Vietnam at the Energy Crossroads: Will it Choose the Best Way Forward?

Ed. Note: Mr, Jayaraj (below) continues his series on the energy situations of various countries and regions far removed from the U.S. (Africa, China, East, India, Japan, Middle East, Nigeria, The common denominator is the bedrock of oil, natural gas, and coal for affordability and reliability, with wind and solar investment being an appendage by government policy to appease climate activists.

The power demand in the country grew by 10 percent each year during the last one decade. Coal played a central role…. For Vietnam to surge ahead and sustain the hard-earned growth of the past decade, it must unequivocally support the growth and expansion of the fossil fuel sector, especially coal. (below)

“Vietnam” evokes an infamous place in history as a war zone. But fast forward four decades, and Vietnam is just another developing country in Southeast Asia struggling to devise better economic strategies to eradicate poverty.

Vietnam was poised to be one of the strongest coal markets in Asia. Some would argue it still is. But recent commitment to climate policies threatens to squeeze the life out of its growing economy, as coal is the most affordable and dependable energy source.

Will Vietnam slide further down the renewable hole? Or will choose to renew its fossil fuel sector? Here’s a look at the energy conundrum in Ho Chi Minh.

Pressure from Paris Agreement, Wealthy Developed Countries

Like many of its Asian neighbors, Vietnam faces constant pressure from the developed West to control its carbon dioxide (CO2) emissions in the name of curbing climate change.

In the recently concluded G7 meeting at Cornwall, England, the leaders of wealthy nations made more resolutions to cut back on fossil fuel use and force developing countries to do the same.

The powerful G7 leaders hid nothing of their desire to establish a “new order” that aims to reduce CO2 emissions. “Our agenda for global action is built on our commitment to international cooperation, multilateralism and an open, resilient, rules-based world order,” read the official declaration.

The biggest problem for Vietnam is the G7 leaders’ resolution to end international funding and loans for fossil fuel projects, especially coal.

The official G7 declaration insisted that “to accelerate the international transition away from coal, recognizing that continued global investment in unabated coal power generation is incompatible with keeping 1.5°C within reach we stress that international investments in unabated coal must stop now and we commit now to an end to new direct government support for unabated international thermal coal power generation by the end of 2021, including through Official Development Assistance, export finance, investment, and financial and trade promotion support.”

For Vietnam, that’s bad news— a big blow to its energy aspirations.

Anti-fossil pressure and the associated drying up of funds forced the country’s National Steering Committee for Power Development to scale back the development of new coal plants.

In 2021, “Japan’s Mitsubishi Corporation announced its withdrawal from the development of 2GW coal-fired power plant owing to concerns over climate impact.”

Coal Holds the Key to Meeting Rapid Rise in Energy Demand

Vietnam’s GDP is poised to grow by 7 percent in the next year, representing the highest growth for the Southeast Asia region, which averages 5.1 percent. The power demand in the country grew by 10 percent each year during the last one decade. Coal played a central role in meeting this monumental rise in demand.

Experts expect that the demand growth rate will continue at 10 percent per year for the next decade. Power demand will reach 335 TWh by 2025, and 491 TWh by 2030. To sustain production levels—to meet the highest power demand growth rate in the world—the country cannot afford to move away from coal.

However, the country’s approach towards the coal sector has been disappointing. Its recently announced Power Development Plan (PDP-8)  indicates that the future is grim for coal during the next decade.

Oil and Gas Investments to Continue

Nevertheless, energy experts are at least confident that the country’s oil sector is booming and would play a vital role in the coming decade.

IHS Markit observed, “Vietnam’s grid investment plan includes goals of having 90% of the thermal power (coal, gas, oil) transmission grid meet the highest standards of reliability by 2025, and for 100% to meet it by 2030.”

In fact, the country’s oil inventory witnessed an expansion after new storage facilities at Dung Quat refinery and Nghi Son complex were added, providing an additional 330,000 barrels per day.

Further, to boost oil production, Ho Chi Minh is considering lowering mandatory oil inventory levels at major oil companies, thus offering them more incentives to operate and expand in Vietnam’s jurisdiction.

Utilizing the country’s investment-friendly environment, UK independent Pharos Energy has invested in a number of projects in Vietnam. Pharos is drilling six wells at the Te Giac Trang offshore oilfield. It is also expecting to acquire exploration permits for two blocks at the Phu Khanh basin, with a combined potential of 1.2 billion barrels of recoverable oil.

Bottom Line for Vietnam

For Vietnam to surge ahead and sustain the hard-earned growth of the past decade, it must unequivocally support the growth and expansion of the fossil fuel sector, especially coal.

In 2020, 53 percent of all electricity came from coal. While hydroelectric power stations provide around 26 percent of electricity, they are not dependable during drought years. The remaining 21 percent comes from oil, gas, and non-hydro renewables. Clearly, therefore, oil and gas alone cannot meet Vietnam’s full demand for electricity, and coal remains the lead source.

Image Source: US EIA, https://www.eia.gov/todayinenergy/detail.php?id=48176
Data Source: https://ourworldindata.org/energy/country/vietnam#what-sources-does-the-country-get-its-electricity-from

This reality of Vietnam’s energy sector’s dependence on coal was also reflected in the upward trend in recent coal imports. During the first half of 2020, coal imports rose more than 50 percent jump from 2019.

Meeting future energy demand requires a stable energy sector, but a double-minded approach towards fossil fuels will not deliver the much-required energy output. The last decade was a success only because the country committed itself to the use of fossil fuels, especially coal.

Will Vietnam continue to expand fossil fuel use? Or will it succumb to pressures from the advanced economies committed to the Paris climate agreement? Its continued conquest of poverty hangs in the balance.

Vijay Jayaraj (M.Sc., Environmental Science, University of East Anglia, England), is a Research Contributor for the Cornwall Alliance for the Stewardship of Creation and resides in Bengaluru, India.