Difficulties in Developing Petroleum Industry in Vietnam

• by Nguyen Duc Anh Tuan

Introduction

Nowadays, in the developing era with fast pace, those agricultural countries, particularly Vietnam, might not only focus on improving the agriculture but also pay attention to developing the industrial area. More specifically, Vietnam has been concentrating on how to develop the gas and oil industry recently. However, the country is still facing a lot of difficulties. This essay will discuss in depth about what are the problems and point out the potential causes for those challenges base on three questions:

1. What are the reasons causing difficulties for the development?
2. What are the effects of these problems for Viet Nam?
3. What are possible solutions to resolve these problems?

Definition of oil and gas

According to the Vietnam Oil and Gas Law (1993) “Oil and gas” means crude oil, natural gas and hydrocarbons in gaseous, liquid or solid in its natural state except coal, shale, bitumen or other minerals can be extracted oil. “Oil and gas activities” is active exploration, development and mining of petroleum, including direct service activities for these activities. There are many oil and gas activities dividing into different areas.

Situation of petroleum industry in Viet Nam

The petroleum industry contributed most amount of foreign currency to serve the economy as electricity and gas, gasoline and clean energy. Recently, the National Oil and Gas Group Vietnam (PVN) has provided nearly 35 billion m3 of dry gas production, 40% of national electricity production, 35-40% urea demand and supply 70 % of LPG demand for industrial development and consumer welfare. Raw oil export has a strong growth and stability, greatly contributes to country exports, especially in earlier periods, averaging about 15%. Currently, this proportion has decreased and only at about 7.5. Although total exports are declining but oil and gas industry is still keeping the unit contribution at about 18-22% of total national GDP. (tapchitaichinh.vn, 2012)

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Causes and effects causing difficulties for the development

First of all, it can be denied that there has been a lack of technology which put gas and oil industry of Vietnam under difficulty. After a long time being an agriculture focus country, Vietnam has decided to change and transform into an industrial country. Obviously, that decision may lead to the fact that the country might lack skills and technology to adapt to this industry. One of the main weaknesses of our country is that the government might not have enough capital to invest into developing and updating technologies. Prices of various types of equipment, supplies, fuel and services primarily are related to production and business activities which make investments more complicated.

Vietnam oil and gas industry today is quite young with limited human resource capacity to supply so that it cannot meet demand. Our country mainly exports crude oil and imports refined oil to serve local demand. There are some refineries that went into operation as the Dung Quat oil refinery, Nghi Son refinery … but only supply about 35% of domestic demand. Meanwhile, demand for petroleum products is increasing, not only in the short term but in the long term due to the population explosion and the continuous growth of the industry, especially the acceleration of the transport sector needs to do more … According to OPEC, demand for petroleum fuels is increasing rapidly, especially in developing countries, and by 2025, the supply will not meet the demand. Moreover, increasing oil prices also have a tremendous impact on the development of this industry

Those reasons above have led to human resource in gas and oil industry became more expensive. That led to the significant increase in the number of people who wish to work in the oil and gas sector. Many students said that they are studying the oil industry not only because of higher salaries, simply because of the fact that oil industry is considered to be the solutions for the future of the energy industry. However, Vietnam labor market is a serious imbalance between sectors and areas. We have abundant unskilled labor and a lot of labor who have shortage of Technical Skill.

According to Mr. Hoang Nhat Thong (Office of the General Department of Sea and Islands), the economy in general marine, oil and gas industry in particular, is a severe manpower shortage will affect only the “maritime economy and coastal contribute about 53-55% of the total GDP of the country in 2020. “

Urgent solutions

Oil and gas industry is the field has to combine all of those technologies and sciences like astronomy, tides, marine sciences, construction and installation of offshore structures such as rigs, pipelines, tanks, drilling into the ground, the work of geology, geophysics, exploration of the stratigraphy… Therefore, the application of science and technology in the oil and gas activities can ensure high efficiency, save natural resources, enhance oil recovery factor and other resources saving as well as protect ecological resources.

Therefore we have to build human resources management system according to international standards, which include the application of information technology systems, mapping capabilities, the standard title, system evaluation, payment regulation, bonuses, rules and criteria for recruitment to appoint the head, proper planning and appropriate building standards, criteria representatives and representatives of Petro Vietnam stake in the oil and gas activities in the country and foreign pilot who runs accordance with the Law on Enterprises. For tax policy should define equality between domestic service with service by foreign companies perform as VAT, import duty, … It should have clear policies and encourage oil and gas activities in the deep water offshore exploration and exploitation of natural gas … tax policy should be adjusted based on the refinery and in the planning to compete with imported products, policies for gas and electricity prices should approach the market mechanism.

Have appropriate policies related to arrange key capital projects through: Grant, loan guarantee and ensure currency converter to facilitate in arranging loans for major projects the state level, support preferential loans from the Development Bank minimum of 20% to 30% of total investment projects focus on oil and gas.(Pvcfc.vn, 2014)

Evaluation

Obviously, to develop gas and oil industry, it is important to fully invest in all areas however, all of those solutions have pros and cons themselves. All of the above mentioned solutions usually take long time and a lot of money to consider, improve and implement, especially investing in technologies and human resources. However, once those two are on set, they will have a great impact on this industry. Besides that, probably they do not take as much time as changing the country’s policy since it is much harder to change the whole country’s system. Finally, maybe gas and oil industry should go with technologies first since it is mandatory for such an industry.

Regarding to human resources, we recently identified human resource as one of the most important factors to make decisions in production and business activities as well as drive force development of any society, particularly in the oil and gas industry it is also reflected in the work environment , in terms of general science, technology, international environment and different cultures.

Conclusion

Even though it is clear to say that gas and oil industry is still facing a lot of challenge if the government of Vietnam wants to develop this kind of industry more. In that case, they should consider about how to raise enough capital to invest in equipment, to cover potential loss and to recruit right people. However, it cannot be denied that this area of industry is very attractive for investor therefore Vietnam can also hope for big investment from foreign country to develop gas and oil industry.

References:

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Nang Luong Viet Nam (2014), Ngành Dầu khí Việt Nam trÆ°á»›c thách thức an ninh năng lượng quốc gia (online). Available at http://nangluongvietnam.vn/news/vn/dau-khi-viet-nam/nganh-dau-khi-viet-nam-truoc-thach-thuc-an-ninh-nang-luong-quoc-gia.html [Accessed 19 Dec 2014]

Pvcfc.vn (2014), Chiến lược phát triển ngành Dầu khí đến năm 2020: Những giải pháp cÆ¡ bản (online). Available at http://www.pvcfc.com.vn/article-detail.aspx?id=41 [Accessed 18 Dec 2014]

tapchitaichinh.vn (2012), Ngành Dầu khí Việt Nam: Tiềm năng lá»›n, tăng trưởng cao (online). Available at http://www.tapchitaichinh.vn/Chung-khoan/Nganh-Dau-khi-Viet-Nam-Tiem-nang-lon-tang-truong-cao/14143.tctc [Accessed 19 Dec 2014]

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tuyendungthuyenvien.com.vn (2014). Ngành dầu khí và việc tuyển dụng thuyền viên tàu dầu (online). Available at http://www.tuyendungthuyenvien.com.vn/2014/10/nganh-dau-khi-va-viec-tuyen-dung-thuyen.html [Accessed 24 Dec 2014]