South China seizure

Disputes between China and its neighbours threaten regional development

CONFLICTS that emerged in the South China Sea of yore usually involved marauding pirates. Now the pirates of real consequence work their trade in the Gulf of Aden and the Indian Ocean, while the kind of trouble emerging in ocean waters of Southeast Asia are distinctly political.


Vietnam and China both claim the right to explore for oil in waters off of south-central Vietnam. The latest outbreak in the conflict over the area occurred in June, when Vietnam’s foreign ministry claimed that a Chinese patrol boat had interfered with a seismic survey vessel operated by PetroVietnam, the state-run oil company, cutting survey cables in the process. PetroVietnam is working with ExxonMobil, Chevron and others looking for subsea oil there. China has been accused by the Philippines and Japan of similarly aggressive behaviour in the South China Sea.

The political dispute has gone quiet since then, but repercussions have emerged in the maritime business arena. Port operator China Merchants Holdings (International) has blamed political tensions between China and Vietnam for the delay in a project to build a container terminal in southern Vietnam. The CMIH venture will occupy 2,400 m of shoreline in Vung Tau Province, which is the site of several other proposed projects.

However, CMIH requires an investment certificate from the local government which has not materialised. The company says that political tensions between Vietnam and China are the most likely explanation.

CMIH is listed in Hong Kong, but is also part of the China Merchants Group, the mainland giant. If the company’s hunch on the delay is correct, then its project is victim to a decades-old dispute that should have long ago been defused at the negotiating table rather than fuelled by arbitrary naval displays. That Chinese company projects are being stalled because of it should be incentive enough to do so.

Source: Lloyd's List Asia

Commitment in Vietnam

The PV Gas LNG deal will be considered a test case of the Vietnamese government’s will to back a project all the way to completion

THE good news coming out of Vietnam about its maritime development is be applauded, but the reality is that Vietnam has a long way to go until it dispenses with the problems that brought on debacles like the Vinashin meltdown.

First that good news. Petrovietnam Gas has received approval to build a $1bn port that would allow Vietnam to begin importing liquefied natural gas. The government, according to the company, has agreed to its proposal to build a port in the south central province of Binh Thuan capable of handling 3m tonnes per year of LNG, to be completed in about three years’ time.

But in Vietnam, approval is one thing; expeditious development of a project another. The best avenue to financing the project would be via international banks, but these institutions — reluctant to lend anyway in the current volatile environment — are still feeling the burn from the $4bn in debt that state-owned Vietnam Shipbuilding Industry Group, or Vinashin, piled up due to mismanaged finances. Vinashin defaulted on payment of the first 10% of a $600m bond issued by Credit Suisse and other banks in 2007. Local investors felt the pinch, too, when Vinashin defaulted on a locally issued bond.

While PV Gas says that it is in negotiations with lenders for up to $700m of the $1bn pricetag, it will have to explain to potential backers how it will surmount potential obstacles.

Most serious among these is the difficulty of getting a solid commitment from Vietnam’s central government to back the project. In contrast to China, where the central government and individual state governments vie for control over regulation and investment priorities but the central government retains the upper hand, Vietnam’s central government has difficulty controlling the competing interests of its vying states.

In other words, the usual reassurance that a central government will back a project, reducing uncertainty over its completion, is problematic in Vietnam. Many local state industrial concerns hold powerful sway. While Vietnam now has demand for imported LNG, it is expensive. Interest groups favouring other energy sources such as coal or nuclear power could paralyse the government’s will to sustain the project.

After Vinashin, the PV Gas LNG deal will be considered a test case of the government’s will to back a project with more than approval, but support all the way to completion.

Source: Lloyd’s List Intelligence

Questions raised of Vietnam’s $1bn LNG port plans

Government approval means little but securing finance means everything

PETROVIETNAM Gas has received approval to build a $1bn port that would allow Vietnam to begin importing liquefied natural gas, but analysts doubt whether the project will ever see the light of day and point to a slew of daunting political, financial and economic barriers that must first be overcome.

PV Gas general director Do Khang Ninh assured local media that the government had agreed to the company’s proposal to build a port capable of handling 3m tonnes per annum of LNG in the south central province of Binh Thuan. Construction is slated to begin next year and to be completed by 2015.

“Everybody’s projects get approval. The government cannot say ‘no’,” said Nguyen Xuan Thanh, director of the public policy programme at the Fullbright Economics Teaching Programme in Ho Chi Minh City. “The question is, can they get access to finance?”

Mr Nguyen described a situation in Vietnam in which various interest groups, typically led by giant state-owned enterprises, vie for government favour.

A key obstacle is the economic viability of using imported LNG, which is more expensive than other sources of fuel.

While Vietnam has offshore oil and gas reserves, they may not be enough to meet the country’s economic goals. In addition, tensions with China in the South China Sea and difficulties in attracting foreign investment to its offshore sector are prompting Vietnam to explore alternative sources of fuels. While LNG is one of them, there are plenty of alternatives including coal and nuclear power, Mr Nguyen said.

Traditionally self-sufficient in gas, Vietnam now faces a shortfall. The country produces 8.5bn cu m a year but requires 10bn cu m, hence the push for greater imports.

PV Gas is holding discussions with several potential LNG suppliers, including Qatar Liquefied Gas.

