Vietnam’s Oil & Gas Boomtown

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Vung Tau, with a population of just under 1 million people, is the heart of Vietnam’s growing Oil and Gas Industry, which is fueling a boom that is nearly unbelievable in its pace.  Located in the southeastern part of Vietnam, near to Ho Chi Minh City, it is also the home of a large portion of the country’s electric power, supplying nearly 40% of the country’s power.  The province of Ba Ria-Vung Tau is home to 55 ports, 19 of which are general purpose and container ports. 

Per Capita income in the province grew at an eye-popping 46% in 2011 to a nation-leading $5,875, more than four times the national average.  GDP grew at 12% in 2011 and 11% in 2010.  Foreign Direct Investment in 2010 was 6.4% of Vietnam’s total and expanded again in 2011.  While Vietnam is one of the casualties of Conoco-Phillips’ (NYSE: COP) restructuring as they are selling their assets to privately-held French company, Perenco.  Conoco-Phillips also sold their stake in the Seaway pipeline in the U.S. for $1.15 billion last fall as they streamline their operations to focus on high margin drilling opportunities. 

There is a growing concern over natural resource claims in the South China Sea, as China becomes more aggressive in it rhetoric and actions off the northern coast near Hanoi.  Vung Tau, however, does not have the same issues being even south of the hotly-contested Spratley Islands.   Because of this, it is attracting capital preferentially.  So much so, in fact, that PetroVietnam is concerned that the natural gas reserves could be depleted within a decade. 

The Nam Con Son 2 gas pipeline project was formally licensed in early February to PetroVietnam Oil & Gas.  The project, with a budget of $1.3US billion includes 325 kilometers of offshore pipelines, 40 km. of onshore pipeline and a gas processing plant in Dinh Co should be completed by 2014.  It is the key to Vietnam maintaining its mild trade deficit in petroleum. Recent news has seen port traffic that used to go directly to Ho Chi Minh City now berthing in ports around Ba Ria-Vung Tau, partly due to obstruction by the Phu My bridge but also because Ho Chi Minh City’s ports are full and some are in the process of being upgraded. 

Gazprom (NASDAQOTH: OGZPY.PK) has been given the contract to develop two of the four offshore blocks to be served by this pipeline and it likely has the inside track on the other two.  Gazprom and PetroVietnam have a long history of working together.  In addition to the offshore exploration in the Nam Con Son Basin, the two companies formed a joint venture in 2011 to develop oil and gas opportunities in third party countries as well as exploration off the northern coast of Vietnam near Hanoi and Hai Phong.  Vietnam is but one of several ASEAN countries it does business with, having a division in Singapore which focuses on LNG trading since Southeast Asia makes up more than 27% of the exported LNG in the world.

While real estate around Vietnam is dealing with a bursting property bubble in many markets, Vung Tau is weathering that storm far better with hotel and tourist investment rebounding. While the rest of the market continues to struggle with falling prices and illiquid markets, Vung Tau’s real estate market will likely be flat for 2012.

The provincial government has been courting Japanese companies with an industrial zones tailoring to their needs.  Reports from early February, though, note that while there is interest, Ba-Ria Vung Tau does not have the proper incentives for Japanese SME’s to close the deal.  Japanese companies, however, poured $2.3 billion into Vietnam in the first quarter of 2012, 30% more than they did in 2011, itself a record for Japanese investment.

But, it is Vung Tau’s proximity the rich offshore deposits off the southern shores of Vietnam that are driving its boom without the spectre of Chinese claims to the same waters.  The increasing energy needs of Vietnam are attracting capital to Vung Tau which in turn is spilling over into all other sectors of its economy. 

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