By Irina Slav
Vietnam’s economy is this year set to exceed the government’s growth forecast, which was predicting a healthy rise of 6.7 percent, VOA reported recently, citing a government statement. The reason this will be possible is oil prices. That’s right. Few of us would think of Vietnam when the benefits of oil production are discussed, but there you have it: this tiny producer is raking in the cash and will continue to rake it in even if Brent falls back to US$65.
To get an idea of just how much oil this new Asian tiger pumps, here are the figures for September and January to September this year: 910,000 tons (6.67 million barrels) for September and 9.04 million tons (66.26 million barrels) for the first nine months of the year, according to government statistics quoted by Reuters. What’s more, the nine-month figure was down 11.7 percent on an annual basis and the September figure was down 14.2 percent. Still, Vietnam’s economy is getting enough fuel from oil sales, it seems, to hit on all cylinders.
Exports of oil have also been on the decline this year. For the nine months so far, crude exports dropped by a hefty 45.2 percent on the year and September exports shed 21.1 percent. The reason is trivial: natural decline at mature fields. At the same time, new fields are in geologically challenging areas, according to state oil company PetroVietnam, as quoted by S&P Global Platts earlier this year, when June exports took a 67.5-percent nosedive. And still the outlook for the country’s economy is bullish.
Over the first nine months of this year, the Ministry of Finance has calculated oil export revenues at US$3.13 billion. That would be 42.5 percent more than oil revenues for the comparable period of 2017, VOA reports. Put simply, higher oil prices are more than making up for the production decline, at least for the time being.
If this state of affairs continues, Vietnam plans to start building more refineries. To date, the country relies on imported fuels for 70 percent of its consumption and, naturally, wants to change things. However, this may take more time than the government would like.
There are two operating refineries in Vietnam at the moment, with a combined capacity of 330,000 bpd of crude. One large-scale refinery project, the Nam Van Phong, was first approved in 2008 and it has yet to be built. With a price tag of US$4.4-4.8 billion, that’s hardly surprising. Another petrochemical project, worth US$3.7 billion, has also been put on hold as state companies participating in these projects found themselves unable to provide the capital required. This has opened up the door for foreign investors to step in, but it is too early to say if these two refineries will see the light of day.
Declining production seems to be the biggest problem for Vietnam’s oil industry. Reversing the decline would require a lot of investment, as would exploration for new reserves, especially since some of these reserves are in disputed areas of the South China Sea. In this context, high oil prices gain even greater importance for Vietnam’s budget. Count it among the producer group that is keeping their fingers crossed for the rally to last longer.