Dung Quat Refinery, Vietnam

The Dung Quat refinery (Refinery No1 – the first oil refinery in Vietnam) was planned in January 1998 when the Vietnamese Ministry of Planning and Investment, keen to have domestic refining capability, granted approval for an oil refinery in the Central Quaûng Ngaõi region of Vietnam.

Construction on the refinery started on 28 November 2005 and after 44 months of construction work the first phase was completed on 22 February 2009.

Originally Petro Vietnam estimated the project to cost $1.3bn but later the engineering, procurement and construction (EPC) costs went up to $2.5bn, and finally the project cost $3bn. The input materials, testing, land clearance fees and management costs have raised the project cost by $500m.

The new refinery underwent a test run of its power supply networks in 2008 prior to the opening and was expected to achieve its design capacity output of 6.5 million tons by the end of the second quarter of 2009 (30% of Vietnam's domestic fuel requirements).

On 18 August 2009, PetroVietnam temporarily halted the Dung Quat oil refinery operations due to a broken valve in a fluid catalytic cracker. The cracking section produces gasoline products. Technip has been working to fix the problem but the repair might take three months as some of the equipment will be secured from abroad. The refinery has already sold 240,000t of petroleum products in Vietnam by processing 880,000t of crude oil from the Bach Ho oilfield.

Production

The projected capacity of the refinery is 6.5 million tons of low sulphur crude a year (5.5 million tons of Bach Ho crude from Vietnam and one million tons of Middle East sour crude a year – 130,000bpd) using deep and modern processing configurations including: continuous catalytic reformer (CCR), residual fluid catalytic cracking (RFCC) and a benzene, toluene xylene (BTX) plant.

When the plant runs at full capacity, products will include: about 23,000t LPG, unleaded gasoline, kerosene / 30,000t of jet fuel, feedstock for the propylene plant, about 25,000t of FO, 240,000t of diesel (industrial and auto), 8,000t of propylene, and 150,000t of petrol and petrochemical production each month. The products from the refinery are expected to meet about 30% of domestic requirements.

Delays in construction

The project has been plagued by a series of delays, three times involving the withdrawal of foreign oil companies involved in the project.

One of the main reasons for the reluctance of foreign investors is that the refinery is sited in Dung Quat (it was moved from a more viable location at Vung Tau). The Vietnamese government wanted it there to bring employment and development to central regions of Vietnam.

This means however, that the refinery will be 1,000km from the country's Bach Ho oil fields off the southern coast which will certainly increase costs for transportation of crude oil and refined products (there might be a need to construct a pipeline). The site is also situated far from the country's economic centres Ho Chi Minh City and Hanoi, but with the price of crude oil at an all time high in 2008 the project is making economic sense.

History of the refinery construction

The saga began in 1995 with the withdrawal of Total SA from the project (Total claimed the siting of the refinery made no sense at all and would involve increased costs of over $500m). A consortium of foreign firms stepped in (LG Group, Petronas, Conoco, Stone and Webster and PRC - Chinese Petroleum Company and China Development Co) but withdrew two years later for the same reasons.

In 1999, Prime Minister Phan Vaên Khaûi took steps to speed up construction of the country's first oil refinery. The rekindled project was a joint venture between Vietsovpetro (itself a Vietnam-Russia joint venture, responsible for the bulk of Vietnam's oil exports) and Russia's External Economic Federation (Zarubeznheft).

The joint venture was dissolved in December 2002 by the Russians who claimed that the refinery was not economically viable at the intended site.

In February 2003, Vietnam decided to go it alone and continue with the refinery construction. Phase one operations commenced in February 2009.

Contractors and construction

The Dung Quat refinery has costs estimated at $3bn for construction and equipment. The original front-end engineering and design contractor for the project was Foster Wheeler Energy Ltd of the UK (this was superceded by a FEED agreement signed with Technip in 2004). The refinery is being built on a site consisting of 338ha of land and 473ha of sea in the Dung Quat Economic Zone.

