Vietnam is being encouraged to transition more quickly to cleaner fuels, such as liquefied natural gas, Photo: The Vinh

Block B of the O Mon project, one of the largest gas ventures in the country, is expected to gain a final investment decision in July, as announced by Southwest Pipeline Operating Company under state-run Vietnam Oil and Gas Group last month.

Phu Quoc Petroleum Operating Company, which implements the Block B gas chain, is also in the process of opening construction packages to speed up the project progress as soon as Block B receives the final decision.

The O Mon scheme boasts the total investment of roughly $10 billion for many sub-projects from upstream to downstream. According to PetroVietnam, the Block B gas complex with an estimated gas reserve of 107 billion cubic metres will ensure gas supply for power generation, replacing some mature gas fields that are in the final stage of exploitation. Furthermore, four gas-fired power plants in O Mon would bring the total capacity to over 3,800MW, supplementing power supply for the south in the future.

It is predicted that the country’s gas demand for power generation will increase significantly in the coming period as the Power Development Plan VIII draft targets gas-fired power to be the key power source towards 2030 thanks to its stability and relative cleanliness compared to coal-driven power. It makes up 23 per cent of total system capacity in 2030 from the current 12 per cent.

Nguyen Ngoc Hai, equity analyst at VNDIRECT Securities Corporation, said, “Gas will be a key beneficiary of this project thanks to Block B’s additional gas source and transportation tariffs.”

Despite major investment opportunities, VNDIRECT has also warned about the risks of faster-than-expected project progress and higher-than-expected workload for local upstream service providers. The key downside risk is the further delay in this project’s investment approval.

There are grounds for the warnings given that Block B of O Mon has been delayed for nearly 15 years due to bottlenecks related to the use of official development assistance (ODA). Hai noted that the government’s approval to resume the Block B chain will facilitate stakeholders to accelerate commercial negotiations and secure state guarantees, setting the stage for the project to kick off by the end of 2022.

The government also issued Decree No.114/2021/ND-CP last December on the management and use of ODA, creating a basis for Electricity of Vietnam to complete the investment policy for the O Mon III power plant for approval.

According to the Ministry of Finance, Vietnam’s budget revenue has increased as a result of the high oil price globally. State revenues have grown not only from crude oil exports but also from a push to boost revenue from taxes and levies on petroleum and finished petroleum products in the domestic market.

In May, state budget revenue was estimated at VND806.4 trillion ($34.8 billion), fulfilling 57 per cent of the estimated target and rising 18.7 per cent from the same period in 2021.

The oil price crisis and the conflict between Russia and Ukraine have caused various risks and high input material prices, which have slowed consumption. Furthermore, due to reliance on Russian technology, several mine development and exploratory drilling projects are at risk of equipment shortages.

Tran Hong Nam, CEO of PetroVietnam Exploration Production Corporation, said that the oil price crisis only creates short-term benefits. “It will be extremely difficult to collaborate on the development of oil and gas projects in the future and the Russia-Ukraine conflict shows no signs of improvement,” Nam said. “This, paired with rising inflation and uncertain forecasts, may reduce demand for petroleum.”

Even if the United States seeks to boost pressure and release oil stocks to stabilise supply in the medium term, it is impossible for oil prices to fall soon. In the Asian market, the North Sea Brent oil price increased to $120.40 per barrel on June 6.

At a government press conference on June 4, Deputy Minister of Industry and Trade Do Thang Hai said Vietnam “still has to adjust according to the increasing trend of global oil prices”. To establish the base price of domestic petroleum products, Vietnam is using the average transaction prices of a number of international petroleum goods in the Singaporean market, Hai added.