Sluggishness of LNG-to-power projects can undermine Vietnam’s energy security: ministry

LNG-fired electricity is set to play an essential role in the socio-economic development and national energy security in Vietnam, however, LNG-fired power projects in Vietnam are facing a series of obstacles.

Vietnam’s power development plan VIII (PDP VIII) features 13 LNG-fired power projects and sets a target of LNG-fired power with capacity 22,400 MW and annual output of 83 billion kWh, accounting for 14.9% of the country’s power generation in 2030.

With the current slow pace of deploying LNG-fired power projects, this power source is unlikely to meet the 2030 target. The deployment of LNG-fired power projects often takes at least 8-10 years since the approval of the planning. This can pose a serious threat to the medium-term and long-term power production in the country.

The Ministry of Industry and Trade has already emphasized that LNG plays an important role in PDP VIII, especially for the country’s northern region. "If the slow progress persists, the national energy security will be seriously impacted because this is the base power source and also a low-emission source of electricity," according to the ministry.

Difficulties in implementing LNG-fired power projects stem from a lack of policies that facilitate investors and LNG importing enterprises, recognizing the industry’s particular characteristics and international practices.

Other roadblocks include negotiations and signings of contracts, site clearances and transmission agreements arising out of a lack of confirmed project investors, unsuitable incentives and investment guarantees.

PV Gas, the gas arm of state-owned Petrovietnam, has also warned that domestic gas resources are depleting faster than previously forecast. As a result, the company is focusing on investing in storage facilities for imported LNG to ensure fuel supply for the production of electricity, fertilizer and other products in key industries.

However, PV GAS has reported policy obstacles related to LNG products that negatively affect investment and business activities of LNG importers.

These include the unavailability of guaranteed consumption volume and mechanisms for transferring LNG prices to electricity prices (pass-through mechanism), which in turn, lead to difficulties in calculating total investment and electricity sale prices and the slowing of negotiation of commercial agreements in the LNG value chain

Other experts have echoed PV Gas, saying one of the biggest challenges in developing gas-fired power is depleting domestic resources. Imported LNG is necessary not only to offset the paucity of domestic gas, but to meet the needs of envisaged LNG-fired power projects.

Another major obstacle is the commitment of electricity purchase by state utility Vietnam Electricity (EVN) and the guaranteed consumption volume. These two factors are the prerequisites and basis for financial institutions to consider financing for projects. They are also indispensable for projects to acquire long-term LNG purchase contracts at competitive prices.

Despite the ongoing difficulties, PV Gas, as a leading enterprise in the industry, is striving follow the strategy of its parent company Petrovietnam, prioritizing domestic gas for the processing sector and providing LNG for industrial customers.

It has also recommended policy updates to relevant authorities for facilitating investment, trade and infrastructure for LNG business, especially LNG-fired power.