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Building oil refineries not only about money
Opinions still vary about the economic efficiency of oil refineries in Vietnam. Meanwhile, the Deputy General Director of the Vietnam National Oil and Gas Group (PetroVietnam) Tran Thi Binh says that it is not solely aiming at business purposes in building the oil refineries.
Binh said:
Currently, the energy demand keeps increasing and the operational oil refineries are unable to meet the demand. In the world, countries are building new or upgrading operational oil refineries. Many countries which don’t have or have very little crude oil like Japan, Singapore, the Philippines and Thailand, all have five oil refineries or more.
PetroVietnam’s investments in building oil refineries are steps in the government-approved strategy on oil and gas development strategy by 2015. These are the two key investment projects which aim to meet the domestic demand for petroleum, estimated to reach 18mil tonnes by 2010, and 25mil tonnes by 2015. The demand will be as high as 37mil tonnes by 2020 and 48mil tonnes by 2025.
The determination by PetroVietnam to build oil refineries shows its sense of responsibility to the country. The oil refineries will help ensure national energy security and minimise damages if the country is economically blockaded, while they will also help create an impetus for economic development in localities.
In general, the oil refineries do not only aim at economic purposes, but also have a lot of political and social significance.
Explaining why Asian countries are now rushing to build oil refineries, Western economists think that the countries are mostly aiming to exert influence on the region rather than reap high profit. What do you think about that?
It is true that the profit we can get from oil refineries is not as high as the profit from other industries. However, the products of petrochemistry complexes are significant to national economies.
The purposes of building oil refineries in Vietnam are the ones I said above. The purposes may vary for different countries, including the purpose of exerting influence on the region.
Experts believe that it would be better to gather oil refineries in one area to save up costs for infrastructure and services. Why has PetroVietnam decided to build two oil refineries in two different areas?
In principle, oil refineries must be built in localities which are near the sea and have deep water ports. Vietnam looks into the sea, but there are few localities which have deep water ports capable of receiving big oil tankers. Other countries, able to build deep water ports, do not have large, even and flat mainland space.
We think that in the future, localities will have equal economic development. If oil refineries gather in one area, it would be very costly to carry products of oil refineries to consumption areas. Therefore, we have chosen the optimum places in the north, central region and the south for oil refineries, which will help us save up costs when the refineries come into operation.
Do you agree with the opinion that Vietnam’s oil refineries are too small in scale and capacity, which make it difficult to attract foreign investment?
The Dung Quat oil refinery is small with the capacity of 6.5mil tonnes a year. The idea of building the oil refinery started 10 years ago, when the capacity of 6.5mil tonnes was the same as most of the refineries in the world.
Nghi Son and Long Son oil refineries have been designed to have bigger capacities, 10mil tonnes a year, and they can be expanded to have the capacity of 20mil tonnes a year if necessary.
However, a problem exists that several localities have been joining forces with foreign companies to plan to build small-capacity oil refineries in Can Tho and Phu Yen in the south and the central region.
I think that small capacity oil refineries will be not competitive. The government should set up a transparent plan in order to avoid the development of a massive number of oil refineries, which could result in waste.
As far as I know, the internal rate of return of Dung Quat oil refinery is 6%, while foreign experts say that projects with an internal rate of return of less than 10% will go bankrupt. What would you say about that?
The internal rate of return of Dung Quat project, calculated in 2005, may be at low level, but this is not a surprise at all.
The benefit the project can bring is not only reflected in the profit of the project, but in related projects and the economic changes in the localities where the oil refineries are set up.
In current conditions, the gross profit from oil processing tends to increase and stay at high levels. Therefore, I believe that the project will bring to PetroVietnam more profit than previously estimated.
Pham Quang Du, former Chairman of the Management Board of PetroVietnam, once said that the crude oil reserves in Vietnam are profuse. Why will Nghi Son and Long Son oil refineries have to import crude oil to feed the oil refineries, then?
The duration of an oil refinery may be as long as 40-50 years, therefore, we need stable and long-term supply sources.
Currently, we are exploiting oil from Bach Ho oil field. However, Bach Ho’s reserves have nearly run out after 20 years of exploitation.
Therefore, Nghi Son and Long Son are designed to run with oil imported from the Middle East.
VNN
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