Vietnam’s LNG-to-Power Transition

Previous Access Asia Group reports on the transitioning energy boom in Vietnam and in Taiwan have focused on the renewables sector – wind and solar. But another transitional energy gold rush is underway – and nowhere more so than in Vietnam.

That transitional source of power is liquefied natural gas (LNG), or LNG-to-power.

Unlike the renewables sector, which has been garnering headlines for a couple of decades – first as an expensive but carbon-neutral alternative to fossil fuels such as coal and more recently as an increasingly cost-efficient alternative to fossil fuels – LNG is a relatively recent phenomenon. The first plant started operations in 2017 in Malta, where the Delimara LNG-to-power project has served as a model for subsequent projects as LNG and LNG infrastructure prices have dropped, making LNG increasing cost effective as a source of clean power.

Turning to Vietnam, on December 14, the United States and Japan issued a joint statement in support of Vietnam’s energy transition through LNG utilization. The statement made it clear that liquified natural gas (LNG) was key to ensuring Vietnam’s energy security, while reducing air pollution and assisting in transitioning to a low-carbon future under the concept of the Japan-US Strategic Energy Partnership (JUSEP).

At present, some eight projects are vying to bring seaborne imports of LNG to fire generation projects – some of them using modified coal-burning plants – in Vietnam, making it potentially one of the liveliest markets in the world for LNG-to-power. Government plans envision even more LNG power plants on the horizon.

Power Plan

In fact, Vietnam’s trade minister indicated that the Institute of Energy of Vietnam’s master power development plan included a list of 22 potential LNG power plants with a combined capacity of nearly 110 gigawatts (GW), with the first to become operational by 2023, according to reports. Two other projects are already government approved.

This is an ambitious target given that Vietnam’s current installed capacity is only approximately 54GW and it is extremely unlikely that Vietnam’s future installed rollout will be exclusive of renewable power sources such as wind and solar – both of which are booming sectors – and even dirty old coal, even though the latter is losing favor due to financing difficulties and environmental concerns.

All the same, Vietnam plans call for the development of infrastructure capable of processing around 8 billion cubic meters of LNG imported from the US annually by 2030 in a move to narrow its trade surplus with its major trading partner and buttress the production of clean power.

Some of these LNG import deals are already underway. US companies were present at the Indo-Pacific Business Forum in Hanoi in late October, signing several agreements with Vietnamese partners to develop LNG-to-power projects, according to a government statement.

Earlier this month Gunvor Group announced it would trade and ship LNG to Vietnam in a joint venture with US-based development company Energy Capital Vietnam (ECV).

ECV will lead the LNG-to-power project in Binh Thuan Province, while Gunvor will supply about 1.5 million tons of the super-chilled LNG via a subsea pipeline from an offshore floating storage and regasification unit per year. The project is expected to be operational by 2025.

Meanwhile, ExxonMobil subsidiary ExxonMobil Hai Phong Energy and Japanese power producer JERA signed an MoU with Hai Phong City for an LNG-to-power project, which is still pending government approvals, according to reports. If approved, the project will become operational in 2025-2030.

Another agreement has been signed between General Electric (GE) and VinaCapital to develop the Long An LNG power project in Long An Province. If the 3,000 megawatt (MW) project goes ahead, GE will supply gas turbines and other equipment for the conversion of a coal-fired plant that was abandoned due to environmental issues.

Other LNG-to-power plants under consideration and in partnership with the US companies include the USD 1.4 billion Son My LNG Import Terminal Project with a capacity of 3 million metric tons a year in Phase 1 and 6 million metric tons in Phase 2 and the Bac Lieu LNG power project, which would be developed by Delta Offshore Energy and its contractors Bechtel, General Electric and McDermott.

Making Old Plants New

One of the reasons Vietnam is such a hot market for LNG-to-power is the success the Vietnamese government has had in creating structures for developing coal-fired build-operate-transfer (BOT) power plants,” Matt Lorimer, a Vietnam-based partner at law firm Watson Farley & Williams told Petroleum Economist recently.

LNG is playing a catch-up role in planned installed electricity rollout that has been delayed due to environmental concerns with formerly scheduled coal-fired plants – in a country where demand is growing at a rate of 7-8% annually, among the highest in the world.

What we have found, working in Vietnam, is that it is always good to start off with a structure the Vietnamese government is used to, rather than starting from scratch and trying to work out the perfect legal and economic structure,” Lorimer said. “So, it makes sense to use … [LNG] structure we have for BOT in coal as a starting point.”

However, as all energy-sector commentators note, LNG-to-power presents far greater infrastructure and technical challenges than coal-fired power, even if LNG power plants can piggyback off former or uncompleted coal-fired plants. Furthermore, LNG is far more difficult to store. A single floating storage and regasification unit is one solution, but it is more likely that multiple onshore port storage structures will come into play in Vietnam as they are a more suitable long-term solution for multiple LNG-to-power plants that are contributing to installed capacity on scale.

Enter Japan and Thailand

It is not only the US that is eyeing Vietnam’s shortfall of installed electricity capacity and its appetite for alternatives to coal – in particular in the form of LNG – with interest.

In mid-November, Tokyo Gas and trading conglomerate Marubeni Corporation signed an MoU with Petrovietnam Power to build an LNG-to-power plant with an estimated total investment of USD 1.95 billion. The Quang Ninh Province-based plant will have a planned capacity of 1,500MW, and the project will include construction of a storage and regasification terminal, as well as a pipeline to the plant, which is scheduled to become operations in 2026.

Meanwhile Thailand energy player B.Grimm Power Public Company Limited is also bullish on Vietnam demand for clean power. B.Grimm is already a key operator for Thailand in the LNG shipping sector and is now negotiating with Vietnam partners on at least two LNG-to-power projects in Vietnam.

The first of those projects involved a deal involving a feasibility study with Petrovietnam to develop a 3,000MW LNG-fired power plant in southern Ca Mau Province in November last year.

For those under the impression that Southeastern Asian business has entered the doldrums in a year dominated by Covid-19 headlines, in Vietnam, where the pandemic has been admirably controlled by a government that has taken no chances, the energy sector remains a lively target for foreign investment and offers evidence that Vietnam’s sights are firmly set on a future of ever-increasing demand.

Meanwhile, LNG, a relative newcomer to the clean power block, will play, it seems likely, an increasingly important role in Vietnam’s transitioning energy plans.