Foreign petroleum firms penetrate local markets

The entry of overseas companies into the local fuel industry will heighten competition
Photo: Le Toan

Japanese company Idemitsu Kosan Co., Ltd and Kuwait Petroleum International Ltd (KPI) have recently applied to register a joint-venture company to distribute petroleum products in Vietnam.

The joint venture, named Idemitsu Q8 Petroleum Limited Liability Company, will operate in the import, wholesale, and retail of petroleum products, mainly through the construction and management of service stations across Vietnam.

This will be the first foreign-invested partnership to participate in fuel distribution and retailing in Vietnam.

Idemitsu stated that through the establishment of this petroleum product distribution company, the two companies will supply the growing Vietnamese market, “where demand for petroleum products is expected to follow a steady upward trend”.

KPI and Idemitsu currently hold 35.1 per cent each in the project to set up Nghi Son Petrochemical Complex in Thanh Hoa province. The remainder is held by state-owned PetroVietnam.

The products distributed by the joint venture will come from the Nghi Son complex, which is currently under construction and will be put into operation in 2017.

Last week, JX Nippon Oil and Energy Corporation (JX Nippon), another oil and gas giant from Japan, announced that it had officially agreed to purchase an eight per cent stake from the state-run Petrolimex, which holds 55 per cent of the local petroleum retail market share.

This move will help JX Nippon secure business opportunities in Vietnam, where the current demand for petroleum products is approximately 350,000 barrels per day and is rising steadily.

The acquisition shifts JX Nippon one step closer to building its first overseas oil refinery in Vietnam, and may even position it in the nationwide petrol distribution market. “As part of our co-operation strategy, JX Nippon and Petrolimex have signed a memorandum of understanding to start a joint study for the construction of a refinery in Van Phong Economic Zone,” said JX Nippon president Tsutomu Sugimori.

According to economic expert Ngo Tri Long, the participation of foreigners in petrol distribution will increase the competitiveness of the market and ultimately benefit end-users by expanding the petrol retail sector.

With an increased profile in the oil and gas industry, foreign investors would not merely bring greater financial resources to the domestic sector, they would also offer experience in management and distribution, Long said.

However, under current regulations, foreigners can only become distributors if they are investing in oil and gas refineries in Vietnam.

The $8-billion Nam Van Phong oil refinery project, which is expected to come online by mid-2020 at the earliest, will produce approximately five million tonnes of crude oil per year.

According to the Ministry of Industry and Trade, Vietnam currently has 24 fuel wholesalers, which import fuel, or buy it from the country’s sole operating refinery Dung Quat, and then sell it on the domestic market.

Currently, Petrolimex, PetroVietnam’s PV Oil, and Saigon Petro are dominating nationwide petrol distribution with a combined market share of around 75 per cent.