Vietnam has proposed building 23 new LNG-fired power plants in its much delayed draft Power Development Plan VIII (PDP 8). But as gas prices have skyrocketed in recent months, some industry experts and think tanks argue that LNG, or liquefied natural gas, may no longer be an economically viable option.

“Building new large-scale gas units in Vietnam will unnecessarily raise dependence on the increasingly volatile global LNG market at a time when the risks of gas market exposure have never been higher,” said Jonathan Sims, a senior analyst at Carbon Tracker, a London-based think tank.

LNG spot prices in Asia started rising in the third quarter of 2021, reaching a record high in March this year at US$59 per million British thermal units (MMBtu) on concerns over tight supplies of gas after Russia’s invasion of Ukraine. Although the price has since gone down, it remains at above $20/MMBtu, more than double pre-pandemic levels.

Sanctions on Russia, the world’s biggest natural gas exporter, have significantly affected global supply and triggered a global reshaping of energy flows.

With electricity prices of 8 to 9 US cents per kilowatt hour (kWh), the input LNG price must be about $12/MMBtu to be profitable for investors, according to Minh Ha Duong, chairman of the members’ council, Vietnam Initiative for Energy Transition (VIET SE). Presently, Vietnam’s electricity is priced at about 6 to 7 US cents/kWh.

This means that at current prices, “private investors will not build the LNG projects they are authorized to build by the Power Development Plan,” Duong told Mekong Eye. “There will be delays, then cancellations.”

The draft PDP 8 plan states that by 2030 LNG-fired power plants will reach a capacity of 23,900 megawatts (MW), the equivalent to 16.4% of Vietnam’s energy mix – a huge jump since Vietnam has yet to have an operational LNG plant. The PDP was set to start from 2021 and run until 2030, with a vision to 2045 – but has been repeatedly delayed.

In March this year, South Korea’s Samsung C&T Corp and Vietnam’s Lilama won the contract to build the Southeast Asian country’s first LNG facilities in Dong Nai province. The plants, Nhon Trach 3 and 4, will have a combined capacity of 1,500MW and are slated to start operations in 2024 and 2025.

Vietnam’s first LNG terminal in Thi Vai is expected to be completed in the second half of this year. It will enable existing gas-fired power plants to use imported LNG as domestic natural gas fields are being exhausted.

These developments reflect years of government planning before the recent spike in gas prices, when LNG hovered at about $10/MMBtu and below.

Concerns over high prices of battery storage for renewables, rapidly rising electricity demand at 8% annually through 2030 and being 50% less carbon intensive than coal have all at one point or another made LNG an attractive bridge fuel as Vietnam transitions away from coal.

LNG supporters have been advocating its use as the optimal solution for Vietnam’s sustainable development because it facilitates the country’s climate transition, can ensure energy security and fuel economic development – new research by InfluenceMap, a London-based think tank that tracked public statements by Japanese and South Korean LNG business interests has found.

The study also noted that messaging by these business interests has adapted strategically to Vietnam’s pledge to become carbon neutral by 2050 at COP26 in 2021. However, in 2019, only 11% of the statements in favor of LNG referenced the ‘low carbon’ argument. That rose to 85% after COP26.

The Japanese Chamber of Commerce and Industry in Vietnam declined to comment. Its South Korean counterpart has not responded to Mekong Eye’s requests for comment at the time of writing.

As fuel prices rise while investments in renewables continue to get cheaper, the arguments for LNG are waning. Carbon Tracker’s report published in April indicated that new wind and solar projects with battery storage would be on par or even cheaper than new gas plant development by 2030.

“This would give any new gas plant developer an extremely limited period of time in which to get their unit built and operating before finding the asset is either stranded or has its operating hours severely constrained due to the increased competition from renewables and battery storage flexibility services,” the report concluded.

With a 3,000-kilometer-long coastline and extensive territorial waters with strong wind speeds, Vietnam has the technical potential for nearly 600GW, according to World Bank data. Offshore wind capacity in Vietnam will become cost-competitive with new gas by 2025, according to Carbon Tracker’s calculations. 

As the Ministry of Industry and Trade continues to review and revise the PDP 8 draft, Prime Minister Pham Minh Chinh raised several issues about the feasibility of LNG given the current investment climate.

In a June letter to the ministry, PM Chinh questioned the country’s ability to purchase gas amid rising gas prices and the plan to import between 14 and 18 billion cubic meters of LNG in 2030, which far exceeds the capacity the country had set out in Resolution 55 in the national energy development strategy.

He was also concerned about the risk of financial institutions eventually refusing to fund LNG after 2025, just as they have done with coal, since LNG is still a fossil fuel.

So far, funding for LNG remains available, but environmental conditions apply. The Asian Development Bank (ADB), for instance, may finance investment in natural gas infrastructure and end-use facilities subject to a set of screening criteria consistent with the Paris Agreement.

The bank’s support for natural gas-based power generation will be conditional on evidence that the project employs high-efficiency and internationally best available technologies, reduces emissions by directly displacing other fossil fuel-based thermal power capacity, or results in a lower grid emission factor estimated as an average over its operational life.

“Fuel prices and particularly the recent price rise should be taken into consideration in an overall planning and implementation process,” the ADB told Mekong Eye. “We note that over longer periods of time, natural gas prices not just rise, but can also fall based on many factors.”

Duong of VIET SE suggested that before building more LNG plants, Vietnam should wait for six to nine months to see how state-owned Petro Vietnam Gas will buy gas for Thi Vai LNG facility.

Uncertainties remain about whether Vietnam will be able to procure LNG at reasonable prices under long-term contracts from a reliable trading partner.

“Private investors require projects to be economically profitable, they don’t like to lose money,” said Duong. “We are talking billions of dollars.”

About the writer

Lam Le is the Vietnam editor of Mekong Eye. She is based in Hanoi, Vietnam.