Vietnam’s energy woes threaten to cripple her growth

With South China Sea disputes restricting oil development projects, Vietnam may have to find alternative energy sources to fuel her growth.

By Joelyn Chan

Since the late 1980s, Vietnam had been drilling oil from the South China Sea (SCS)’s rich oil fields. Over 31 years have gone by without any problems, till growing China started laying territorial claims over 80% of SCS and disregarding the protests from Brunei, Malaysia, Philippines, Taiwan and Vietnam. As China depletes its current oil fields, she may adopt a stronger stance to secure finite energy resources for itself. Such a move may leave smaller nations like Vietnam hanging dry, without enough energy to grow.

SCS disputes hinder exploration for energy

In June 2017, Vietnam embarked on its multi-million project in Vietnam’s Block 136/3 (otherwise known as China’s Wanan Bei-21) with Spain’s Respol and United Arab Emirates’ Mubadala Development Co. Within two months, Sino-Vietnamese ties deteriorated, with tension levels of 2014’s oil rig standoff.

Source: Finance Twitter

As Repsol confirmed the existence of a major gas field and planned its drilling advances, China expressed its unhappiness. Shortly after, Central Military Commission vice chairman, General Fan Changlong, decided to cut short his official visit in Vietnam and cancelled the upcoming Annual Vietnam-China Border Defence Friendship Exchange.

Even so, Vietnam was still trying hard to push China’s limits and continue drilling operations. When China finally threatened to attack Vietnamese military bases, only Respol announced the suspension of drilling activities in the contested area. Vietnam did not issue a similar official statement and continues to promulgate its right in energy exploration. With funds already invested, and Vietnam’s increasing need for oil and gas, this could be just a temporary halt till Vietnam finds new drilling spots to carry on its joint project. Vietnam’s economy will be affected if foreign oil companies condemn its outlook as high risk and retract their investments.

In a statement sent to Reuters, Vietnamese Foreign Ministry spokeswoman Le Thi Thu Hang said “Vietnam’s petroleum-related activities take place in the sea entirely under the sovereignty and jurisdiction of Vietnam established in accordance with international law… Vietnam proposes all concerned parties to respect the legitimate rights and interests of Vietnam,”

Putting the difficulties of finding scarce oil fields aside, Vietnam now has to manage China’s responses. Vietnam’s energy plans include developing the Blue Whale gas field off its central coast in the SCS. China has not issued specific comments, but foreign companies have been warned off from SCS.

For the sake of the nation’s future, Vietnam is still fighting back by rallying more support during its official visits to countries in the same predicament. With luck, the situation may improve with a sign off of the draft framework for a South China Sea code of conduct after 15 years of deliberation, or with US’ help to counterbalance China’s dominance.

Vietnam’s energy resources are at stake

Vietnam’s latest national power development plan (PDP) VII sets the tone for 2011 to 2020 and includes a long-term vision up to 2030.

With 600 million tons of crude oil, Vietnam holds the second largest oil reserves in East Asia, with China taking the first place. At 34.4%, coal is the nation’s main source of energy in 2015. Coal is relatively cheaper, and the government has plans to increase capacity to 42.6%.

Source: Vietnam Power Development Plan

Source: Vietnam Power Development Plan

Vietnam has been a net exporter of crude oil and a net importer of oil products. The oil and gas sector remains the top few contributor of Vietnam’s Gross Domestic Product (GDP). Oil output has stagnated since 2000. Vietnam’s largest oil field, Bach Ho field, had achieved its peak in production in 2004 and production has dwindled to 16.7 million tons in 2013. With the depletion of previously discovered oil fields, Vietnam needs to seize all opportunities to uncover more oil fields in SCS.

Per capita electricity consumption rose from 156 kilowatt-hours (kWh) in 1995 to 1,415 kWh in 2014. The expected rise in demand for energy averages around 10.5% per annum during 2016–2020. The forecasted demand growth would later taper to 8% per annum during 2021–2030, assuming the government has achieved its goal to provide universal access to electricity. Currently, communities in the rural mountainous areas remain disconnected from the energy grid.

Seeking alternative sources of energy

Vietnam’s PDP paints a growing reliance on coal through the construction of more coal-fired power plants. This plan outrightly contradicts its pledge to reduce greenhouse emissions by 25% in the same period. Considering Vietnam’s historical record of missing Asian Developmental Bank’s targets and how the government had tolerated environmental destruction by law-breaking foreign companies to achieve economic growth, it will not be a surprise when Vietnam fails to deliver its promised greenhouse reduction.

The pro-renewable energy development and non-governmental organisation, GreenID, found that “PM2.5 index in Hanoi is five times higher than the World Health Organization’s annual average level.” This air pollution poses severe risks for the heart and lungs.

Before it is too late, the nation needs more sustainable energy sources. Today, Vietnam has renewable energy sources such as wind, solar, and biomass energy. Majority of this renewable capacity will come from small hydropower and wind power generation. Vietnam is also expected to begin importing liquefied natural gas by 2023. Out of an estimated 50 wind power projects, only four are operating with a total capacity of 160 MW. These sources’ untapped potential are also overshadowed by high cost and technological know-how needed.

The year 2050 may present better chances for success in renewable energy, as hoped by Pham Cam Nhung, WWF-Vietnam’s Sustainable Energy Project Manager. She said “Vietnam has an opportunity to become a leader in clean, renewable electricity… Solar power can provide at least 35 percent of Vietnam’s electricity needs while wind power can account for at least 13 percent. Renewable energy plays a vital role in the development of a sustainable future for Vietnam”.

Investment in green technology limited by money and capability

Last year, debt-ridden Vietnam abandoned plans for nuclear power plant, citing reasons like lower demand forecasts, rising costs and safety concerns. The original bill for two nuclear plants is US$18 billion, which constitutes to 9% of Vietnam’s GDP.

The government-backed firms are unable to meet Vietnam’s fundamental energy demands, resulting in brownouts. With an undefined pricing system and the inefficiency from bloated organisations, Viet Nam Electricity (EVN) and the two other state-owned energy enterprises are unable to capitalise on further technological advancements.

Vietnam’s journey ahead is full of challenges, and SCS disputes are adding to the list. To achieve its economic goals and dream of countrywide electricity access, it has to find a delicate balance between demand, supply, growth, and sustainable living environment.

About the Author

Joelyn Chan
Joelyn is a freelance writer based in Singapore. She graduated from Nanyang Technological University with a Double Bachelor in Accountancy and Business. During her free time, she explores the latest developments in fintech and business.