. In the 2005-2009 period, Vietnam energy consumption increased at an average annual rate of 7.5% 1.5 times GDP growth. Total energy consumption in 2009 was 39.5 million tonnes of oil equivalent (TOE), a significant increase from 29.45 million TOE in 2005. Over this period oil consumption fell from 42% of the energy mix in 2005 to 37% in 2009. Gas consumption increased from 17% in 2005 to 20% in 2009. Due to high energy demand, Vietnam will become an energy importer by 2015. Government priorities are to reduce the proportion of coal and oil and increase the proportion of electricity and gas, while developing new energy sources and renewable energy (Hien, 2010). Total energy demand is expected to grow 2.5 times by 2015 and 5 times by 2025. Vietnam is actively building both gas and coal fired generation to meet growing demand. It has relied heavily on hydropower for electricity but is reaching the limits of hydro capacity and capability. It is working with Laos to import hydro electricity from that country by 2015. It also imports electricity from China to overcome shortages in the North.



Electricity prices are regulated and accordingly prices for coal and gas for power generation are below international levels.

2. Demand Vietnamese gas consumption has increased eight-fold over the last decade (BP 2010). Gas production and consumption are all located in the south. The main gas consumers in Vietnam are power plants, mainly located in the south-east and south-west regions, onshore from the country’s gas fields. As of 2010 these plants consumed up to 90% of total gas volumes to produce about 40% of national power generation (Hien, 2010). Higher prices are realised in selling gas for power generation than for other purposes. If sufficient gas resources are discovered or feasible technology is developed, some power plants will be built or converted to gas usage in the Central and North regions. In future, growth in gas consumption in other sectors will reduce the ratio of gas used for power generation to 80 – 85% (Hien, 2010). The other uses of gas are: Fertilizer production: for a stable supply of fertilizer for agriculture, Petro

Vietnam (PVN) completed the Phu My fertilizer plant in April 2004 and expects to complete a second plant in Ca Mau in 2011. In 2009 fertilizer consumed 6% of gas production.

CNG production: gas has been used in CNG production since September 2008.

Petrochemical: gas is expected to be used in petrochemical production from 2011.

Industrial and residential customers: this is a limited market due to low consumption and high investment costs but gas is supplied to industrial consumers and residential buildings located near the main pipeline system.

Total gas demand is expected to reach between 16 BCM (base-case) and 27.8 BCM (high-case) by 2025 (Hien, 2010). Table 1 sets out Petro Vietnam’s gas demand forecast, as presented to the 2008 GASEX Conference.



Figure 2 Vietnam gas production and consumption (Bcm)

Source: (BP, 2010) Table 1 Vietnam gas use to 2008 and outlook (BCM)

Source: (Petro Vietnam, 2008) At the GASEX Conference in 2008 PVN reported that it had a gas master development strategy approved to: Accelerate gas pipeline projects;

Research and invest in low pressured gas pipeline systems for residential and industrial users, using gas from Cuu Long, Nam Con Son and Malay – Tho Chu basins;

Develop the gas market by investing in gas using sectors such as power plants and fertilizer plants;

Invest in and realize four gas using industrial zones: − In the Southeast of Vietnam there is already a gas - power - fertilizer

complex, Phu My – Nhon Trach – Hiep Phuoc, using the gas from the

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Vietnam gas consumption (bcm)

Production

Year 2004 2005 2006 2007 2008 2010 2015 2025

Power 3.3 4.5 5 5.1 6.1 8.4 12.9 20

Fertilizer 0.3 0.5 0.5 0.5 0.5 0.5 1 1

CNG 0.2 0.3 0.3

Petrochemical 0.4 0.4

Industrial & residential 0.2 0.2 0.3 0.3 0.4 1.8 4.6 6

Total 3.8 5.2 5.7 6 7 11 19.1 27.8



Cuu Long & Nam Con Son basins with the total consumption of 6-9 BCM/year;

− In the Southwest of Vietnam there is the Ca Mau gas - power - fertilizer complex using the gas from PM3-CAA and the power centre in O Mon- Tra Noc which will use the gas from Block B & 52 with the total consumption of 5-8 BCM/year;

− In the Northern of Vietnam gas-use is to be developed in the Red river delta with total potential consumption of 1-2 BCM/year (subject to finding gas);

− In Central Viet Nam there is potential consumption of 1-2 BCM/year (also subject to finding gas).

