Vietnam’s natural gas production to take a spotlight

Dinh Co natural gas plant

For 2022, VNDirect said investors should keep their eyes on the local giant project Block B – O Mon. Because there are signals that the Government still prioritizes financing the O Mon III power plant by ODA fund. Accordingly, it expects the Government to approve the O Mon III project in 2Q22F after promulgating a new Decree related to ODA loans, meaning that the related upstream and midstream projects could also have a final investment decision (FID), setting the stage for Block B – O Mon project to kick off in 2H22F. 

With a total capex of field development and pipeline projects of US$6.7bn and US$1.3bn, VNDirect believed this would be great growth motivation for companies in the Vietnamese oil and gas value chain in the long-term, strengthening industry’s fundamental and firstly providing job opportunities for local upstream service providers and contractors like PVS and PVD.

Notably, in case of continued delaying in major projects, Vietnam will only produce 7 billion cbm of natural gas in 2025F, rather than the expected 11.1 billion cbm, creating a shortage gap between domestic production and the 15.6 billion cbm of expected demand.

In 2021, total domestic oil and gas production is estimated to decrease by c.12.7% YoY to 18.4 million tons of oil equivalent (Mtoe). Looking further, domestic oil production has been continuously falling at a CAGR of 10.8% since 2015. VNDirect sees the main reason caused by no major oil and gas exploration during recent years. Meanwhile, most of the existing fields in Vietnam have been already in their final stages, with production outputs naturally declining by 15%- 25% annually.

Currently, there are c.50% of oil and gas reserves that are unexploited in Vietnam, in which gas reserves account for 60-70% of the total. According to the Draft of National Energy Development Plan for 2021-30, natural gas production is planned to outweigh crude oil production in the FY21-25F period with the averaging outputs of 11.1 billion cbm p.a. Hence, VNDirect believes gas fields development to take a spotlight in the coming period. In addition, due to the expectedly growing electricity demand in Vietnam with power consumption CAGR of 8.1% in FY21-30F period, it also highlights the intensive pressure in implementing major gas fields projects like Block B – O Mon, Nam Du – U Minh in 2022, particularly when the gas supply autonomy is extremely important after the recent global natural gas crisis.