Vietnam’s sole refinery forced out of business

In a recent document submitted to the Government Office, the Ministry of Finance, and the Ministry of Industry and Trade, Vietnam’s state-run oil and gas group PetroVietnam bemoaned the difficult situation of Dung Quat as customers decreased purchases and only place short-term orders.

“This affects the refinery’s plan to buy crude oil (the raw material for diesel and Jet A1fuel production). Consequently the refinery cannot maintain production volumes. Dung Quat will have to reduce capacity or temporarily stop production,” the document said.

PetroVietnam requested the three agencies to adjust the tariffs on diesel and Jet A1 fuel.

Dung Quat’s gasoline products are also having trouble competing with South Korean imports. Due to the free trade agreement between Vietnam and South Korea coming into effect on December 20 last year, the import tariff on gasoline produced in South Korea is 10 per cent.

The price of Dung Quat’s products are calculated as the sum of similar imported products’ price and the applicable tariff rate. The tax rate used to calculate the price of Dung Quat’s gasoline is 20 per cent. This results in a difference of $4.87 per barrel, going by the average price of gasoline in January 2016.

Diesel and Jet A1 are Dung Quat’s main products, accounting for about 50 per cent of the output.

In January 2016, Gazprom Neft, the oil arm of Russian giant Gazprom, ended talks with PetroVietnam to buy a 49 per cent stake in Dung Quat refinery.

Dung Quat refinery, located in the central province of Quang Ngai, is Vietnam's first and only working refinery. Starting operation in 2010, the $5 billion refinery has a refining capacity of 6.5 million tonnes of crude oil per year, meeting between 30 and 40 per cent of the country's consumption demand. In the middle of last year, it invested $1.82 billion to increase its capacity to 8.5 million tonnes a year. The expansion project is expected to be completed by 2021.