The Oil Market In Vietnam.pdf

Revenue and marketshare of petroleum Market share Vietnam currently has two oil refineries, Dung Quat and Nghi Son, supplying 10-13 million m3 each year, tons of gasoline, and finished

CLASS: IB1612 COURSE: IBC201 LECTURER: Bui Thi Thu Huyen

Tran Minh Tri - HS163411

Nguyen Thi Hoa - HS160870

Pham Quang Anh - HS160892

REPORT

Group 3

Hanoi | 2 Jul 2022

International

Negotiation

THE OIL MARKET IN VIETNAM

Duong Thi Kieu Trang - HS163327 Mai Thi Hong Nhung - HS163391 Nguyen Minh Anh - HS160881

Revenue and market share of petroleum

Revenue from exporting Vietnam's crude oil to foreign countries

Current import of Vietnam's demand

Opportunities and challenges for the Vietnam oil market

Negotiating strategy to import petroleum at better prices

Negotiation plan

I Introduction

II Vietnam oil industry

III Conclusion

IV References

03 04 04

07 09

10

11 12 15 16

Petroleum is one of the three main commodities the State pays special attention to in Vietnam It

is the source of input materials for most manufacturing industries and is indispensable in life Just a small change in gasoline can greatly affect other activities in society

Prices and petroleum markets in the world from

2020 to now have fluctuated very strongly In particular, in recent times, petroleum supply and demand have been imbalanced and affected by the military conflict between Russia and Ukraine The sharp fluctuation of world gasoline prices makes the retail price of petrol in Vietnam also fluctuate and poses some problems to the current policy of petrol price management in Vietnam With the guaranteed supply of petrol and oil along with market inspection and control and flexible gasoline and oil price management, the Ministry of Industry and Trade affirmed that it would ensure a continuous supply of petrol and oil

to the market in the country, serving production, business, and consumption of people and businesses in the coming time

Revenue and market

share of petroleum

Market share

Vietnam currently has two oil refineries,

Dung Quat and Nghi Son, supplying 10-13

million m3 each year, tons of gasoline,

and finished oil of all kinds These two

factories currently supply about 70% of

the domestic demand for gasoline and oil,

of which the supply proportion of Nghi

Son is about 35%, sometimes up to 40%

In addition, there are a number of

condensate gas plants such as PVOil Phu

My, Dong Phuong, and Saigon Petro, etc

with a production capacity of over

600,000 m3, tons a year

With the country's annual consumption demand of 20.5-21 million m3, tons, the supply from domestic production meets 70% of the national consumption demand, so the remaining 30% of demand still has to import finished petroleum products from countries Last year, while the domestic petroleum supply could only meet 70%, Vietnam still had to export 3.1 million tons of crude oil and then import nearly 10 million tons of oil

Vietnam fuel supply (unit: million tons)

Crude oil exploitation is decreasing day by day

In 2021, Vietnam will exploit nearly 11 million tons of crude oil, of which 9.1 million tons will come from domestic fields, and nearly 1.9 million tons will be extracted from foreign fields that PVN (Petrovietnam) cooperates with private In the past 6 years, domestic production has been continuously decreasing On average, production has decreased by one million tons per year

The decrease was mainly due to a

sharp decrease in domestic exploitation

Crude oil extraction is more and more

difficult than before because the

increase in reserves (finding, exploration,

and extraction of oil and gas in new

fields or pools to compensate for annual

production) has decreased significantly

For example, if converted into oil, the

increase in reserves reached 40.5 million

tons in 2015, then three years later it will be 12 million and in 2021 it will be 4.6 million tons In addition, newly discovered oil and gas are also on a downward trend If in the period 2011-2015 there were 24 new oil and gas discoveries, then 5 years later there were only 7, at the fields of Ken Bau, Soi Vang, Meo Trang Dong, etc

Newly signed oil and gas contracts or investment of resources for search and exploration also decreased compared to the previous period According to the Ministry of Industry and Trade, only 3 new contracts were signed in 2016-2020, down 7 times compared to the previous 5 years At the main oil and gas fields (Bach Ho, Su Tu Den, Su Tu Vang ), the exploitation is in the stage of production reduction or high water level, potentially risky The recently discovered mines are small in scale, located in complex geological and geographical areas, in difficult-to-access deep-water areas, and require large investments and high risks

