Opportunities and Challenges for Gas Power Development in Vietnam

9:10:20 AM | 3/7/2024

Liquefied Natural Gas (LNG) has emerged as a prominent low-emission energy solution, particularly in light of Vietnam’s international pledges to mitigate pollutant emissions following the COP21 Conference. The pursuit of LNG development holds the potential to enhance electricity generation, diminish reliance on coal-fired thermal power, mitigate emissions, and foster environmental preservation - all while aligning with the nation’s sustainable development objectives. However, the path toward harnessing this green energy source is fraught with significant challenges.

Vietnam needs to soon complete the legal to enable investment in building new, modern LNG terminals of international standards

Challenges in green energy production

Dr. Mai Duy Thien, Chairman of the Vietnam Clean Energy Association (VCEA), shed light on the Prime Minister’s Decision 500/QD-TTg, ratified on May 15, 2023. This decision pertained to the National Power Development Plan for the 2021-2030 period with vision to 2050 (Power Plan VIII). It articulated a national power development strategy that emphasizes the production and efficient utilization of domestic fossil energy sources in conjunction with imports. The plan outlined a gradual reduction in the proportion of coal-fired thermal power, a prioritization of domestic gas power development, and the cultivation of imported LNG power sources at a suitable scale.

According to the power development structure projected for 2030, domestic gas thermal power is expected to reach 14,930 MW (9.9%), and LNG thermal power, 22,400 MW (14.9%). By 2050, domestic gas thermal power and LNG-converted power are projected to attain 7,900 MW (1.4 - 1.6%), domestic hydrogen-converted gas thermal power is anticipated to rise to 7,030 MW (1.2 - 1.4%), and hydrogen-combined LNG thermal power is forecasted to achieve 4,500 - 9,000 MW (0.8 - 1.8%).

In recent years, as climate change strongly affects the living environment, attention has been paid to minimizing pollutant emissions, including reducing the use of traditional fossil fuels (coal and crude oil). The world is moving toward the use of more durable, cleaner fuels that are environmentally friendlier. The introduction and development of LNG in Vietnam has been continuing to bring scores of opportunities for the Vietnamese energy industry but, in fact, many difficulties and obstacles must be tackled to make this effort successful. The transition to green and clean energy, including LNG gas power development, is not easy nor can it be done in a short time, he noted.

One of the biggest challenges of gas power development is the shortage of domestic gas resources and increased dependence on imported LNG, not only to supply new LNG power projects but also urgently to offset the future short supply for existing gas power plants when imported LNG prices move with international market.

In particular, Vietnam lacks experience in building and operating LNG terminals and LNG-fueled gas power project chains, while LNG imports must follow international practices. In the meantime, the current legal framework for LNG projects in Vietnam has not been completely developed. Vietnam currently does not have a complete set of technical standards for location, design, construction and operation of infrastructure for LNG imports.

Besides, according to Dr. Vu Dinh Anh, economic expert, LNG gas power is facing a series of barriers, notably infrastructure and planning in addition to investment capital, gas - electricity trading mechanism and pricing.

Enhancing the quality of the legal framework

To foster the growth of gas power in the imminent future, numerous propositions have been advanced by economic experts. Specifically, the consistent execution of solutions to augment the quality of the legal framework and the disclosure of energy planning, connection systems, and other related matters are essential. These measures aim to cultivate an attractive investment environment and establish open, transparent, and equitable policies to incentivize businesses to make market-based investments. This focus needs to be intensified in the forthcoming period.

In 2024, it is imperative for the National Assembly to pass a resolution on specific mechanisms and policies for the implementation of LNG power projects. This action is necessary to eliminate the aforementioned barriers and ensure the schedule of Power Plan VIII. Furthermore, amendments to Decision 24/2017/QD-TTg, dated June 30, 2017, on regulations on adjusting the average electricity retail price, need to be revised. This reconsideration will lay the groundwork for regulating electricity prices in a more flexible, expedited manner and for accurately and comprehensively calculating input factors of electricity supply costs. All policies for LNG power must uphold market principles and healthy competition, encompassing both input and output factors.

Mr. Huynh Quang Hai, Deputy General Director of PetroVietnam Gas Corporation (PV GAS), emphasized the necessity to update, supplement, and establish a comprehensive legal corridor for executing and developing gas power projects and LNG markets in the future. He also suggests considering the construction of LNG warehouses in a manner where “a central LNG terminal supplies satellite thermal power centers” to optimize investment. Additionally, reviews on the consistency and cohesion of plannings and action plans should be conducted.

The government must implement necessary incentives or protection measures, including financial support and policy support, to mitigate costs for the electricity industry and shape a competitive market with a greater number of market stakeholders. This is the driving force for market development.

Moreover, supporting Vietnam’s large gas power firms to invest in gas fields and develop gas power in other countries is crucial. Expanding discovery, exploration, and field development to provide more reserves and enhance potential deep offshore production output to meet the gas industry development plan in the coming period is also important. Furthermore, devising specific strategies and plans for LNG import is essential to form an LNG market.

Dr. Nguyen Minh Phong

Former Manager of Economic Research Department, Hanoi Institute for Socioeconomic Development Studies

Vietnam needs to soon complete the legal corridor (especially technical, commercial, financial regulations and standards) to enable investment in building new, modern LNG terminals of international standards. It is necessary to accelerate research, assess feasibility and conduct capacity increase/new investment in LNG terminal projects to promptly meet fuel demand for power generation according to the Power Plan.

Furthermore, the Ministry of Industry and Trade is called upon to develop and introduce a power generation pricing framework specifically for LNG power plants. It is also advised to formulate a pledged plan for the total annual electricity output purchased from EVN and the annual gas output consumption. This plan will serve as the foundation for banks to consider arranging credits for projects and securing cheap, long-term LNG purchase sources to achieve lower electricity prices.

Dr. Nguyen Thuong Lang

Senior Lecturer, School of Trade and International Economics, National Economics University

It is imperative for the government to implement necessary incentives and protective measures. This includes financial support and policy backing to alleviate costs for the electricity industry.

Furthermore, the establishment of a competitive market is needed to attract a diverse range of market stakeholders. Looking towards the future, the gas power industry holds immense potential, particularly when considering international trends. As such, it is feasible to extend support to Vietnam’s leading gas power firms, enabling them to invest in gas fields and foster the development of gas power in other countries.

By Quynh Chi, Vietnam Business Forum