BMI View: State-run oil and gas group PetroVietnam is looking to Japanese investors to help fund new offshore exploration and downstream developments. Reports from Japanese business daily Nikkei suggest that the state-run group is seeking an eye-watering $24US.8bn to help fund new energy and infrastructure projects. Japanese companies could be tempted given the strong yen and the need to secure long-term thermal fuel supplies.
State-run oil and gas group PetroVietnam may seek Japanese partners to develop as many as 20 offshore blocks in the South China Sea, according to business daily, Nikkei. PetroVietnam is thought to be seeking as much as US$24.8bn in new upstream and downstream investment and will reportedly hold a briefing session for Japanese firms in early July 2012. It is the latest sign that Vietnamese officials are turning to international partners in order to boost oil and gas production and address persistent downstream difficulties.
Turning To Tokyo
Japanese investors are top of PetroVietnam's wish-list for a number of reasons:
Firstly, Japan's need for thermal fuels has soared following the 2011 Fukushima nuclear disaster. This is driving upstream acquisitions from Australia to North America as utilities desperately struggle to secure long-term energy supplies in a highly competitive market.Secondly, the strong yen means that overseas investments are more appealing for Japanese utilities and trading houses than they have been previously.Thirdly, Japanese companies are already heavily involved in Vietnam's energy sector. Idemitsu Kosan and Mitsui are both partners in the development of the 200,000 barrels-per-day (b/d) Nghi Son refinery which is yet to secure final approval but could be on-stream by 2014/2015. Nippon Oil & Energy is also thought to be in talks to acquire PetroVietnam's 49% stake in the existing 130,500b/d Dung Quat facility. The operator is looking to raise cash for an expansion of Dung Quat to 200,000b/d by 2016/2017. Japan's JGC Corporation is currently advising on the expansion.
The More The Merrier
Securing foreign investment will also be particularly important for Vietnam's upstream sector as rising demand eats away at oil export volumes. Consumption has been rising steadily in recent years on the back of rapid economic growth and we expect this trend to continue with BMI forecasting average real GDP growth of 6.7% between 2012 and 2016. That is set to push oil consumption from an estimated 370,000b/d in 2012, to 464,000b/d by 2016. By contrast, production is unlikely to grow much beyond 400,000b/d over the same period, as recovery rates from Vietnam's flagship Bach Ho field continue to decline. As a result, the country faces the unwelcome prospect of becoming a net importer of oil by 2014.
New upstream investment will therefore be vital if Hanoi is to reduce an oil import burden that could hit US$2.7bn by 2016, and as much as US$6.6bn by 2021, according to BMI's base case estimates. Teaming up with foreign partners is the best way to secure that investment. Indeed, this strategy has already proved effective as new production from Premier Oil's Chim Sao and Soco International's Te Giac Trang fields have already added around 60,000b/d. Talisman Energy's 35,000b/d Hai Su Trang project is next in line with the operator expecting first oil by H213. PetroVietnam is also working alongside Petronas, Gazprom, Zarubezhneft, TNK-BP, and Perenco on offshore natural gas projects.
Having Japanese partners in upstream exploration also makes strategic sense for Hanoi as it seeks to assert its claim over disputed waters in the South China Sea. Tension in the region has been building in recent years as US influence wanes and Beijing seeks to dominate vast swathes of the oil- and gas-rich waters. Last year, Vietnamese officials claimed that Chinese ships disrupted exploration by cutting cables that were being laid in its waters. Similar posturing has taken place offshore Philippines where Chinese patrol ships allegedly chased a seismic survey vessel from disputed territory. If PetroVietnam can secure Japanese partners it could help Hanoi secure a valuable ally in its bid to temper Chinese influence in the region.
Copyright 2012 Business Monitor International Ltd. All Rights Reserved.
(Originally published in the July 1, 2012, edition of BMI Asia Pacific Oil and Gas Insights.)