Share of revenue from crude oil in the budget

In the first four months of this year, PVN exploited more than 3.6 million tons of crude oil Thanks to the increase in crude oil prices on the world market, the budget revenue from crude oil sales in April reached VND 6,600 billion Accumulated in the first 4 months, this amount reached VND 24,100 billion, nearly doubled in the same period and equal to 85% of the year estimate

PVN said that over the past time, this unit has achieved very positive

financial targets, continued its growth momentum, and significantly

contributed to the state budget In the first 5 months of 2022, the

Group's total revenue from products such as oil, petrol, electricity, gas,

protein, etc was about VND 372,000 billion - an increase of 58% over the

same period in 2021; contributing about VND 52,800 billion to the state

budget, up 59% over the same period in 2021

Year 2005 2008 2009 2010 2011 2012 2013 2014 2015 Crude oil 26.41 21.42 14.56 9.37 10.36 9.70 7.21 4.79 2.34 Footwear 10.89 9.87 9.57 9.55 9.37 8.58 8.38 6.81 7.39 Textiles 17.10 18.87 21.31 20.90 18.91 17.04 17.90 13.84 13.93 Fisheries 9.79 9.33 10.00 9.36 8.75 7.20 6.68 5.24 4.06 Other 35.81 40.51 44.56 50.82 52.61 57.48 59.83 69.32 72.28 Total 100 100 100 100 100 100 100 100 100

Revenue from exporting Vietnam's crude oil to foreign countries

Crude oil holds a crucial place among Vietnam's export products Crude oil exports are critical to Vietnam's economy because they supply the foreign currency required for imports, international transactions, and debt repayment This source of foreign currency is also vital for exchange rate stabilization, macroeconomic adjustments, and improving foreign currency liquidity for the national economy

It has traditionally accounted for a considerable percentage of Vietnam's export value when compared to other key export items such

as footwear, textiles and apparel, and fisheries Table 1 illustrates the export value shares (expressed in million USD) of several of Vietnam's key goods in 2005 and from 2008 to 2015 Besides, the next chart below shows the value of crude oil exports in Vietnam from 2011 to 2020 (expressed in million USD)

In 2005, crude exporting accounted for 26.41% of Vietnam’s total exports and reached 7.37 billion USD In 2008, the figure was 10.36 billion USD, which was equivalent to 21.42% of total exports but then fell down to just only 3.806 billion USD in 2015 (or 2.34%) In 2020, the value

of crude oil exports from Vietnam only reached 1.57 billion USD

Table 1 Export value of major products (unit: %)

| Source: 2011 and 2015 Statistical Yearbook |

Value of crude oil exports in Vietnam from 2011 to 2020 (unit: million USD)

The data showed that crude oil export

value in the country had been decreasing

drastically in the last decade There are

two reasons for the decrease in crude oil

export value in recent years For one thing,

it is the decline of production in large

fields, especially Bach Ho field For another

thing, in 2009 Dung Quat Refinery went

online and consumed a significant amount

of domestic crude oil Despite this, crude oil

was still important in the total export value

of the country Expansion of Dung Quat Refinery

In 2022, Nghi Son Refinery will cut capacity because of financial

difficulties, causing imported petroleum output to increase

According to data from the General Department of Customs on

import and export turnover, in the whole first quarter, the whole

country imported 2.66 million tons of petrol and oil with a value of

$2.45 billion, up 26.8% in volume and increased sharply by 128.5%

in value over the same period in 2021 In fact, now the world oil

price is continuously above 100 USD/barrel, sometimes surpassing

120 USD/barrel in the context of local tensions politics in Eastern

Europe have pushed up the price of petroleum products

Current import of Vietnam's demand

On average, over the past five years (2015-2020), each year,

Vietnam imports $5,568 billion of finished petroleum products of all

kinds Finished petroleum import markets are markets where

Vietnam can take advantage of import tax incentives from signed

free trade agreements such as Singapore, Malaysia, Thailand,

Korea, China, etc Although the number of oil imports has

decreased significantly since 2021, the world oil price tends to

increase, so the amount of money spent to import is more than in

previous years

The amount of money Vietnam has to spend to import finished oil (billion USD)

In theory, with no import, no tax, no shipping fees, and many other taxes and fees, the price of gasoline may decrease Besides, it also solves the situation of petroleum inventories from the Covid-19 pandemic

