In Focus
August 2016

Biofuels Implementation in Vietnam – Work in Progress?

Vietnam’s current gasoline demand is estimated around 5.8m MT p.a. and expected to grow to about 7.7m MT by 2020. Till now, the country imports more gasoline (>60%) than it produces domestically but the intention is to change this over the next few years by heavily investing into upgrading the two (Dung Quat in Quảng Ngãi Province and Nghi Son in Thanh Hóa Province) with the following statistics:

Dung Quat Refinery

Vietnam’s first refinery has been in production since 2009. The complex is a 3 billion USD unit owned by Vietnam Oil and Gas Group (PetroVietnam). The current operator is Binh Son Refining and Petrochemical Company (BSR). It has a capacity of 6.5m MT and produces about one third of the country’s demand for gasoline and diesel. The refinery meets essentially Euro 3 equivalent fuel standards, constrained by its olefin content. However, it is undergoing upgrade and its capacity will rise to 10-12 m MT a year.

Nghi Son Refinery

The refinery is expected to be completed this year and operational ready by 2017. It costs about 9 billion USD and is developed by a consortium of international companies: Petrovietnam holds 25.1% shares, with Idemitsu Kosan and Kuwait Petroleum each hlding 35.1% each, whilst Mitsui Chemicals has the remaining 4.7%. The refinery is expected to supply first and foremost the domestic market, with a capacity of 10 m MT a year. With the inclusion of this refinery, Vietnam import of finished oils will be reduced to around 30% of total demand.
Two new refineries are expected: Vung Ro in Phu Yen Province and Long Son in Ba Ria-Vung Tau Province, while existing plans consider as many as eight new refineries, with PetroVietnam’s Binh Dinh refinery being the biggest project with a throughput capacity of 400,000 b/d, although it has been reported by media that the project has been scrapped by investors Saudi Aramco and PTT of Thailand.
These eight new proposed refineries would have added to the country’s total design capacity of 60 m MT of oil products a year.

The gasoline market is a 2-tier market with RON92 and RON95 available at the pump stations. The market share spilt between RON92 and RON 95 gasoline is currently 75:25. The country’s emission standards are still at Euro 2 level but according to the Department of Environment, the government will implement Euro 4 standards by 01-January 2017. However, the actual timetable for the implementation of the new fuel quality remains a bit unclear as i.e. PetroVietnam’s Dung Quat refinery can currently only produce Euro 2/3 fuel quality standards and it has been reported that Petrolimex’s Nghi Son refinery is also unable to comply with the Euro 4 quality requirements.

The current roadmap to achieving Euro 5 standards for exhaust emission standards is outlined below:

Euro 3: as of 01-Jan 2017, for motorbikes

Euro 4: as of 01-Jan 2017, for passenger cars

Euro 5: as of -1-Jan 2022, for passenger cars

Refined products demand and forecast

The current oxygenate content for both gasoline grades are 2.7wt% max for “conventional” gasoline and 3.7wt% max for E5 gasoline. The Southeast Asian country introduced the biofuel directive in 2012, in Directive 23/CT-TTg and in Decision 53/2012/QD-TTg which introduced the promotion of E5 gasoline as from 01-December 2015, and E10 gasoline as from 01-December 2017. The directive requires gasoline retailers to supply the market with E5 gasoline in seven provinces as from late 2015, in order to supply the country nation-wide with E5 gasoline by the end of the current calendar year. However, a number of implementation obstacles and challenges have led to the fact that Vietnam is yet quite far away from achieving the objectives. Till date the actual market share of E5 gasoline is no more than 2% and further progress remains hampered.

Over the following pages, we will be addressing some of these issues in more detail:

• Government policy
• Low oil price leading to a price/value mismatch
• High bio production cost/low yields (in gas blending)
• Feeds being taken by neighboring countries
• Insufficient domestic production
• Finished product achieves higher price in export markets
• Consumer resistance and Blender/oil company resistance
• Refinery investment progress (non-progress…)
• Import gasoline quality
• Energy saving/GHG emissions issues (particularly the fact that Vietnam’s impact on land use/production/emission reduction varies widely from Philippines and Thailand)

Government policy

The plan for biofuel implementation was declared in Decision No. 177/2007QD-TTg by the Prime Minister dated 20 November 2007 based on the “National Program on bio-fuel development up to 2015 with outlook up to 2025”. This program targeted a development of biofuels as a new and renewable energy, for use as an alternative to partially replace conventional fossil fuels, contributing to energy security and environmental protection with the following timeline:

• 2010: Develop various models of trial production and use of biofuels with a total annual output of 100,000 MT of E5 and 50,000 MT of B5 in order to satisfy 0.4% of the country's gasoline and oil demand.

