An LNG tanker seen in Japan. Photo by Shutterstock/VladSV. 

Unresolved regulatory obstacles are preventing investors in liquefied natural gas (LNG) from replicating the success of renewable energy in Vietnam, a report says. 

Although at least 30 LNG-fueled projects with capacity of nearly 93 gigawatts have been proposed by investors and local authorities, only nine have been formally approved for the power master plan, according to a report by U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA).

None of these LNG projects have begun construction or finalized power purchase agreements with state utility Vietnam Electricity (EVN).

The report says a main reason for the situation is the incompatibility between Vietnam’s recently updated regulatory environment with contractual demands of developers

The Public-Private Partnership Law and Investment Law, which came into effect January 1, has ended some favorable contractual terms under the build-operate-transfer (BOT) model that had been regarded as essential by international lenders.

The law says Vietnamese law will be the governing law of contract and is silent on sovereign guarantees over the non-performance of state enterprises like the EVN.

This means that there will be a tougher negotiation climate for BOT investors in the coming years.

For independent power project (IPP) investors, the new Investment Law is unclear on the provision of government guarantees and foreign exchange convertibility, and there is not much hope for traditional international funding under this model, it added.

The power plants will have to compete in the wholesale market, with limited offtake guarantees by EVN, the report said.

Costs are another concern. Asian LNG spot prices have soared in recent months, providing a reminder that LNG prices will almost certainly trend higher and experience continued volatility as the market seeks a new post-pandemicequilibrium.

"Similar to coal, gas-fired power compares unfavourably to renewable energy. In a global environment where LNG price volatility is the norm, perhaps, the better way forward for Vietnam is to channel investments to cheaper solar and wind power, battery storage solutions and grid balancing projects," the report said.

The complexity of the LNG projects with multiple risks also make them more challenging to handle than coal power projects. With even those struggling with chronic implementation delays in Vietnam, the IEEFA report investors not to put their hopes up.

"Analysts should manage their expectations very carefully before placing big bets on Vietnam’s near-term LNG pathways," the report advises.

Vietnamese regulators are planning to quadruple current gas-fired power capacity from 7GW last year to 28GW, or 20 percent of total capacity, in 2030.