Concerns over potential oversupply has driven Petrolimex to halt construction, according to Nikkei Asian Review.

President and Representative Director, JXTG, Mr. Tsutomu Sugimori (R) and Chairman of Board of Management of Petrolimex, Mr. Bui Ngoc Bao at the MOU Signing Ceremony in April (Photo: JXTG)

A JXTG Nippon Oil & Energy project to build an oil refinery in south-central Vietnam faces cancellation, with concerns relating to a potential supply glut driving the Japanese company’s local partner to back out, according to the Nikkei Asian Review.

The State-owned Vietnam National Petroleum Group (Petrolimex) has informed the Vietnamese Government of its decision to pull out of the Nam Van Phong Refinery project, which was launched in 2008 under the Vietnamese company’s initiative in Khanh Hoa province. It was to be JXTG’s first overseas oil refinery construction project.

A second domestic refinery recently came online in Vietnam, and lackluster new-car sales and the resulting slow increase in gasoline demand are also contributing to fears of an oversupply of oil products.

“We are awaiting a response from Petrolimex,” about the situation, a JXTG spokesperson said. “But we plan to keep the project on the table as an option.”

Initially estimated to cost a total of $4.4 billion to $4.8 billion, the project involved building a refinery with an annual production capacity of a combined 10 million tons of liquefied petroleum gas, gasoline, kerosene and diesel, according to local news reports.

The two companies signed a memorandum of understanding on the project in 2014. In 2016, the Japanese company purchased an 8 per cent stake in Petrolimex for about $175 million.

Unable to churn out oil products fast enough to keep up with internal demand, Vietnam has come to rely heavily on imports. Petrolimex controls more than half of the country’s gasoline retail market and has craved a refinery of its own. It hoped for assistance on the funding and technological fronts from JXTG, a JX Holdings unit eager to expand abroad amid shrinking demand at home.

One of Vietnam’s two existing oil refineries, Dung Quat, is operated by the State-owned PetroVietnam in the central province of Quang Ngai. The other, Nghi Son, in the north-central province of Thanh Hoa, was built with investment from Japanese oil refiner Idemitsu Kosan and chemical company Mitsui Chemicals. The Nghi Son refinery started shipping products in May.

The two refineries were built with the help of tax breaks from the government. Petrolimex apparently could not secure such support, in what some view as a key factor in the decision to call off the JXTG project.

Petrolimex “cannot build the refinery without receiving a similar level of support to what the existing two received,” an energy-sector source said.

Concerns over oversupply are seen as a factor in the government’s reluctance to offer aid. If Nghi Son Refinery boosts production, about 90 per cent of domestic gasoline demand could be supplied by the country’s two refineries, according to local media reports.

Mr. Nguyen Van Trung, Deputy Minister of Planning and Investment, has said there is no need to hastily construct a third oil refinery.

In another possible factor in the government’s decision, Vietnam’s coffers have been depleted by such drains as repaying official development assistance loans and lowering tariffs.

JXTG aims to capture Vietnamese demand even without the refinery by exporting Japanese-made oil products to Petrolimex. But the Japanese company faces pressure to alter its strategy amid the collapse of a series of major plans. It recently shelved plans to participate in a refinery repair business with an Indonesian State-owned oil company.

In April, JXTG signed a memorandum of understanding with Petrolimex to carry out a feasibility study on a cooperative project utilizing its 120,000-barrel-per-day Marifu Refinery in Japan.

VIR