Invest in gas pipelines, gas pressurizing stations, gas processing plants (LPG, CNG, Condensate) and petrochemicals;

Develop gas usage in the residential sector, transportation (LPG, CNG), construction material manufacturers (steel, ceramic, pottery);

Connect the Southeast and Southwest gas pipeline system; gradually establish the national pipeline system, and consider the possibility of connecting the national pipeline system to the ASEAN’s gas pipeline in order to import gas after 2015.

Encourage investors to invest in gas pipeline systems from offshore fields to connect to the national gas pipeline system, in order to develop gas fields and efficiently gathering associated gas (2005 – 2015).

Power sector planning scenarios (such as in the Power Master Development Plan 6) as well as the National Gas Master Plan envisage gas use for generation in Southern Vietnam rising dramatically from some 8 BCM in 2010 to 13/15 BCM in 2015 and 21/24 BCM in 2025. This would represent an approximate tripling of demand in 15 years focused predominantly on power generation (assuming, of course, that gas supply is able to keep up with demand). Vietnam also sees non-power uses of gas to be an important element of gas sector development in the coming years (World Bank, 2010).

2. Supply Figure 3 shows the location of Vietnam’s sedimentary basins. There have been no significant commercial discoveries in the North, although companies are assessing potential for coal bed methane. Large-scale gas development based on offshore resources in the south began in 1995 with the production of associated gas from the Bach Ho oilfields. This was followed in 2003 when gas from the Nam Con Son basin gas fields started to come on-stream, then from Block 11-2 in 2006. In 2007 came the first deliveries of gas from the PM-3 development in the offshore area jointly administered with Malaysia (Petro Vietnam, 2008).



Figure 3 Vietnam sedimentary basins

Source: (Hien, 2010) Gas fields in Vietnam (Hien, 2010) are as follows:

Song Hong (Red River) Basin: located in the area including the Hanoi Trough, Gulf of Tonkin and central continental shelf. At present, only the Tien Hai C gas field with a recoverable reserve of 0.6 BCM is producing and is in the last stage of production at 8-10 MMCM per year. The reserves of this basin are up to 300 BCM. However commercial production is constrained due to the high CO2 content of the gas. There are plans for the further exploitation and production from these files and production is expected to start in 2015, to supply gas to industrial customers in Thai Binh province and nearby areas.

Cuu Long Basin: located in the south east of the country continental shelf. A number of oil and gas fields have been discovered in the basin. Most of the fields under production fields are oil fields with associated gas. The total proven reserves of associated gas in the basin is 90 BCM and production is 1.3 BCM/year, mainly from oil fields such as: Bach Ho (producing since 1995), Rang Dong (2001), Phuong Dong (2008), Ca Ngu Vang (2008) and Su Tu Den/Su Tu Vang (2009). In coming years, Vietnam plans to bring several new gas gathering project into operation: Rong – Doi Moi (2010), Te Giac Trang (2011), Su Tu Trang (2012), Hai Su Trang (2013). Production from Rong-Doi Moi commenced in December 2010 at a rate of 960,000 cubic metres per day.

Nam Con Son Basin: located in the south east of the Cuu Long Basin, this is the largest potential hydrocarbon reserve, mostly from natural gas fields with proven reserves of 140 BCM. The basin is currently the biggest source of gas supply in Vietnam with annual production of around 6 BCM from the fields of Lan Tay (since 2002) and Rong Doi/Rong Doi Tay (since 2006). In next few years, gas from Lan Do (2012), Hai Thach/ Moc Tinh (2013) and Thien Ung/Mang Cau (2013) will be added to the pipeline.



