I. Key Takeaways:
• Dependence on Imports: Despite being an oil producer, Vietnam imports significant amounts of crude oil for its refineries due to technical and economic efficiencies in processing various crude types. According to BP, Vietnam ranks 28th among 52 countries in oil and gas resources. By the end of 2013, Vietnam had approximately 4.4 billion barrels of proven crude oil reserves and 0.6 trillion cubic meters of gas reserves, making it the highest in Southeast Asia for oil and third for gas (after Indonesia and Malaysia). Since 1986, Vietnam’s oil and gas industry has produced around 430 million tons of domestic oil and 180 billion cubic meters of gas. Vietnam’s refineries, such as Nghi Son and Dung Quat, are not optimized for all crude oil types. For instance, Nghi Son is specifically designed for a Kuwaiti oil blend with a 2.52 percent sulfur content, necessitating imports of specialized crude and exports of high-quality crude for commercial gain.
• Declining Domestic Production: Oil production from fields like Bach Ho is declining, requiring the import of suitable crude oil for refining. Crude oil is vital for petroleum products such as gasoline, diesel, and LPG. In Vietnam, about two-thirds of produced oil is refined domestically, mainly at the Dung Quat refinery, with the rest exported to countries like Thailand and Australia. Vietnamese crude, especially from the Bach Ho Basin, is highly sought after due to its low sulfur content (below 0.5 percent).
• Geopolitical and Economic Factors: Global oil prices are influenced by geopolitical tensions, such as Middle East conflicts, and economic concerns, including recession risks in the U.S. and limited purchasing power from China.
• Investment and Development Delays: Significant delays in major projects, like the Block B – Ô Môn gas project, affect the sector’s growth. Petrovietnam (PVN), under the Ministry of Industry and Trade, monopolizes the oil and gas industry. PVN’s subsidiaries participate in the entire value chain, contributing approximately 9%-11% of the state budget revenue and 10%-13% of GDP, with crude oil revenue accounting for 5%-6% of the state budget. The full name of Petrovietnam has been changed from Vietnam Oil and Gas Group to the National Energy and Industry Group since 28 December 2024.
• Regulatory and Policy Challenges: The industry faces changes in regulations and policies, such as the Decree on petroleum trading and Vietnam’s commitments under WTO, CPTPP, and EVFTA, which can impact pricing and distribution strategies.
• Infrastructure and Technological Needs: Investment in infrastructure, such as LNG storage facilities and gas pipelines, is needed to support growing gas demand and enhance energy security.
• Environmental and Sustainability Concerns: The industry must balance growth with environmental sustainability amid the global shift towards renewable energy.
• Market Vulnerability: Oil and gas companies’ financial performance is vulnerable to fluctuations in international oil prices, affecting profitability and investment returns.
II. Foreign Investment in the Oil and Gas Industry – PVN’s Monopoly and Contract Sharing under CPTPP
1. Petrovietnam – Monopoly in Oil and Gas Exploration and Extraction
Petrovietnam is the sole company permitted to explore and extract oil and gas in Vietnam. Oil based products (for example paraffin oil products) are subject to this monopoly.
Although the Law on Petroleum 2022 is silent on this, foreign investors can participate in upstream extraction but must sign a contract with Petrovietnam under the CPTPP.
The full name of Petrovietnam has been changed from Vietnam Oil and Gas Group to the National Energy and Industry Group since 28 December 2024.
NCM I-VN-32 of CPTPP:
Viet Nam Oil and Gas Group (PETROVIETNAM) is the sole authorised company with respect to oil and gas exploration, prospecting and exploitation. A contract with PETROVIETNAM is required for oil and gas activities in Viet Nam. Sub-contracts may be awarded to foreign contractors, but priority may be given to Vietnamese organisations and individuals. The execution of oil and gas contracts and their transfer to another entity must be approved by the Prime Minister. In special cases7, the following matters are also subject to the Prime Minister’s approval: (i) the extension of the prospecting period or the term of an oil and gas contract; and (ii) the suspension time limit, not to exceed three years, in cases where the parties to an oil and gas contract negotiate to suspend the execution of a number of rights and obligations under an oil and gas contract when circumstances do not allow for prompt execution of the contract. PETROVIETNAM has the preemptive right to buy part or all of an oil and gas contract to be transferred. Foreign investors may only supply flight operation services for oil and gas activities through joint venture contracts with Vietnamese companies.
7: For special cases, the Government shall prescribe conditions for suspending the execution of a number of rights and obligations under an oil and gas contract, and conditions and procedures for extending exploration and prospecting period or the term of an oil and gas contract.
8-B and 8-C of EVFTA: unbound for oil and gas. Viet Nam may adopt or maintain any measure with respect to the operation of an enterprise as defined in subparagraphs 1(e) and 1(m) of Article 8.2 (Definitions) that is not in conformity with paragraph 2 of Article 8.5 (National Treatment), provided that such measure is not inconsistent with the commitments set out in Annex 8-B (Viet Nam’s Schedule of Specific Commitments).
2. PVGAS – De Facto Monopoly in Gas
Vietnam does not commit to opening the trading sector for crude and processed oil under WTO, CPTPP, and EVFTA. According to Decree 95/2021/ND-CP, petrol and oil traders must obtain the Prime Minister’s approval for capital contributions or share transfers to foreign investors. E.g., Japanese investor Idemitsu Q8 holding 35% equity at Nghi Son Oil Refinery LLC and JX Nippon Oil and Energy holds 8% shares of Petrolimex.
PetroVietnam Gas Joint Stock Corporation (PVGAS): PVGAS, a subsidiary of PetroVietnam, holds a key position in the gas industry, operating in gas collection, transportation, storage, processing, export, import, and trading. PVGAS operates three gas pipeline systems (Cuu Long, Nam Con Son in the Southeast, and PM3 in the Southwest) and two gas processing plants (Dinh Co and Nam Con Son in the Southeast). In 2023, PVGAS became the first company in Vietnam to import LNG, receiving 70,000 metric tons at the Thi Vai LNG terminal. PVGAS completed the 1-million-ton LNG Storage project in Thi Vai in July 2023 and is the only entity granted a Certificate of Eligibility for LNG export and import in Vietnam.
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Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.