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The Permian Could See Record Gas Production In 2021

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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 Is On The Verge Of An Energy Crisis

As the U.S. finds itself embroiled in a host of problems around the world, from trying to convince North Korea to come back to the bargaining table, to ramping up tensions with Iran, smoothing over differences in the decades long U.S.-Saudi alliance and hiking punishing tariffs on of $200 bn worth of Chinese goods from 10 percent to an economically damaging 25 percent, it is also at odds with Russia over its continued meddling in Ukraine, allegations of election interference in the U.S. and its support of the al-Assad regime in the ongoing Syrian Civil War. Now, it seems that the U.S. and Russia could soon be vying for a share of Vietnam’s fledgling liquefied natural gas (LNG) market.

On Wednesday, Russia’s largest independent gas producer Novatek said that it signed a memorandum of understanding (MoU) with Vietnam’s Ninh Thuan Provincial People’s Committee to develop an integrated energy-generating project with the use of LNG within Vietnam.

Novatek added that the project provides for the delivery of LNG utilizing existing infrastructure as well as developing new infrastructure, including the construction of an LNG regasification terminal and new gas-fired power plants within Vietnam.

Novatek chairman Leonid Mikhelson, noted “strong economic growth within Vietnam generates additional demand for energy, which can be sustainability met with the development of an integrated gas generation project. The building of gas-fired power generation increases the demand for us to provide competitively priced LNG supplies to the country. This project could be realized in a relatively short period of time with the support of the Ninh Thuan province.

Significant take-aways

There are several significant takeaways from Novatek’s disclosure. First, it comes as Vietnam is on the verge of an energy crisis. Due to both population and increased economic growth, the country needs to find alternative energy sources to offset its own domestic gas production. The problem for Vietnam isn’t that it doesn’t have ample offshore natural gas reserves, but those reserves are in waters that Beijing also claims - despite being in Vietnam’s UN-mandated 200-nautical mile Exclusive Economic Zone (EEZ). Beijing has thwarted Vietnam’s plans twice in the last few years with both economic and military threats if the country continued to push through with two of its nearly completed offshore gas production projects. Related: Natural Gas Prices In The Permian Flip Negative Again

Vietnam has to turn to solar, wind and LNG to make up the difference in its energy mix. In December, the U.S. Trade and Development Agency (USTDA) said it would fund a feasibility study that will aid Vietnam Electricity Corporation (EVN) in its assessment of site selection opportunities and other important core elements of LNG development, including a receiving terminal, marine port, storage, regasification, and related infrastructure. In March, T&T Group and its U.S. partner Gen X Energy 5 had a meeting with leaders of Vietnam’s  Ba Ria Vung Tau Province to discuss a plan to invest in an LNG project with a total price tag of nearly $6 bn. Other U..S.LNG producers would also like to lock in long term supply deals with Vietnam.

This is where the situation becomes interesting. The U.S. is about to be propelled to become the world’s third-largest LNG exporter, while it could be the mid part of the next-decade vie with both Australia and Qatar as global LNG leader in terms of liquefaction capacity if the so-called second phase of the U.S. LNG development story materializes. However, the ongoing trade war between the U.S. and Beijing and fresh duties of 25 percent on U.S. LNG as well as the reluctance of Chinese firms to sign long term supply deals with U.S. greenfield LNG projects could thwart U.S. plans for LNG Dominance. On the other hand, even only a percentage of the current LNG project proposals are built, the U.S. will solidify its hold as the third or possibly second largest LNG exporter though the next decade and likely beyond.

However, Russia’s gas ambitions aren’t just limited to maintaining its decades-long geopolitically charged gas monopoly in Europe, it also wants to rival the world’ top LNG exporters. Arguably, it’ a tough sell due to both Qatar’s and Australia's LNG capacity, but Russia’s LNG development will progress, and it will pose greater competition for both Europe and Asian market share.

Geopolitical intersection

In the foreseeable future, both Russia and the U.S. will work with Vietnam to develop new LNG receiving terminals, with long term off-take deals attached to their assistance. In so doing, Vietnam will have also become a focal point between Russian and American gas pursuits as well as global hegemony pursuits of both countries. The U.S and Vietnam are already allies in a mutual pursuit of checking China's push in Asia and Beijing’s problematic building of artificial islands in the South China Sea. Russia, for its part, has a long history of working with Vietnam’s energy sector, dating back to the cold war. The trick for Hanoi will be how it will juggle two competing world powers just as it has to currently micro-manage its relations with both the U.S. and China.

By Tim Daiss for Oilprice.com

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