• 2015: ethanol and biodiesel will reach 250,000 tons (enough for blending 5 million MT of E5 and B5), satisfying 1% of the whole country's gasoline and oil demand.

• Vision to 2025: The biofuels production technology applied in Vietnam will attain the world's advanced level. The ethanol and vegetable oil output will reach 1.8 million MT, satisfying some 5% of the whole country's gasoline and oil demand

Source: Petrovietnam

Vietnam’s biofuel legal framework

• Directive 23/CT-TTg: Provides guidance on the use, blending and distribution of biofuels for promotion of E5 use (by Prime Minister)Vietnam’s biofuel legal framework Vietnam’s biofuel legal framework

• Decision 53/2012/QD-TTg: Provides roadmap for application of ratios for blending biofuels with traditional fuels:

  • E5: to be adopted in seven provinces and cities as from 1 December 2014, nationwide as from 1 December 2015
  • E10: to be adopted in seven provinces and cities as from 1 December 2016, nationwide as from 1 December 2017

• Ministry in charge: MOIT takes the lead and manages implementation of E5 programs

• E5 sale and price

Sale: Sold in parallel with normal gasoline at petrol stations
Price: Now cheaper than RON 92 (about VND500)

Current development

E5 gasoline is being sold in 7 provinces and cities. However, challenges remained as the supply and handling infrastructure have not been fully developed. For example, some gas stations are not yet equipped with E5 gasoline filling columns (as the equipment needed for these filling columns is not yet mandatory).

Other noticeable situations that have unfolded have been reported in the media in terms of the difficulties encountered in E5 promotion. They include:

• Ethanol production: world’s crude oil price goes down, causing difficulties for ethanol producers, leading to shutdown of many ethanol plants in Vietnam

• Consumers’ attitude towards E5:

  • Negative because of their belief that E5 is harmful for engines
  • Inconvenience due to small number of E5 stations


Bioethanol production

The total capacity for ethanol production was approximately 420 million liter/year as listed for 2012. But that was since, and unfortunately, most of these biofuels refineries have closed down for many reasons. They include:

• High relative cost of raw materials, which are mainly commercial grade cassava. These ethanol plants compete with Chinese imports for cassava, leading to higher production cost and insufficient raw material stock.

• Supply and demand of inputs (cassava) are often mismatched (supply is sometimes abundant, other times insufficient)

• Low conventional fuel pricing that makes the introduction of biofuels more challenging. Providing government rebates and financing would, if given, become taxing on the country’s budget in today’s low oil price scenario.

• Low demand from consumers who view the introduction of these fuels as potentially harmful to their engines, even after a discount of 500 to 1000 VND against conventional gasoline.

By October of 2015, five ethanol plants were at risk of closure due to negative cash flows with four mothballed. Only 175 out of 12,000 gas stations are selling biofuels nationwide. However, the government has been actively encouraging the take up rate, but it has been difficult as public demand was lukewarm at best

By July 2016, one of the largest and first ethanol plants, the Dung Quat ethanol plant with a capacity of 100 m litres a year was shut down following unpaid debts of USD 58 million.

It is a credit to the government that it understood that it has to maintain an understanding mindset and has not enforced any measures due to the consideration of the factors stated above.

Remarks

The implementation of biofuels in Asia is and has always been a challenge. Countries in South Korea and Taiwan have made yearlong studies on its biofuels and noted that they do not have the same attributes and key drivers similar to the United States, Japan or Europe.

Although energy security and self-sufficiency have been the key objectives, many other considerations, such as raw material availability, production cost, commercial scale biofuels production and supply infrastructure, public acceptance, fuel quality and emission standards, fiscal measures (often taking up the country’s budget), lifecycle GHG balance, land use and water resources need to be taken into account.

A comprehensive feasibility review would have to be adopted before making a consideration, especially if the potential contribution would add less than 5% of the transport energy mix.

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