Malay-Tho Chu Basin: located in the south west continental shelf in the Gulf of Thailand. This basin has proven reserve of about 125 BCM. Currently, PM3-CAA, the overlapping area between Vietnam and Malaysia, has been producing since 2003 with annual production of 1.5-2 BCM/year. A new 400 km gas pipeline is also under construction, which will transport 5-6 BCM/year of gas from Block B&48/95 and Block 52/97 to the O Mon power complex. The project is expected to operate from 2014.

The Phu Khanh, Tu Chinh- Vung May Basin: located in the deep water area of the southern part of Vietnam’s Eastern Sea (Bien Dong). It has large potential reserves, which could contribute production of 1-2 BCM/year.

Hoang Sa, Truong Sa Basin: under exploration. Vietnam has also been attempting to study and develop non traditional sources of gas, particularly coal bed methane (CBM) in the North. According to preliminary evaluations, the remaining coal reserves in the Quang Ninh area at a depth of 1000 m are about 10 billion tones, with methane content of about 4 – 10 cubic metres per tonne of coal. In the Red River delta (provinces of Ha Noi, Hai Phong, Thai Binh, Hung Yen), brown coal reserves are estimated to be 200 billion tonnes with a methane content of 6 -15 cubic metres per coal tonne. The total coal bed methane potential of the area may be as much as 400 BCM. There are large differences in published estimates of Vietnam’s gas reserves. The Oil and Gas Journal quotes proved gas reserves of 195 BCM (24 times current production) while (BP, 2010) quotes 680 BCM (85 times current production). Hien (Hien, 2010) quotes 355 BCM in the Cuu Long, NCS and Malay Tho Chu basins, with potential for a further 300 BCM in the Song Hong Basin. According to the World Bank (World Bank, 2010), the size of proven (1P) reserves is limited. Studies carried out for the Government of Vietnam in 2008 suggest that only the current annual supply of about 7 BCM is assured from “proven plus probable” (2P) reserves. To achieve annual production of some 25 BCM about the year 2025 would mean that the “proven plus probable plus possible” (3P) reserves must by then be moved into the “proven” category by means of further successful exploration and development. The consensus appears to be that much of Vietnam’s offshore is gas-prone and that the best prospects are to the southeast and southwest of the Mekong Delta. There is a problem of contaminants, particularly CO2, in the raw gas. In the potential gas producing areas in the shelf off northern and central Vietnam, where the possible gas accumulations may be smaller than those so far developed in the south, concentrations of CO2 appear to be higher (World Bank, 2010). Figure 4 shows the estimated gas supply and demand balance from Hien (Hien, 2010), who notes that without importing LNG, Vietnam will face a shortage of 1 – 3 BCM/year from around 2014. With the objective of increasing gas supply and developing the gas market, Vietnam is going to invest in an LNG import project. The project is scheduled to receive LNG from 2012 with initial volume of 1 million tons per year (1 Mtpa). In the long term the import quantity will be increasing to 3 – 5 Mtpa, depending on the supply – demand balance.



Figure 4 Vietnam gas demand and supply balance

Source: (Hien, 2010) In September 2010, Upstream Online reported that PetroVietnam Gas is set to make a final investment decision by year-end on the country’s first LNG terminal to be built at Phu Long Island off Vung Tau (near Ho Chi Minh City). A tender for the construction of the LNG terminal is likely to be issued next year and the project cost is estimated to be between $500 million and $700 million. The facility is expected to start up in 2014 and aims to be handling as much as 3 Mtpa.

3. Infrastructure Vietnam has three gas pipelines from fields offshore southern and south western Vietnam to power plants and other gas-consuming facilities. These have been developed through government policy. A fourth development (Block B) is in Front End Engineering and Design (FEED). There are not currently any LNG import facilities. Apart from the pipelines to these facilities there is no onshore infrastructure. The system is not connected and there is no uniform gas quality. Details of the various gas pipeline projects (sourced from the Petro Vietnam website) are set out below.



