Market Trends of Vietnam Oil & Gas Upstream Industry
The Offshore Segment Expected to Dominate the Market
- Vietnam's oil and gas upstream market is witnessing an upward trend driven by several key factors. Firstly, the country possesses significant offshore oil and gas reserves in the South China Sea, particularly in basins like Cuu Long and Nam Con Son. Ongoing exploration efforts have led to the discovery of new reserves, attracting investments and stimulating the growth of the upstream sector.
- Secondly, the Vietnamese government has actively fostered an environment conducive to foreign investment in the oil and gas industry. By implementing favorable policies and regulatory frameworks, such as offering production sharing contracts (PSCs), the government has encouraged international companies to participate in exploration and production activities.
- Furthermore, Vietnam has been focusing on infrastructure development to support upstream operations. Investments have been made in the construction of offshore production platforms, drilling rigs, pipelines, and onshore processing facilities. Such infrastructure enhancements strengthen Vietnam's oil and gas exploration, production, and export capabilities.
- In 2021, the crude oil production in the country was 192 thousand barrels per day, the majority of which were from offshore blocks. Private companies have shown interest in investing in more offshore projects by acquiring stakes in the offshore oil and gas fields. Moreover, the number of rigs between April and May 2023 also increased.
- In January 2023, Pharos Energy announced that it is planning to start drilling in Block 125 offshore in eastern Vietnam.
- Such developments are expected to accelerate the upstream market in the country during the forecast period.
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Increased Demand for Natural Gas Expected to Drive the Market
- The oil and gas upstream market in Vietnam is poised to experience growth driven by the increased demand for natural gas. This surge in demand is primarily attributed to several factors.
- Firstly, as part of the global energy transition towards cleaner fuels, natural gas is gaining prominence as a cleaner alternative to coal and oil. In its efforts to reduce carbon emissions and meet climate commitments, Vietnam is shifting towards utilizing natural gas for power generation and industrial applications. This transition creates opportunities for exploration and production activities in the country's upstream sector.
- Secondly, Vietnam is expanding its electricity generation capacity, and natural gas is favored as a fuel for power plants due to its lower carbon emissions compared to coal. As the demand for electricity continues to rise, the construction of natural gas-fired power plants necessitates a stable supply of natural gas, thereby driving exploration and production efforts in the upstream market.
- Moreover, Vietnam's industrial and commercial sectors rely heavily on natural gas for various applications such as manufacturing, petrochemicals, and hospitality. With ongoing industrial growth, the demand for natural gas as a fuel and feedstock is increasing, further stimulating the need for additional natural gas reserves and driving activity in the upstream market.
- The country has recently shown interest in increasing the share of natural gas in the power generation mix. According to Electricity of Vietnam Group (EVN), as of April 2022, the natural gas electricity generation stands at 12%. of total energy mix.
- In February 2023, the Vietnamese government approved the investment policy of the 2,250 MW Son My 2 CCGT power plant project in Quy Nhon, Binh Dinh province. The project will require an investment of USD 1.8 billion, and the construction is planned to begin in 2023, and commissioning is scheduled for 2025.
- Additionally, Vietnam aims to reduce its dependence on imported natural gas by increasing domestic production. This desire for import substitution encourages investment in exploration and production activities to tap into the country's own natural gas reserves, supporting the growth of the upstream market.
- Owing to such developments, it is predicted that the growing demand for natural gas is expected to drive the oil and gas upstream market in the country.
