Like many fast-developing countries in the age of increasingly dire climate change predictions, Vietnam is at something of a crossroads when it comes to planning out the future of its energy production.
“At the heart of this is a huge conundrum for the energy powers-that-be over how the entire power mix over the next 20 years will play out,” said Giles Cooper, a partner at the law firm Allens Pte Ltd in Hanoi who analyses energy policy.
Renewables have surged in recent years, while traditional coal power like coal remains a prominent part of the conversation. At the same time, increasing opposition to coal-fired power plants due to their environmental impact, as well as massive delays from financing struggles, means that liquefied natural gas (LNG) has also attracted major attention as a potential new energy source.
Over the last two years, local media has frequently reported announcements of proposed LNG-fired power plants and terminals along Vietnam’s coast with multi-billion dollar price tags, many involving American energy companies such as Exxon and AES Corporation.
However, despite hype presenting it as a supposedly cleaner energy pathway for Vietnam, there is currently no infrastructure for LNG development in the country and uncertainty over where financing will come from. Meanwhile, its green credentials remain questionable. There’s also a massive bureaucratic hurdle: Progress on the latest overarching government policy essential to guiding all energy planning in Vietnam over the next decade remains stalled.
As a result, while the ultimate fate of LNG investment and production will have a huge impact both on the country’s future energy mix and its greenhouse gas emissions, the outlook for its development over the next decade looks dim.
Waiting on a plan
Vietnam’s energy sector follows 10-year strategies called a Power Development Plan (PDP). PDP7, which ended in 2020, guided the previous decade, but it has not been replaced by a new policy yet.
According to Cooper, PDP8, which would cover the time period to 2030, was supposed to be finished well before the end of last year. But it still has not been completed, and a May change in government leadership followed by a severe ongoing COVID-19 outbreak has disrupted the process further.
“The last time it sort of came up for air was in March when there was a public draft that everyone has been focused on since,” he said. “The previous prime minister [Nguyễn Xuân Phúc] did not approve it, and the new prime minister [Phạm Minh Chính] sent it back to the Ministry of Industry and Trade, and it’s not clear what’s happening now.”
As a result, there is currently no legal framework for the development of energy projects of any kind that weren’t part of PDP7, which covered power development from 2010 to 2020. In addition to leaving any investor excitement over LNG in limbo, it muddles Vietnam’s entire energy picture.
“If you’re not on a master plan, obviously you can’t do these projects because they don’t exist,” Cooper added.
For decades, hydropower and coal-fired thermal power have served as the two main sources of electricity in Vietnam. In 2020, the latter provided 42.7% of power capacity, while the former provided 30.1%, according to an October 2020 report from the law firms Allens and Linklaters.
A dramatic shift has occurred over the last few years though, with Vietnam now leading Southeast Asia in solar energy capacity and huge interest in developing offshore wind farms. According to the same report, renewable energy capacity is forecast to more than double from 9.9% of total capacity in 2020, to 21% in 2030.
Vietnam’s existing coal power plants are also the target of a plan involving the Asian Development Bank and several global financial corporations that would create public-private partnerships to purchase these facilities in order to close them and reduce carbon dioxide emissions. The proposal is still in its early stages, but would be a unique approach to reducing reliance on coal.
The country’s surge in renewables, meanwhile – from an extremely low base – has made for excellent PR, though the reality on the ground isn’t quite as bright, as capacity does not mean that all of this energy is used.
An electricity grid in desperate need of an overhaul means that Electricity Vietnam (EVN), the national power monopoly, has had to cut solar output since the system can’t handle all of the projects that have come online.
In Cooper’s view, the PDP8 delay highlights a battle over the very future of energy production in Vietnam between backers of LNG and proponents of offshore wind, the latter of which are drawn to the country’s long, windy coastline.
“There are a bunch of stakeholders pushing for the LNG approach and a bunch who are pushing for the offshore wind approach, and the whole story is where the line is going to be drawn between the two,” Cooper said. “Because once you put these LNG projects down on the master plan, there’s going to be an awful lot of weight of investors and money behind them seeking to capitalise on these projects.”
According to the recent Vietnam Wind Energy Guide published by Mayer Brown, 35 offshore wind projects were featured in the draft PDP8. While this doesn’t mean they will be fully approved once the policy is released, it provides wind with a firmer base than LNG, especially as there are already a few existing or under-construction offshore wind farms.
Offshore wind projects currently benefit from a feed-in tariff (FiT) that pays 9.8 US cents per kilowatt hour. This FiT applies to developments that begin commercial operations by November 1, though the Ministry of Industry and Trade has proposed extending this through the end of 2023. This would give offshore wind an additional advantage over LNG, which currently has no preferential policies.
