What are the obstacles to LNG projects?

LNG Thi Vai in Ba Ria-Vung Tau

Along with the expectation of major gas field development, VNDirect sees LNG imports as the most feasible measure to offset the quick depletion of mature fields amid the growing electricity demand in Vietnam in coming years. Power generation currently consumes 80% of total domestic natural gas in Vietnam. According to Vietnam's National Energy Development Strategy, the government highlights the priority of developing the LNG infrastructure for both imports and consumption, turning gas-fired plants into a key power source by 2030 (making up 23% of total system capacity in 2030F from the current 12%). Overall, there is high potential in the LNG-related segment thanks to its stability in power generation and the ability to increase capacity through imports.

Among the power plant projects, such as EVN's plants in Hiep Phuoc, Nhon Trach 3 & 4, Long Son complex, Ca Na complex, LNG Chan May, LNG Vung Ang 3, LNG Thi Vai, LNG Tien Lang, LNG Cai Trap,... LNG Thi Vai terminal would be completed in 2H22F, marking one of the first LNG-related projects coming online in Vietnam. This terminal would supplement gas supply for users in the Southeast region before providing power to two new gas-fired power plants in Nhon Trach in late 2023. Riding on this LNG story, VNDirect believes PetroVietnam Gas Joint Stock Corporation (GAS) would be the biggest beneficiary as an infrastructure developer as well as an LNG provider.

VNDirect, on the other hand, sees the following as critical barriers to LNG project development:

First, there are risks of dependence on imported sources as well as the uncertainty of LNG prices. Global events like the recent gas crisis could negatively affect the economic efficiency of LNG-related projects in Vietnam.

Second, the unclear regulations on the settlement of integrated LNG projects regarding gas sales and electricity selling prices could lead to a further delay in project progress.

Regarding oil and gas transportation, VNDirect sees the rise in crude tanker shipping demand is likely to be underwritten by the increase in demand for crude oil, which the EIA forecasts to exceed pre-Covid-19 levels by 3Q22F. It expects global oil producers to respond by pumping more crude, and this should materialize in the crude tanker shipping markets in FY22F, potentially leading to higher freight rates. According to Clarksons’ forecasts, the balance between supply and demand for crude tanker vessels may look better in 2022F versus the extremely poor 2021F. Moreover, for domestic shipping firms, VNDirect believes the LNG investment trend to be likely to open a new business path in the long term, and Petrovietnam Transportation Corporation (PVT) could dominate the market if it enters this sub-segment due to its leading position.