Figure 5 Gas pipeline system

Note: Existing pipelines are shown in black. Pipelines under development are shown in blue and potential future pipelines are shown by the dotted blue line. Source: (Hien, 2010)

Cuu Long Basin Pipeline System With a diameter 16 inches, length 197 km and capacity 2 BCM/year, the pipe line system has transported associated gas from fields of Su Tu Den/Su Tu Vang-Rang Dong, Phuong Dong-Bach Ho, Ca Ngu Vang in the Cuu Long Basin onshore to provide warm gas for the Dinh Co Gas Processing Plant (GPP); and after being processed, dry gas is provided for the Ba Ria, Phu My power plants, Phu My Fertilizer Plant and consumers.

Nam Con Son Gas Pipeline System This is the world’s longest two-way pipeline which was built and commenced operation at the end of 2002 with diameter of 26 inches, length of 370 km and capacity of 7 BCM/year. The pipeline transports gas from Lan Tay gas field (Block 06.1), Rong Doi, Rong Doi Tay field (Block 11.2) in the Nam Con Son basin onshore at Long Hai (Long Dien district, Ba Ria-Vung Tau province) to feed the Nam Con Son Gas Processing Plant.

PM3 CAA – Ca Mau Gas Pipeline System This system was completed and commenced operation in May 2007 to transport PM3 gas from the overlapping sea of Vietnam and Malaysia and 46-Cai Nuoc to Ca Mau to feed Power Plants of Ca Mau No.1 and No.2. The pipeline is 298 km offshore and 27 km onshore with designed capacity of 2.0 BCM/year, pipe diameter 18 inches.

Block B Gas Project In March 2010, Chevron signed a deal with PetroVietnam to undertake FEED for a pipeline from its operated offshore assets in the Cuu Long Basin to southern Vietnam. Under the



deal, Chevron, PetroVietnam and PTTEP of Thailand would spend US$1bn to build the 400 km pipeline, which would be the longest in the country. The pipeline would run from production platforms about 250 km off the coast to power plants in Can Tho City, with offshoots supplying power and fertiliser plants throughout the south-western region. The pipeline would have carrying capacity of 6.4 BCM a year. The total cost of the Vietnam Gas Project is estimated at US$4.3bn and Chevron expects to begin production in 2014, two years behind the original schedule, with output potentially reaching 5.1 BCM per annum. The initial volumes have been earmarked for local industrial customers.

Nam Con Son Gas Pipeline Project No.2 This pipeline is proposed to parallel the existing Nam Con Son Pipeline with length of 330 km and possible completion in 2014

4. Government policies According to the World Bank (World Bank, 2010), the gas sector is currently segmented into a series of “bilateral” gas-supply and power market projects, which prevents the creation of a functioning market; and tends to encourage continuance of the project by project approach if there is no overarching sector vision. There is no “generic approach” to gas development projects. Instead, each is the subject of separate negotiations on virtually all aspects, including pricing. This process has resulted in discouragingly long lead times for some projects. Existing gas pricing appears to be driven to the extent possible by a perceived need to achieve low electricity prices and to confer subsidies on gas consumption in the fertilizer sector. Low gas prices for power generation tend to discourage investment in gas exploration and development and therefore work against some high level objectives for the sector such as rapid growth and diversification of fuel sources for power generation. On the institutional and policy front, the sector is currently dominated by Vietnam’s national oil company which is common at such an early stage of gas sector development. The Vietnam Oil and Gas Group (PetroVietnam or PVN) is currently the operator of four blocks and the joint operator of nine more blocks in Vietnam. In the mid- and downstream links of the Vietnam gas chain, PVN is dominant in processing and transmission and is becoming important in electricity generation. The Bank says that to achieve its stated objectives for developing national gas resources, Vietnam must seek to create a “moving train” of projects that will convert gas resources into proven reserves and production. It must also stimulate investment in the development of the requisite pipeline infrastructure as well as incentivise investment in gas consuming loads downstream such as power plants. This will require gas pricing in consuming sectors (particularly the electricity sector) to be appropriately linked with gas pricing in the upstream gas exploration and production sector.