Thu Vu, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), adds that the growth of renewables in recent years, through deals in which the Vietnamese government has not had to provide financial guarantees or assume risk, gives officials more bargaining power when it comes to LNG development.
Finalizing a power purchase agreement and setting up financing for an expensive, highly technical LNG plant is a lengthy process, and investors may now be at a disadvantage since renewable energy has expanded so rapidly.
“[LNG] investors are looking at the generous concessions that were extended to the coal and gas power projects developed in the past 20 years, but the government is thinking differently now,” Thu Vu explained.
“As some of the LNG-to-power projects progress towards the more significant stages in the project development cycle, it has become increasingly evident that there is a significant gap between what the investors demand and what the Vietnamese government is now willing to offer.”
As a result, despite the generally bullish coverage of LNG by Vietnamese media, Thu Vu believes it is unlikely that more than one such project will actually be commissioned by 2025.
Cooper, for his part, believes the Thi Vai LNG Terminal in Ba Ria-Vung Tau Province, southeast of Ho Chi Minh City, will be built through a partnership between state-owned PetroVietnam and Japan’s Tokyo Gas. He also noted the $4 billion LNG Bac Lieu project, a proposed 3,000 megawatt LNG-to-power facility in the Mekong Delta backed by a Texas-based company called Delta Offshore Energy.
“They’re indicating publicly that they are very close to financial close so that they can start construction, but until they do it remains an open question whether that particular project will actually ever get off the ground,” Cooper said, noting that Delta has no prior experience in a project of this size.
Other international players are getting involved in the LNG sector as well, though how exactly these projects will proceed without PDP8 in place is unclear. South Korea’s GS Energy, for example, will work with VinaCapital on a US$3 billion LNG plant near Ho Chi Minh City. The facility was initially expected to be coal-fired, but the investors switched to LNG over environmental concerns.
There are geopolitical stakes at play here as well, especially since so many of the LNG proposals involve US companies. In 2019, under pressure from the Trump administration to narrow the trade gap between the US and Vietnam, Vietnamese officials agreed to buy billions of dollars worth of LNG in the future.
However, this rationale may change under President Joe Biden’s less combative trade stance, as well his climate policies.
LNG as a clean alternative?
Domestically, LNG is broadly depicted as a much cleaner alternative to coal. An informal survey of eight stories about LNG projects in major Vietnamese news outlets found no mention of methane or emissions.
But while it may not be the case within Vietnam, beyond its borders increasing attention is being given to natural gas’ environmental drawbacks. In May, the UN Environment Programme released its first Global Methane Assessment, finding that cutting human-caused methane emissions by 45% within this decade would play a major role in reducing future global temperature increases.
Huge amounts of methane, a greenhouse gas 80 times more powerful than carbon dioxide over a span of two decades and the main component of natural gas, are emitted during the process of drilling for natural gas, as well as by gas leaks along the supply chain.
Thu Vu, from IEEFA, has been frustrated by the lack of coverage of LNG’s environmental impact in Vietnam, but believes it is only a matter of time before global energy shifts make their way here.
“The methane emissions issue associated with LNG … has not been discussed at all here,” she said. “Nevertheless, increasing international scrutiny on the full climate impact of LNG will eventually affect the financing of LNG-to-power projects in Vietnam.”
The importance of reducing methane emissions was further stressed last month in the International Panel on Climate Change’s sixth assessment report, which noted that limiting the release of this gas into the atmosphere is the most viable way to slow global warming over the next 20 years.
“Natural gas is composed mostly of methane, so when even a little bit leaks, it adds a lot to the overall emissions from using that fuel,” said Mason Inman, gas and oil programme director at Global Energy Monitor (GEM), a US-based organisation which studies the international energy landscape.
“The biggest contribution to global warming from LNG is the carbon dioxide emissions from burning the gas.”
Taken together, the regulatory, financial and environmental hurdles facing LNG as an energy source in Vietnam place gas in a similar situation to coal-fired power, which has a very uncertain future in the country even though numerous coal-fired power plants are still slated for approval.
“Vietnam has no experience importing LNG and the international market is pretty volatile, subject to all sorts of geopolitical changes which are very hard to foresee,” Cooper explained.
“So there’s much more uncertainty about how the essential risk allocation bargain is going to be struck between investors and the government. If I had to guess, I think we’d be lucky to see three of these [LNG] projects selling power to the grid this decade.”
This story was produced with the support of the Earth Journalism Network and was originally published by the Southeast Asia Globe on 19 August 2021. It has been lightly edited for length and clarity.
Banner image: The Duyen Hai thermal power complex in Tra Vinh Province, Vietnam / Credit: Michael Tatarski.