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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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How Trump And Kim Jong Un Could Boost Vietnam's Energy Sector

Vietnam’s Prime Minister Nguyen Xuan Phuc said on Tuesday that the choice of Vietnam as the location for this month’s meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un show’s that the Southeast Asian country is headed in the right direction. Last week, Trump announced that the meeting would be held in Hanoi, the capital of Vietnam on Feb. 27 and 28.

"This important event has shown that Vietnam's investment environment is good, that Vietnam's development model is going in a right direction and especially that the security and safety in Vietnam is wonderful," Phuc told government officials at the Hanoi Stock Exchange.

"Vietnam will demonstrate its international role and do its best to let the word 'Vietnam' ring out." To prepare for round two of Trump meets Kim, Vietnam’s foreign minister Pham Binh Minh, will visit North Korea from Feb 12 to 14 ahead of the summit.

Significant take-aways

There are several takeaways from both Phuc’s statements as well as the fact that the summit will be held in Vietnam. Phuc is right that Vietnam’s safety and security are excellent, even though much of that can arguably be attributed to the top down authoritative nature of the Vietnamese government that allows scant dissent from the party line in Hanoi.

Vietnam is also being touted as a reform model as the economic path for North Korea to follow. Last year, U.S. Secretary of State Mike Pompeo said North Korea could follow the example of Vietnam, adding that Trump believed Pyongyang could replicate Hanoi's path to normal relations with Washington and to prosperity.

Phuc is also correct in his assertion that Vietnam will demonstrate its international role by hosting the summit. Moreover, Vietnam’s status as a growing political force in Asia and globally is gaining ground. Just a few months ago, on October 3, a Vietnamese military medical team took part in a UN peacekeeping mission in South Sudan. Related: U.S. Biofuel Just Got A Major Bump

Moreover, Vietnam is taking a more assertive role closer to home within the 10-member Association of Southeast Asian Nations (ASEAN). The country is also playing a delicate balancing act, albeit with impressive diplomatic results, as it increases ties with a former foe, the U.S., India, Japan and others as a counterweight to China in the region.

Oil and gas overtures

Vietnam's economy is also flourishing, only send to China in the Asia-Pacific region in sustained economic growth over the past decade-plus. However, therein lies the rub, as is often the case with the Southeast Asian tiger of nearly 100 million people. Tense bilateral relations with Beijing are rife with geopolitical, territorial and oil and gas overtures.

It’s no secret that Beijing lays claim to more than 90 percent of the South China Sea, in what is now called its nine-dash line. Other rival claimants in the South China Sea include Vietnam, Taiwan, the Philippines, Indonesia, Malaysia and Brunei. However, Vietnam and the Philippines have been hardest hit by China's assertiveness in the troubled body of water. In 2012, the Philippines lost Scarborough Shoal, clearly within Manila’s UN-mandated 200-nautical mile Exclusive Economic Zone (EEZ) after a tense naval standoff with the Philippine ships. Since then, the Philippines has largely made a pivot toward China for economic benefit but at the end of the day it will backfire when a new president takes office in two years and as the often politically vocal Philippine populace pushes back against Chinese land grabbing in the region.

Chinese pressure

Recently, Beijing has disrupted Vietnamese gas exploration and production activities clearly within Hanoi’s EEZ, but in areas that Beijing also claims. According to a BBC report last March, which cited an industry source, state-owned Petro Vietnam, under threat from Beijing, ordered Spanish energy firm Repsol to suspend an oil and gas project, which was in its final stages, off the country’s southeast coast. The pull-out could cost Repsol some $200mn in lost investment, the report said. 

The site in question is called Ca Rong Do (Red Emperor) and lies in block 07/03 in the South China Sea. Repsol's local subsidiary estimates that it contains 45 million barrels of oil and 172bn ft³ of gas.  A drilling rig, the Ensco 8504, was scheduled to depart from Singapore for the drill site on March 22. Repsol had already contracted Yinson, a Malaysian owned company, to provide a floating production storage and offloading (FPSO) vessel at the site for 10 years at an estimated cost of more than $1 billion. Related: How Long Will This Oil Rally Last?

It was the second time in less than a year that Hanoi bowed to Chinese pressure in its own waters. In July, 2017, Vietnam 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.”

Beijing’s pressure against Vietnam to halt development of its own hydrocarbon resources will exacerbate an already looming gas shortage. To meet the upcoming shortage, the country will have to turn to liquefied natural gas (LNG) imports, likely from the U.S., but also from other producers, including Malaysia, Qatar and Australia. However, LNG offers a more expensive alternative that sourcing Vietnam’s own natural gas reserves.

At the end of the day, though Vietnam is indeed pivoting itself to a stronger regional power and even garnishing international attention, its centuries old problems with China will still create impediments for both energy planners in the country as well as the political power base in Hanoi.

By Tim Daiss for Oilprice.com

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