Vietnam has awarded contracts to a group of construction companies including Technip-Coflexip of France, JGC Corp of Japan and Technicas Reunidas of Spain, for technology and equipment supply. Stone and Webster are providing project management consultancy services as per their October 2003 contract.

One of the consortia, TPC Complex, which consists of Technip, Technip Geoproduction and Technicas Reunidas, was awarded the engineering, procurement and construction turnkey contracts No.1 and No.4 for the refinery in May 2005. In June 2006 the Dung Quat Refinery selected SmartPlant Enterprise as its standard software for management of plant design, maintenance and operations of the plant.

The refinery complex area consists of the following components:

• Refinery processing, utility and offsite facilities (110ha)
• Crude oil tank farm and gas flare-off area (42ha)
• Product tank farm (36ha)
• Seawater intake, waste water processing and crude oil pipelines (4ha)
• Interconnecting pipelines and road access (40ha)
• Harbour product export area (135ha)

Project funding

Vietnam's National Assembly approved the construction of the Oil Refinery No.1 (Dung Quat) in 1997 with an investment of $1.3bn (costs have since increased to $2.5bn), this has been provided from crude oil revenue, credits and bond sales.

Vietnam reimbursed Russia the $235m it had put into the VietRoss venture in December 2002 when Russia withdrew (this money had previously been earmarked for reinvestment into the offshore oil and gas fields of Vietnam). The Bank for Foreign Trade of Vietnam (Vietcombank) was able to arrange loans worth $250m.

The consortium of contractors which won tender package No.1 was also able to arrange loans of $500m in deferred payment terms. The foreign contractors are willing to help finance the project but PetroVietnam is giving priority to domestic loans to finance the refinery.

Crude oil exports

Vietnam exports crude oil mainly to China, Singapore, Japan, Britain and the US. Vietnam's crude oil production decreased by 5.7% to 305,000 barrels a day in 2008.

The Ministry of Planning and Investment proposed the Vietnamese Government lower crude oil exports between 2006 and 2010 so as to ensure sufficient supply of the product for domestic industries. Accordingly, the country's crude oil export will decline to 11.68 million tons in 2009 and 15.6 million tons in 2010 to reduce reliance on petroleum imports. For the first seven months of 2009, Vietnam's crude oil exports fell by 45% compared to the exports during the same period in 2008. Vietnam is very keen to become totally self dependent for oil and gas as quickly as possible.

Port capacity

There are still major problems with the deep sea port of Dung Quat in that it is still not large enough and well equipped enough to allow the easy transport and unloading of the heavy equipment required to build the refinery. Also the road from the port to the site of the refinery is not in good condition.

The Viet Nam National Shipping Lines (VINALINES) and the GEMADEPT (a transport joint-stock company) have been given permission from the Ministry of Transport to invest in building two new wharves at the port to help alleviate problems.

Abnormal Loading Engineering Ltd (ALE), a UK-based worldwide heavy transportation and lifting company has been at the port and refinery to conduct a series of on-site surveys to determine if their expertise can help in the movement of refinery heavy equipment. However, Abnormal Loading Engineering raised a number of issues needing to be addressed if they were to work on the project.

Some marine port construction groups from Japan and Singapore are also surveying the area.

The port will be crucial as this is where crude oil will be transported to for the refinery (in the absence of a viable pipeline from the oil fields) and where refined products will be transported to market.

Future projects

The Vietnamese government has already planned the construction of a second and third refinery within the same timescale as Dung Quat. The second installation will be at Nghi Son in Than Noa Province, about 1,200km north of the oil fields – still a logistical transport problem for both crude feedstock and refined products. PetroVietnam , Kuwait and Japanese partners signed an agreement in March 2007 for the Nghi Son Refinery and construction of this project is expected to begin in 2010 and become operational in Thanh Hoa province in 2013 with an initial refining capacity of about 10 million tons annually.

The third planned refinery, Long Son, will be located in the south at Vung Tau – much nearer the oil fields and with a better chance of being economically viable. The Long Son refinery is expected to begin operations in 2015.