The project has been plagued by a series of delays, three times involving the withdrawal of foreign oil companies involved in the project.
One of the main reasons for the reluctance of foreign investors is that the refinery is sited in Dung Quat (it was moved from a more viable location at Vung Tau). The Vietnamese government wanted it there to bring employment and development to central regions of Vietnam.
This means however, that the refinery will be 1,000km from the country's Bach Ho oil fields off the southern coast which will certainly increase costs for transportation of crude oil and refined products (there might be a need to construct a pipeline). The site is also situated far from the country's economic centres Ho Chi Minh City and Hanoi, but with the price of crude oil at an all time high in 2008 the project is making economic sense.
HISTORY OF THE REFINERY CONSTRUCTION
The saga began in 1995 with the withdrawal of Total SA from the project (Total claimed the siting of the refinery made no sense at all and would involve increased costs of over $500m). A consortium of foreign firms stepped in (LG Group, Petronas, Conoco, Stone and Webster and PRC - Chinese Petroleum Company and China Development Co) but withdrew two years later for the same reasons. Still nothing solid had been decided or constructed.
In 1999, Prime Minister Phan Vaên Khaûi took steps to speed up construction of the country's first oil refinery. The rekindled project was a joint venture between Vietsovpetro (itself a Vietnam-Russia joint venture, responsible for the bulk of Vietnam's oil exports) and Russia's External Economic Federation (Zarubeznheft).
The joint venture was dissolved in December 2002 by the Russians who claimed that the refinery was not economically viable at the intended site.
In February 2003, Vietnam decided to go it alone and continue with the refinery construction. Phase one is expected to be operational by February 2009 and Dr Nguyen Kim Hieu, Chairman of Central Quang Ngai Province People's Committee defended the project timescale saying: "The project was approved by the Prime Minister in July 1997. The oil refinery should have been completed and put into operation by now. But this is the first large-scale oil refinery project in Vietnam, and we have little experience in carrying out such a project."
"Because of our lack of experience, we faced problems managing a joint-venture investment scheme that was part of the project."
"Currently, the Government, ministries, and related offices are trying to solve such problems to assure the oil refinery gets completed."
CONTRACTORS AND CONSTRUCTION
The Dung Quat refinery has costs estimated at $2.5bn for construction and equipment. The original front-end engineering and design contractor for the project was Foster Wheeler Energy Ltd of the UK (this was superceded by a FEED agreement signed with Technip in 2004). The refinery is being built on a site consisting of 338ha of land and 473ha of sea in the Dung Quat Economic Zone.
Vietnam has awarded contracts to a group of construction companies including Technip-Coflexip of France, JGC Corp of Japan and Technicas Reunidas of Spain, for technology and equipment supply. Stone and Webster are providing project management consultancy services as per their October 2003 contract.
One of the consortia, TPC Complex, which consists of Technip, Technip Geoproduction and Technicas Reunidas, was awarded the engineering, procurement and construction turnkey contracts No.1 and No.4 for the refinery in May 2005. In June 2006 the Dung Quat Refinery selected SmartPlant Enterprise as its standard software for management of plant design, maintenance and operations of the plant.
Construction started on 28 November 2005 and is still underway on the refinery and the first phase will be completed in early 2009; in June 2006 the construction work had reached a peak and by April 2008 90% of the construction work had been completed.
The projected capacity is 6.5 million tons of low sulphur crude a year (5.5 million tons of Bach Ho crude from Vietnam and one million tons of Middle East sour crude a year – 130,000bpd) using deep and modern processing configurations including: Continuous Catalytic Reformer (CCR), Residual Fluid Catalytic Cracking (RFCC) and Benzene, Toluene Xylene (BTX) plant.
The new refinery is scheduled to undergo a test run of its power supply networks by the end of 2008 prior to the opening and is then expected to achieve its design capacity output of 6.5 million tons by the end of the second quarter of 2009 (50% of Vietnam's domestic fuel requirements).
The products will include: LPG, unleaded gasoline, kerosene / jet fuel, feedstock for propylene plant, diesel (industrial and auto) and petrochemical production. The products from the refinery should meet about 50% of domestic requirements.
The refinery complex area will consist of the following components:
- Refinery processing, utility and offsite facilities (110ha)
- Crude oil tank farm and gas flare-off area (42ha)
- Product tank farm (36ha)
- Seawater intake, waste water processing and crude oil pipelines (4ha)
- Interconnecting pipelines and road access (40ha)
- Harbour product export area (135ha)
PROJECT FUNDING
Vietnam's National Assembly approved the construction of the Oil Refinery No.1 (Dung Quat) in 1997 with an investment of $1.3bn (costs have since increased to $2.5bn), this will be provided from crude oil revenue, credits and bond sales.
Vietnam reimbursed Russia the $235m it had put into the VietRoss venture in December 2002 when Russia withdrew (this money had previously been earmarked for reinvestment into the offshore oil and gas fields of Vietnam). The Bank for Foreign Trade of Vietnam (Vietcombank) was able to arrange loans worth $250m.
The consortium of contractors which won tender package No.1 was also able to arrange loans of $500m in deferred payment terms. The foreign contractors are willing to help finance the project but PetroVietnam is giving priority to domestic loans to finance the refinery.
CRUDE OIL EXPORTS
Vietnam exported 18.08 million tons of crude oil worth nearly $7.39bn in 2005, mainly to China, Singapore, Japan, Britain and the United States, down 7.3% in volume but up 30.3% in value against 2004. Vietnam's crude oil production decreased 7.7% to roughly 18.5 million tons in 2005.
Recently, the Ministry of Planning and Investment proposed the Vietnamese Government lower crude oil exports between 2006 and 2010 so as to ensure sufficient supply of the product for domestic industries. Accordingly, the country's crude oil export will decline to 18.5 million tons in 2006 and 15.6 million tons in 2010 to reduce reliance on petroleum imports. Vietnam is very keen to become totally self dependent for oil and gas as quickly as possible.
PORT CAPACITY
There are still major problems with the deep sea port of Dung Quat in that it is still not large enough and well equipped enough to allow the easy transport and unloading of the heavy equipment required to build the refinery. Also the road from the port to the site of the refinery is not in good condition.
The Viet Nam National Shipping Lines (VINALINES) and the GEMADEPT (a transport joint-stock company) have been given permission from the Ministry of Transport to invest in building two new wharves at the port to help alleviate problems.
Abnormal Loading Engineering Ltd (ALE), a UK-based worldwide heavy transportation and lifting company has been at the port and refinery to conduct a series of on-site surveys to determine if their expertise can help in the movement of refinery heavy equipment. However, Abnormal Loading Engineering raised a number of issues needing to be addressed if they were to work on the project.
Some marine port construction groups from Japan and Singapore are also surveying the area.
The port will be crucial as this is where crude oil will be transported to for the refinery (in the absence of a viable pipeline from the oil fields) and where refined products will be transported to market.
FUTURE PROJECTS
The Vietnamese government are already talking about the construction of a second and third refinery within the same timescale as Dung Quat. The second installation will be at Nghi Son in Than Noa Province, about 1,200km north of the oil fields – still a logistical transport problem for both crude feedstock and refined products. PetroVietnam , Kuwait and Japanese partners signed an agreement in March 2007 for the Nghi Son Refinery and this project is expected to become operational in Thanh Hoa province in 2013.
The third planned refinery may be located in the south at Vung Tau – much nearer the oil fields and with a better chance of being economically viable (linked to the price of crude oil in 2008 viability improves all the time).
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