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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Vietnam’s Energy Dilemma Is About To Become A Crisis

Vietnam can’t seem to get a break. The country lies just beneath China, its giant neighbor to the north, and shares many of the same socialist ideals that Beijing promulgates. However, Sino-Vietnamese relations have been a source of tension for years dating back to the colonization of Vietnam by China centuries ago - a historical fact that the average Vietnamese citizen has never forgotten. Even after the protracted and costly war between North Vietnam and the U.S.-backed South Vietnamese government, that ended more than 40 years ago, China (which had proven a valuable ally for Hanoi during the war) turned on its smaller communist ally and invaded the country in 1979. It was a brief but bloody border war which showed Beijing that Vietnam could still hold its own.

Fast forward several decades and Hanoi is still trying to placate Beijing while at the same time rapidly improving relations with one-time adversary Washington. In fact, U.S.- Vietnamese relations, both trade and bilateral, have improved so much recently that the two sides could now arguably be called allies in the Asia-Pacific region. Of course, much of that alliance, similar in some respects to the decades-old U.S. alliance with Saudi Arabia, is born of necessity. The U.S.-Saudi alliance was berthed in the aftermath of World War 2, held together amid shared concerns during the cold war, and remains amid worries over Iranian hegemony ambitions in the Middle East. The U.S.-Vietnamese alliance is largely held together over the mutual aim of both Washington and Hanoi to keep China's economic and military ambitions in check in the Asia-Pacific region, particularly in the volatile South China Sea, where Beijing claims as much as 90 percent of the troubled body of water.

Vietnam’s energy quandary

However, Hanoi’s angst with Beijing isn’t just political, it also related to Vietnam's energy sector. China’s increased muscle-flexing in the region has negatively impacted Vietnam’s ability to develop its own offshore natural gas resources. Last March, according to a BBC report at the time, state-owned Petro Vietnam ordered Spanish energy firm Repsol to suspend an oil and gas project, which was in its final stages, off the country’s southeast coast within Vietnam’s, own 200-nautical mile exclusive economic zone (EEZ). The pull-out cost Repsol some $200mn in lost investment, an amount that the company has to date been unsuccessful at recouping. It was the second time in less than a year that Hanoi had bowed to Chinese pressure in its own waters. In July 2017, Hanoi also ordered Repsol to stop oil drilling operations at an adjacent location, Block 136/3, in response to what media at the time called “threats from China.” The geopolitical squabble in 2017 came just days after Repsol reportedly made a major gas discovery in the area. Related: Could This NASA Innovation Save The EV Industry?

Consequently, to offset both its blockage of developing its own gas resources and to help Vietnam meet its growing energy demand amid stellar economic growth, the country needs to turn to renewables. However, it’s still in the early stages of developing renewable energy sources and needs to introduce more incentive policies to attract more investment, media in the country reported last week, citing both domestic and international experts.

Hoang Quoc Vuong, Vietnam’s deputy minister of industry and trade, said that the rapid increase in energy demand and consumption of around 10 percent per year is having negative impacts on the environment, exhausting natural resources and also impacting the country’s energy security. Nonetheless, he reasoned, Vietnam’s clean energy development still has limitations, including unstable supply, difficulty in energy transmission and high costs. He added that the ministry was studying solutions to efficiently develop renewable energy towards a low-carbon economy. Related: What’s Behind The Cobalt Price Crash?

For more than a decade, Vietnam’s economic growth has been second only to China as the country continues to develop and modernize. According to a report by the country’s Central Economic Commission, Vietnam’s economic growth stood at 7.08 percent last year. Vietnam ranks second among Southeast Asian countries with a total power system capacity of nearly 50,000 MW and is ranked 23rd on a global scale.

However, Vuong added that it’s necessary for Vietnam to develop a structure of energy supply sources, including hydroelectric, thermoelectric and renewables. Promoting an energy transition towards a low-carbon economy was critical, he said. By the end of last year, total hydropower capacity in the country of more than 90 million reached 22,000 MW, while solar capacity and wind power capacity is estimated to reach 1,000 MW and 1,500 MW, respectively. Vuong added that the ministry was also receiving a number of proposals to develop wind and solar power projects in the country.

However, hurdles remain to achieve those goals. The International Energy Agency (IEA) recently said that Vietnam in the early stages of developing renewable energy, thus the government needed to develop appropriate mechanisms to reduce risks for investors in renewable energy development. Pham Huong Giang, deputy head of the Renewable Energy Department under the Ministry of Industry and Trade, said the ministry was studying mechanisms to promote investment in developing renewable energy.

By Tim Daiss for Oilprice.com

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