The ODA finance plan for the eagerly anticipated Block B - O Mon project's O Mon III power plant is still pending approval. 

>> Vietnam's oil and gas industry remains positive

Oil prices forecast for 2023

Due to the constraint of the global crude oil market and the escalating conflict between Russia and Ukraine, Brent oil prices reached a record high since 2008 in March 2022, reaching US$139.13/bbl. After then, the price of Brent oil progressively decreased until the end of 2022, but it is still at an 8-year high (about US$90 per barrel). Mr. Nguyen Ngoc Hai, an analyst at VNDirect, anticipates that the price of Brent oil will remain in this range for the remainder of this year, leading to an average price of US$100 per barrel in 2022F.

Due to the economic headwinds (stronger USD, China's zero-Covid policy, and Russia-Ukraine crisis), global demand is projected to slow down in 2023F. In contrast to the 2.2% yoy increase in 2022, the US Energy Information Administration (EIA) predicts that world consumption will rise by 1.5% yoy to average 101.04 million barrels per day (mbd) for the entirety of 2023F.

But according to Mr. Nguyen Ngoc Hai, there is little chance of an oversupplied oil market because supply-side constraints (particularly those imposed by OPEC) would soothe worries about a decrease in demand, allowing oil prices to stay high in 2019. Fundamentally, he anticipates the price of Brent oil to hover around US$90 per barrel in 2023F.

Expectations for 2023

Despite favorable conditions brought on by an increase in oil prices, Mr. Nguyen Ngoc Hai believes that big gas field projects are not progressing significantly because of delays at various phases of capital funding and commercial discussions. The ODA finance plan for the eagerly anticipated Block B - O Mon project's O Mon III power plant is still pending approval. Since the gas price from Block B has been approved since 2016, the prolonged delays caused by inflation and the rising US dollar have negatively impacted the effectiveness of the original plan for downstream plants. As a result, revising the strategy and getting government clearance takes time. Notably, the operator is getting ready to re-tender the significant offshore production facility, it means this project will experience another delay.

>> Obstacles impede investments in oil and gas

However, Mr. Nguyen Ngoc Hai supposes that this interruption may open the opportunities for local EPC contractors like PVS to participate further in Block B project. Overall, he expects Block B– O Mon project to be awarded final investment decision (FID) in 2023F.

In contrast to the aforementioned significant gas field projects, other projects for the development of already-existing fields, such the extension of the Bach Ho oilfield and the Kinh Ngu Trang (Block 09-2/09) oil field, have recently received approval. These initiatives will somewhat compensate for the decline of mature fields. Mr. Nguyen Ngoc Hai believes that these projects will soon be realized, giving some cushion for local oil and gas service providers, first and foremost for drilling service providers and EPC contractors, because of the high oil price base and some existing offshore facilities.

Southeast Asia drilling market recovery

Global upstream investments are expected to grow by 9% in 2022, according to the International Energy Agency (IEA), but they are still significantly below pre-Covid levels. Major oil and gas producers modestly spent on fossil fuels in 2022 despite making a significant profit since they were putting debt repayment first. In order to maintain supply and demand balance, the IEA also projects that upstream investments will cost, on average, US$470 billion annually through 2030F, which is 50% more than what has been invested in recent years (based on the Stated Policies Scenario). This will serve as the market's fulcrum as it continues to grow in the future.

IHS Markit predicts that the average demand for jack-up rigs in the SEA drilling industry will be 35.1 units in 2023F, up slightly from 33.4 rigs in 2022. Indonesia and Malaysia are the two largest drivers, with demand projections of 10.3 and 8.5 units, respectively, for 2023. As additional units are designated for transfer to the Middle East, the availability of jack-up rigs in SEA is becoming increasingly scarce. More employment opportunities will result for drilling service suppliers like PVD.