Soaring LNG price casts doubt over LNG-to-power plant bankability: PM

Prime Minister Pham Minh Chinh late last week ordered the industry ministry to recalculate the ratio of LNG power in the country’s energy mix under the draft power development plan VIII as the soaring price of imported LNG might make LNG-to-power plants until 2030 infeasible.

The latest draft plan (PDP VIII) put liquefied natural gas (LNG)-fueled power generation of new projects until 2030 at 23,900 megawatts, accounting for 16.4% of the country’s total. Another 14,930 MW would come from plants converted into LNG-fueled due to a lack of domestically sourced natural gas.

“Due to the Russia-Ukraine war, the price of imported LNG has soared to 15-20 U.S cents/kWh, while the current electricity selling price is 6-7 cents/kWh,” the prime minister wrote in a document sent to the Ministry of Industry and Trade (MoIT).

“This will be a hindrance to future negotiations on power purchase agreements (PPA) between investors and Electricity of Vietnam (EVN). Moreover, LNG is a kind of fossil fuel that only helps cut CO2 emissions by half compared to coal-fired power,” the document read.

State-run EVN is the country’s sole electricity distributor. While the price of LNG bought on the international market is surging, electricity prices - for sale to domestic consumers in Vietnam - cannot soar at the same rates.

“Yet investors in LNG facilities need predictable revenue streams to attract the finance required to build them. Hedging and risk mitigation tools are not available in Vietnam. So state subsidies, whether direct or indirect, may be needed. These will presumably be possible only in the context of state-owned investors,” Tony Foster wrote in The Investor.

Up to now, no LNG gas power plants operate in Vietnam. In all, nine LNG-to-power projects have received in-principle agreement as independent power producers. Of these five found investors and could enter the phase of negotiating a PPA with EVN. Others like LNG Long Son, LNG Ca Na, LNG Long An and LNG Quang Ninh are yet to find investors or only officially announced their investors recently.

PV Power, a Petrovietnam subsidiary, on March 14 awarded a $940 million contract to build Nhon Trach 3 and 4, Vietnam's first LNG-fueled power plants, to a consortium of Samsung C&T Corp and Lilama Corp, a leading Vietnamese construction company.

With a total capacity of 1,500 MW and capitalized at $1.4 billion, Nhon Trach 3 and 4, located in the southern province of Dong Nai, are expected to start commercial power generation in 2024-2025.

In the central province of Quang Tri, the $2.3 billion Hai Lang project embarked on its technical component in mid-January 2022. The project includes Hai Lang LNG Terminal phase 1, which will receive LNG ships from 170,000 to 226,000 cubic meters with an annual reception capacity of 1.5 million ton of LNG per year, and Hai Lang Power Center phase 1, which will have a generation capacity of 1,500 MW.

Together with Vietnam’s T&T Group, Korea Gas Corporation, South Power and Hanwha Energy are participating in the Hai Lang project phase 1, which is expected to start commercial exploitation in the period 2026-2027 in Southeast Quang Tri Economic Zone.

AES and PV Gas, another subsidiary of Petrovietnam, in mid-May secured an investment certificate for their $1.4 billion Son My LNG terminal project in the south-central province of Binh Thuan.

The terminal will have an installed capacity of 450 trillion British thermal units. It is expected to achieve financial completion in 2023 and begin commercial operations by 2026. The terminal will receive, process and supply LNG reprocessed as fuel for Son My 1 and Son My 2 power plants.

PM Chinh also ordered the MoIT to reconsider its proposal on not allowing new solar power generation until 2030 under the PDP VIII as it might counter the Politburo’s Resolution 55, while the cost of producing this kind of energy source is on the decline.

“The ministry needs to make it clear whether energy security could be ensured without solar power generation until 2030."

Under the latest draft PDP VIII, over the years to 2030, there would be no additional solar power generation, maintaining the current figure at 8,736 MW. The MoIT stated that the projects approved under the adjusted PDP VII, with total capacity of 6,200 MW, must delay their implementation to after 2030.