5. Key players PetroVietnam is the dominant player and is both industry regulator and project participant. It signs back-to-back gas purchase and sales agreements and negotiates well-head prices on a cost-plus basis. PetroVietnam also invests in pipelines. Transmission tariffs are approved



by the Government. Gas sales prices are negotiated between PetroVietnam and each end-user (World Bank, 2010). The Rang Dong oil field (Block 15-2), which produces associated gas, is operated by Japan Vietnam Petroleum (JX Energy), with interests from ConocoPhillips and Petro Vietnam. BP operates the Nam Con Son Gas Project. This interest has recently been sold to TNK-BP. KNOC operates the Rong Doi gas field, which produces around 1.3 BCM/year and feeds into the Nam Con Son pipeline. Vietsovpetro (a Russian-Vietnamese joint venture) operates the Bach Ho, Rong and Dai Hung oil fields that produce associated gas. Table 2 Vietnam operational gas fields

Source: Petro Vietnam

Gas for Ca Mau is supplied from the overlapping Malaysian/Vietnamese production area, operated by Talisman. Chevron, MOECO and PTTEP have a combined 49% interest in the Block B project.

6. Key issues and challenges Energy demand is rising quickly and Vietnam is likely to shift from being an energy exporter to an energy importer later this decade. With constraints on hydro-power, the country is actively developing both coal and gas-fired generation, as well as gas-consuming industries such as fertiliser production. Gas generation is being developed in the south, where the gas fields are located. However there are uncertainties about current gas reserves and future production and imports will be

Field Contract block Contractor Year (start production)

Tien Hai C (natural gas) DBSH PVEP Song Hong

1981

D14 & Tra Ly River (natural gas) DBSH PVEP Song Hong

2004

Lan Tay (natural gas) 06-1 BP 2002

Rong Doi, West Rong Doi (natural gas)

11-2 KNOC 2006

Bach Ho (associated gas) 09-1 VSP 1995

Rang Dong (associated gas) 15-2 JVPC 2001

Phuong Dong (associate gas) 15-2 JVPC 2008

Ca Ngu Vang (associated gas) 09-2 HVJOC 2008

East Bunga Kekwa – Cai Nuoc PM3-CAA&46 - Cai Nuoc

TML&TVL 2003

West Bunga Kekwa PM3-CAA TML 1997

Bunga Raya PM3-CAA TML 2003

Bunga Seroja (natural gas) PM3-CAA TML 2003

Bunga Tulip (associated gas) PM3-CAA TML 2006

Bunga Orkid (natural gas) PM3-CAA TML 2008



needed. Relatively low gas prices hamper exploration and development generally. There are also offshore territorial disputes between Vietnam and neighbouring countries, adding to exploration uncertainty. The World Bank (World Bank, 2010) believes that approval processes also appear to be unclear and ad hoc. The World Bank study makes a number of recommendations on these matters.

7. Executive summary Vietnamese gas consumption is growing rapidly in the south of the country, primarily for power generation but also for fertiliser production. Development of new fields is underway to meet growing demand but exploration and development are hampered by low gas prices. Gas development is also hampered by a lack of infrastructure. As yet, there are no commercial gas discoveries in the North. Future indigenous supply is uncertain, with a potential need for LNG imports.

8. Demand drivers Future demand is likely to be driven largely by rapid economic growth, creating growing demand for power, fertiliser and gas for industrial purposes.

9. Supply sources The overall potential for conventional gas is unclear, as are current gas reserves. With higher gas prices there would be greater exploration incentives. Unconventional gas (CBM) is being considered in the north of the country, where there are no significant conventional gas reserves. LNG imports are being considered in the south.

10. Investment/funding There is external investment by a number of companies in the Vietnamese gas sector, most notably at present Chevron, which is undertaking FEED on the Block B development.

Bibliography BP. (2010). Statistical Review of World Energy. CIA. (2010). World Fact Book. Hien, Ngo Anh. (2010). Vietnam Member Economy Report, GASEX 2010, Taipei. Omoteyama, S. (2009). Energy Sector Situation in Vietnam. IEEJ. Petro Vietnam. (2008). Vietnam Gas Industry-Solution for Further Development. GASEX 2008. Hanoi. World Bank. (2010). Vietnam Gas Sector Development Framework Final Report Report No. 5285-VN.

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