Dung Quat refinery may have to close temporarily because its main products, diesel and Jet A1 fuel, cannot compete with imported counterparts since the tariff on diesel and Jet A1 from ASEAN member states has been eliminated, starting from 2016.

In a recent document submitted to the Government Office, the Ministry of Finance, and the Ministry of Industry and Trade, Vietnam’s state-run oil and gas group PetroVietnam bemoaned the difficult situation of Dung Quat as customers decreased purchases and only place short-term orders.

“This affects the refinery’s plan to buy crude oil (the raw material for diesel and Jet A1fuel  production).

Consequently the refinery cannot maintain production volumes. Dung Quat will have to reduce capacity or temporarily stop production,” the document said.

Dung Quat’s gasoline products are also having trouble competing with the Republic of Korean imports.

Due to the free trade agreement between Vietnam and the Republic of Korea (RoK) coming into effect on December 20 last year, the import tariff on gasoline produced in the RoK is 10%.

The price of Dung Quat’s products are calculated as the sum of  similar imported products’ price and the applicable tariff rate.

The tax rate used to calculate the price of Dung Quat’s gasoline is 20%. This results in a difference of US$4.87 per barrel, going by the average price of gasoline in January 2016.

Diesel and Jet A1 are Dung Quat’s main products, accounting for about 50% of the output.

In January 2016, Gazprom Neft, the oil arm of Russian giant Gazprom, ended talks with PetroVietnam to buy a 49% stake in Dung Quat refinery.

Dung Quat refinery, located in the central province of Quang Ngai, is Vietnam's first and only working refinery.

Starting operation in 2010, the US$5 billion refinery has a refining capacity of 6.5 million tonnes of crude oil per year, meeting between 30 and 40% of the country's consumption demand.

In the middle of last year, it invested US$1.82 billion to increase its capacity to 8.5 million tonnes a year. The expansion project is expected to be completed by 2021.

VIR