The uncertainties surrounding the project can also be seen from PV Gas’ often contradictory pronouncements in recent months.

The company’s plans have gone through several iterations, according to Tony Regan, consultant with Singapore-based energy consultancy Tri-Zen International.

Originally, the goal was to use a floating regasification unit as an interim solution while an onshore terminal was being constructed.

Then PV Gas changed tack and decided to go directly to building an onshore terminal, proposing a terminal in the southern province of Ba Ria-Vung Tau that would be operational from 2013 and have an annual capacity of 1m tonnes.

The company then proposed two additional terminals to be phased in later, one in the south central province of Binh Thuan that would have an annual capacity of 5m tonnes-10m tonnes and a third terminal near Hanoi.

Mr Regan said that he understood that PV Gas had sought government approval for the Ba Ria-Vung Tua terminal in May. “This location surprised many as it was on a bend in a busy river and likely to cause major congestion whenever LNG vessels came in or out,” he said.

He added that the latest announcement suggested that Ba Ria-Vung Tau plan had been rejected. “It seems they have moved to option B but with a more sensible capacity of 2m to 3m tonnes,” he said.

“If this is now packaged with the development of a new greenfield port, the goal to be operational by 2013 seems very ambitious.”

Mr Regan said another issue was where the markets for the gas would be now that the terminal has moved farther away from the main markets around Ho Chi Minh City.

Unless such questions hanging over the project are cleared, it is unlikely to get the full-fledged support from the government that it needs if it is to have any chance of raising finance.

On top of that, international and domestic investors’ appetite for investments linked to Vietnam’s state-owned companies is waning, especially in light of the outcry over the Vietnam Shipbuilding Industry group. “International banks are wary after Vinashin,” said Mr Nguyen. “It is very hard now to borrow abroad.”

Last year the shipbuilder was at the centre of a national scandal due to mismanagement leading to it being $4bn in debt. In December, state-owned Vinashin missed its first 10% repayment, or $60m, on a bond issue of $600m via Credit Suisse and other creditors in 2007.

Domestic investors have also suffered. Vinahsin defaulted on a local currency bond in April. It subsequently asked domestic investors to write off up to 90% of funds owed and wait four years for their next payment.

PV Gas already claims to be in negotiations with lenders for up to $700m. Foreign export credit agencies could also be a source of financing, depending on the country of origin of international contractors that bid on the port work.

Mr Nguyen said PV Gas may not wait to get all the funding before launching into building the port. “If you start the project, then you can force the government to continue to support it,” he said.

Source: Lloyd’s List Intelligence

Vietnamese waters a magnet for foreign operators

Bumi Armada and EOC have ordered FPSOs from Keppel for the region

BUMI Armada took delivery of floating production storage and offshore vessel Armada TGT earlier in 2011 from Keppel’s Singapore yard. The FPSO is set for deployment in Vietnam waters, which are increasingly becoming a magnet for foreign oil production, some of which is attracting local funding from Vietnamese banks.

Positioned in the Te Giac Trang field, in the Cuu Long Basin of the South China Sea, it will work for the Hoang Long consortium, whose partners include PetroVietnam, Thailand’s PTTET, and UK-listed SOCO.

The FSPO, on a seven-year time charter with further renewal options, will be operated by VietSovPetro, which is responsible for most of Vietnam’s oil production. The 55,000 barrel per day unit, also a conversion, has a 620,000 barrel storage capacity. Bumi Armada executive director and chief executive Hassan Basma said at the unit’s launch that its design overcomes a number of technological and weather-related challenges; the crude to be processed by the FPSO has a high wax content, and the shallow waters off southern Vietnam are prone to cyclones and tsunamis.

As offshore activity grows in Vietnam, a joint venture led by the Singapore-based and Oslo-listed EOC, described as the production and construction division of Ezra Holdings, the Singapore-listed offshore service provider, will be putting its FPSO Lewek Emas to work. An existing FPSO owned by EOC, Lewek Arunothai, a conversion from a Knutsen tanker, is working gas and condensate deposits for PTTEP in the Arthit Field offshore Thailand. Ezra Holdings maintains a 46% ownership stake in EOC, whose other holders are mainly financial investors, with a few strategic shareholders, including companies in the Fred. Olsen group, sprinkled in.

The soon-to-be-deployed Lewek Emas, a suezmax conversion completed at Keppel’s Singapore shipyard, will be going to work for a Vietnamese division of the London-listed exploration and production independent, Premier Oil, and its partners in the field. Fitted with a disconnectable turret system, it will be employed under a six-year charter, possibly followed by six optional one-year renewals, in the Chim Sao field, with a rating of 50,000 barrels per day production (and 680,000 barrels of storage). The owning consortium also includes an arm of Keppel Corporation, KSI Production, and a local partner PetroVietnam Transportation. First oil is expected later this month.

With local involvement comes the ability to tap new sources of finance at a time that debt markets have had little appetite for new projects. Two syndicators, Vietin Bank, and PetroVietnam Finance Corporation, have put together a $227m loan package for Lewek Emas repayable over seven years. Indicative of the bigger trend where a new roster of Asian financiers are reaching out into the traditional territory of established lenders, this was the first foreign project gaining Vietnamese funding, according to the energy lending specialist PVFC, which counts the investment behemoth Morgan Stanley as a 10% shareholder.

Source: Lloyd's list Intelligence