7/1/2017 Plans for a giant Thai-Vietnam oil refinery have a slew of doubters - The Barrel Blog

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Home > Oil > Plans for a giant Thai-Vietnam oil refinery have a slew of doubters
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August 1, 2013 06:53 UTC (2) (0)

Plans for a giant Thai-Vietnam oil refinery have a

slew of doubters
Is a proposed 660,000 barrels per day greenfield refinery in Vietnam’s Binh Dinh province a vanity project, pie
in the sky or a bold and far-sighted business initiative?

For now nobody knows for sure, but–with confirmation last month that state-controlled PTT of Thailand is to
undertake a detailed feasibility study into the construction of the $27 billion refinery and petrochemicals plant–a
project that looks quixotic to many has come one step closer to becoming reality.

There are several reasons why the mammoth project seems unlikely to be built.

Firstly, the cost: how does PTT expect to raise so much money?

Secondly, the business rationale: limited at best.

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7/1/2017 Plans for a giant Thai-Vietnam oil refinery have a slew of doubters - The Barrel Blog

And thirdly, regional politics: fraught, to put it mildly.

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The financing issue is perhaps the biggest hurdle faced by the project. The estimated cost equates to almost a
third of PTT’s 2012 revenues, and late last year the group stretched its finances, i.e., the state’s, by effectively
underwriting the $3 billion share issue of its upstream unit PTTEP. Thailand’s finances are in a mess already,
hobbled by an over-generous rice subsidy program and other spending policies.

Confirming July 24 that a detailed feasibility study for the refinery project is due to be completed by next April,
a PTT spokeswoman said other details ,”such as joint venture partners,” had not yet been approved, suggesting
the integrated Thai oil and gas group is on the lookout for deep pocketed investors. But with four other refinery
projects already planned or underway in Vietnam, such investors are thin on the ground.

Are there sound business reasons for building one of the region’s biggest new refineries? Vietnam’s crude
production currently averages less than 330,000 b/d, with output from the country’s key Bach Ho field declining
steadily. If completed, the PTT project, plus three other planned new refineries and an upgrade of the country’s
only existing refinery, would add almost 1.3 million b/d refining capacity by 2020 or so. Where will all that
diesel, gasoline and fuel oil go? (By contrast, a US Energy Information Administration document updated earlier
this year puts Singapore’s refining capacity at 1.4 million b/d.)

However, the proposed location, in the Nhon Hoi economic zone of Vietnam’s central coastal Binh Dinh
province, does offer some benefits, say sources. The area’s special economic status will give PTT and any future
partners cheap rent, access to a deepwater port and good connections to the north and south of the country.

And there is the issue of strained relationship between Thailand and Vietnam. It dates back to the Vietnam War,
when US forces used Thailand as a base, through the 1980s when Thailand tacitly offered sanctuary to the
remnants of Cambodia’s Khmer Rouge, which had been ousted from power by Vietnam in 1979.

Myanmar, which borders Thailand and which is currently attracting a flood of overseas oil and gas investments,
would have made more sense for a Thai downstream investment, according to regional industry sources.

One theory in Bangkok is that the ambitious refinery is a vanity project for disgraced former Prime Minister
Thaksin Shinawatra. Convicted of corruption and living in exile since 2006, Thaksin reportedly still exercises a
great deal of power via his sister, Yingluck Shinawatra , the current Thai prime minister. Thaksin claims he
owns just 0.002% of PTT, but many believe the family’s shareholding is much bigger, held through overseas
trusts and banks.

Meanwhile, the thinking in Hanoi is that it is the Binh Dinh provincial officials who are pressing aggressively
for the refinery to be built. The massive investment would benefit the provincial economy, and increase their
political standing and influence nationally.

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7/1/2017 Plans for a giant Thai-Vietnam oil refinery have a slew of doubters - The Barrel Blog

The PTT project is not the only downstream project being mooted in Vietnam. But the others look cheaper, and
more likely to be built.

The most advanced is the $9 billion 200,000 b/d Nghi Son refinery, some 120 miles south of Hanoi. The EPC
has been awarded to a consortium led by Japan’s JGC and the project, in which PetroVietnam has a 35% stake,
has financing in place from lenders including Japan Bank for International Cooperation and the Export-Import
Bank of Korea.

Meanwhile, PetroVietnam is looking for overseas partners to take up to 71% of a similar sized refinery in Long
Son, in the south of the country, with a hoped for 2020 startup date.

Vietnam’s state oil company was also looking for foreign investors to help fund the expansion and upgrade of
the country’ s only existing downstream unit, the 130,000 b/d Dung Quat refinery, which is located some 60
miles south of Da Nang on Vietnam’s central coast. PetroVietnam may now go it alone, aiming to add 70,000
b/d capacity to the facility, say local sources.

Lastly, a fourth, wholly foreign-owned refinery project just took a big step forward. Some 50 miles north of Nha
Trang, in the coastal town of Vung Ro, the project has been delayed for six years by site clearance issues. The
scheme, a joint venture between UK-based Technostar Management and Russia’s Telloil Group , received
regional government approval on August 1 to double the original proposed throughput capacity to some 160,000
b/d. Construction is now expected to start later this year.

If all the projects are completed as planned, Vietnam will have about 1.3 million b/d new refining capacity by
2020 or thereabouts, almost exactly the number targeted in the country’s 2020-2025 development plan.

Vietnam’ current products consumption is about 430,000 b/d. Even though Vietnam’s economy is predicted to
grow at a rapid tick over the next several years, with an accompanying rise in demand for crude and refined
products, that would still likely leave a hefty surplus.

It’s anybody’s guess what regional refined products markets will look like by 2020 or 2025, but — as a small
crude producer and with limited regional oil transport infrastructure — Vietnam seems unlikely to become a key
Asian products exporter.

On the other hand, if its economy continues growing at current rates or better, and if its maritime disputes with
China are sorted out and a big offshore oil find is made, the huge expansion in Vietnam’s downstream sector
could turn out to have been a farsighted policy.

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Tags: Myanmar, Thailand, Vietnam

AUTHOR BIO

James Bourne, Reporter

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7/1/2017 Plans for a giant Thai-Vietnam oil refinery have a slew of doubters - The Barrel Blog

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Comments

1.
rick xi at August 15, 2013 15:16

Actually, Nhon Hoi has been upgraded to 30 billions, not 20. If built it would rank the 5th largest oil
refinery in the world in capacity, and #1 in price tag.

› Reply

2.
rick xi at August 15, 2013 15:07

Foreign investors have a long history of dangling mega projects in front of Vietnamese bureaucrats, who
are always hungry for foreign investments, that turned out to be nothing but pies in the sky. It has never
been clear why they came waving the big dollar sign, but never committed any of it to anything. Hungry
and unsophisticated, the bureaucrats often took the bait, hook and line, believed every word these
investors say. They call for various feasibility studies, get wined and dined, travel first class, stay in 5-star
hotels, always paid for by the eager hosts, and then disappeared. Never to be heard again. The latest
project, an oil refinery in Nhon Hoi, now upgraded to 20 billions, could it be another pie in the sky?

› Reply

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