Expertise Lacking In Vietnam’s LNG Drive

Like a teenager with lofty ambitions Vietnam feels just the rush of adrenaline gush. It has big plans for LNG plants. There however, is something lacking and it all must do, is on how to go about getting those LNG plants onboard. Jaya Prakash reports.

If nothing goes wrong, Vietnam will have its first power plants connected to liquefied natural gas. No date has been set as yet which in all probability will be in 2023 or the very latest in 2025.

Hanoi has been insistent on moving away from coal. In its place it wants LNG import terminals its trade minister once told. And the grand, ambitious move is now for some 22 such power plants with a combined capacity of up to 108.5 gigawatts; the first of which to be opened in 2023.

As a matter of fact, those plans are indeed awe-inspiring. The real question is how prepared the nation really is?

Author Thu Vu, Energy Finance Analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), and whose comments appeared over the IEEFA website, warns that unresolved regulatory and market obstacles domestically pose serious challenges that will separate enthusiastic project sponsors from the proverbial ‘finish line’.

 “Technical standards are an area that will need to be further developed as part of developing an LNG to power market.”, said a source close to leading international law firm, White & Case to Fuels and Power on condition of anonymity.

Such a lack of standards and other essential skills are almost certain to run up against efforts to help inaugurate the very import plants Vietnam wants.

In IEEFA’s words, the exuberance of enthusiasm may just sour and turn out to be a damp squib.

“The resultant market frenzy is like nothing Vietnam’s power system has ever seen. While much of the reporting has created the impression that the proposed projects are sailing through the approvals process, the situation on the ground is much more complicated,” Vu notes.

Undoubtedly, LNG-to-power infrastructure projects are complex undertakings. They involve mot just huge finance undertakings. But many multi-stage development projects from upstream and downstream to construction interests.

Then there are safety and security blueprints to incorporate in the overall planning and decision-making process.

From the pool of projects on the drawing board, only nine projects with 17.6 GW in combined capacity have been formally approved for the current power master plan (PDP7R). None of them has finalised power purchase agreements (PPA) with the state utility Electricity of Vietnam (EVN), highlights IEEFA

“Significant planning and implementation delays are very likely considering how the updated regulatory environment seems incompatible with the contractual demands of developers who insist on utilising older legal models governing either build-operate-transfer (BOT) or independent power projects (IPP).”

Vietnam recently enacted new legislation with a direct impact on large-scale power projects. The Public-Private Partnership Law and Investment Law, both effective from 1 January 2021, have rolled back certain government concessions that had been regarded as essential to international lenders.

Rigid financial structures used to finance LNG-to-power assets will shape Public-Purchase Agreement (PPA) discussions in the months and years to come. For those projects that have reached the negotiation table with EVN, the most difficult part of the process has only just begun.

“Analysts should manage their expectations very carefully before placing big bets on Vietnam’s near-term LNG pathway”, Vu warned.

Vietnamese regulators are planning to quadruple the current gas-fired power capacity to 28 GW in 2030. “The high-level policy commitment to establish and scale up a reliable LNG-to-power market does not necessarily translate into prompt concessions, especially as Vietnam navigates its post-COVID recovery and amid the growing interest in the domestic energy market”, IEEFA noted.

BITTERSWEET VIETNAM

Market players will also be paying close attention to how senior decision-makers address decisions that will determine the affordability of LNG and shape the economic impact of Vietnam’s pivot to gas. Regulators are aware of the cost implications of LNG-fired power plants, according to the report.

The plans are surely adding a bittersweet feel on the prospects, promises and hopes the nation holds out for itself and the rest of the world.

The region of Van Phong Economic Zone (EZ) of Khanh Hoa Province is becoming a bright spot in investment attraction as many large corporations in the world pour tens of billions of dollars to implement large projects in LNG power.

Van Phong Economic Zone in Khanh Hoa Province attracts tens of billions of dollars in 2020. (Photo: SGGP)

Van Phong EZ, according to SAI GON Giai Phong Newspaper has seen great leaps in attracting several large projects worth tens of billions of dollars. Last July, the US group Millenium Petroleum proposed to invest in an LNG project with a capital of $15 billion in Van Phong EZ, said the newspaper. The group would build a power plant and a port warehouse for storing LNG in the South Van Phong area, with a capacity of 9,600 megawatts (MWs). The group especially hopes to turn the LNG port warehouse in South Van Phong into the energy hub of Southeast Asia. Not long after that, the good news continued to come to Van Phong, when J-Power, the Japanese Electric Power Development Company, wanted to concretize the investment policy of the Van Phong Combined Cycle Gas Turbine (CCGT) Power Plant project, with a capacity of 3,000 MWs and a total investment of $3.2 billion.

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