Trade wars give US LNG a beachhead in Vietnam
Gas-to-power deals offer Hanoi a quick route towards reducing its trade surplus with the US and avoiding President Trump’s attention
US pressure on Vietnam to reduce its trade deficit is creating a rare opportunity for US LNG producers to access a fast-growing Southeast Asian economy, fortuitously at a time when trade tensions are dampening their hopes for exports to China.
In the latter half of 2019—while Trump administration officials stepped up threats to impose tariffs over the $39.5bn trade deficit—deals for LNG imports and LNG-related power generation worth over $5bn have been signed between US firms and the Vietnamese government.
In the largest deal, the Vietnamese government chose Arlington-based power company AES on 2 October to develop an LNG-to-power 2.2GW combined cycle gas turbine power plant in the south-central province of Binh Thuan. The Vietnamese ministry of industry and trade confirmed the $5bn deal for the Son My 2 plant, which will be built under a 20-year build-operate-transfer contract, after a visit to Washington by minister Tran Tuan Anh.
“Hanoi wants to be on better terms with the US government and realises that it has to address the trade imbalance. These LNG agreements are probably one of the quicker ways to rectify it,” says Greg Vesey, managing director and CEO of Houston-based LNG Limited.
Vesey’s firm secured a 2mn t/y, 20-year sales and purchase agreement (SPA) on 2 September with the government of the coastal province of Bac Lieu. It has agreed to provide supply from its planned Magnolia LNG export terminal in Louisiana, which is scheduled for FID later this year, to a 3,000MW LNG-to-power project in Bac Lieu that is being developed by Singapore’s Delta Offshore Energy.
"Our alliance with LNG Limited allows the [Vietnamese] government to have a stronger relationship with US market [participants] and [gain from] the long-term stability of the Henry Hub index, which fits perfectly with the Vietnamese national power development plan," says Bobby Quintos, engineering managing director of Delta Offshore Energy.
In a separate deal, Arlington-based Gen X Energy confirmed in September plans to work with authorities of the southern province of Vung Tau on a $6bn LNG storage complex. A further deal has been struck by Houston and Paris-based oilfield service company TechnipFMC on 15 October to provide engineering, procurement and construction for the second phase of PetroVietnam's Nam Con Son 2 project.
Carrot and stick
Vietnam wants to build 10 LNG import projects by 2030, almost all for LNG-to-power, raising imports from zero to 10mn t/y. While domestic reserves of natural gas are rapidly depleting, the government estimates in its seventh power development plan that power demand will grow from 48,600MW to 129,500MW by 2030, due to rapid economic growth and urbanisation.
The LNG deals follow a series of US trade missions and diplomatic approaches in recent months designed to secure a significant US role in Vietnam’s energy transition. The US Department of State and the Ministry of Industry and Trade (USTDA) has been forging links with Vietnamese officials through regular “energy security dialogue” meetings since last March, and in May the USTDA offered state-run utility Vietnam Electricity (EVN) a $1.4mn grant to support a feasibility study on a $1bn LNG import terminal in southern Vietnam.
“The Vietnamese government sees the benefit of buying something—which it absolutely needs—from the US,” says Vesey. “North America has had a huge LNG resource base for a long time, and it's made for a very stable price environment. We are all out there just looking for places to sell LNG, given the current stalemate with China.”
Beijing raised import tariffs on US LNG to 25pc, while earlier this month the Vietnamese Ministry of Industry and Trade and the US State Department signed a memorandum of understanding that established a mechanism for long-term LNG cooperation.
The cosier diplomatic ties and proposed US deals represent a major turnaround from two years ago, when a World Bank-sanctioned roadmap towards development of the domestic gas industry noted that the principle LNG importers being considered by Hanoi were “Middle East countries, Russia, Australia and China”.
The progress in Vietnam offers respite to the US LNG industry, which is suffering from the impact of US tariffs elsewhere. In any case, taking an early lead in a strategic market provides an important boost to the growing export industry.