Oil refineries in Vietnam have the advantage of abundant crude oil supply, the difference between quality crude oil and sour oil is not much

In terms of policy, Vietnam is increasingly integrating deeply with the world, so investment opportunities both at home and abroad are more open

According to BSR news, in the context that many large oil refineries in the world are having to reduce their operating capacity due to external factors such as the shortage of crude oil, the Dung Quat Refinery has always operated efficiently at 105% capacity

BSR's own development opportunity is a potential petrochemical product market, Dung Quat Refinery configuration is open, and can diversify products, and develop petrochemical products

Opportunities and challenges for the Vietnam oil market

Challenges

The domestic source of sweet crude oil is decreasing in volume and

quality In particular, the diversification of products when the market's

requirements are increasingly high in terms of types and quality

The growing trend of adopting electric cars, together with the

advancement of technology, reduces the demand for petroleum

products

With the trend of tightening environmental requirements for discharge

sources, projects must increase investment in treatment to ensure

environmental requirements

In the face of fluctuations in world oil prices over the past time, diversifying oil sources is also a big challenge for oil refineries in ensuring cheap, stable oil purchases and quality service to customers' machines

For the petrochemical industry in Vietnam today: There are not enough mechanisms to do so, so few people dare to invest In addition, tax challenges abound The most important condition is that the Government needs to remove the mechanism to disburse cash flows quickly and legally so that businesses can work with peace of mind

If we stop or ban the import, it also means that we ban other countries from exporting petroleum to Vietnam and may violate international commitments in trade agreements, WTO that Vietnam joins and signs

Negotiating strategy to import

petroleum at better prices

In terms of petroleum products, it is a necessary import

item to ensure energy security Vietnam's partners are

mainly from the ASEAN region Singapore, Malaysia,

Korea, etc One of the factors that make up the price of

gasoline is supply, demand, and taxes

Currently, in Vietnam, we have a very large demand

and a lack of supply, which has led to a recent sharp

increase in gasoline prices Vietnam has 2 petroleum

processing plants that supply 75% of the domestic

market, the rest of Vietnam continues to import gasoline

to ensure supply From there, we must have strategies to

negotiate with partners to stabilize gasoline prices

The strategies can be mentioned such as signing

purchase and sale cooperation in a period of time and

buying in large quantities Negotiating international

commercial contracts, promoting trade, and exchanging

regularly with negotiated prices Based on the situation of

international relations, politics, war, and inflation level,

Vietnam needs to discuss and consider carefully when

negotiating with partners

For example, Vietnam recently, Vietnam imported

petroleum from Malaysia will import at a negotiated price

In the long run, it is necessary to consider more flexible tax

tools, to take into account the reduction of environmental

tax, special consumption tax, value-added tax, and import

tax, and to have a strategy of saving and gradually

converting the tax system, especially taxes The Ministry of

Industry and Trade has presented to the National Assembly

the issue of petroleum import tax reduction from 20% to

12% in order to diversify supply The energy-use structure is

slightly environmentally friendly

Consequently, Vietnam needs a long-term strategy,

especially creating a national strategic petroleum reserve

to ensure the safety of energy and economic activities

Negotiation plan

In the contract, governments want to determine how much they will

get from their natural capital There are two main objectives that must

be determined: The method of profit sharing between the government

and the partners In this case, we want to increase the export price of

crude oil and reduce the price of the import of the finished oil, and the

payment method or recover their costs

Objective

B

A

T

N

A

If the business of the Vietnamese government and foreign oil companies do not accept the condition of increasing the export price of crude oil and reducing the price of imported refined oil, the Vietnamese government can choose the Malaysia market to continue exporting and importing crude oil Because at present Malaysia still has a good trade relationship with Vietnam So when choosing Malaysia as an import-export partner, Vietnam will be able to take advantage of its secured position to conduct further negotiations on its own with Western oil companies

The Vietnamese government can conduct negotiations at a cheaper price for mutual benefits Specifically, Vietnam will increase the export price of crude oil by 11% in the next 6 months and reduce the price of imported refined oil by 7% If after 6 months, the situation remains unchanged, we will reduce the price of imported refined oil by 2% more Because in this case, continuing to increase crude oil prices is not a wise move for Vietnam, instead, a little more profit will create more sympathy for Western companies and at the same time increase the value image of Vietnam