MARKET RESEARCH ON VIETNAM’S OIL AND GAS EQUIPMENT AND SERVICES

Overview

Oil and Gas Field Machinery and Services

2005(actual)

2006(estimated)

2007(estimated)

Total Market Size 1,025 1,160 1,350Total Local Production 475 555 650Total Exports 0 0Total Imports 550 605 700Imports from the U.S. 160 175 200

The above statistics are in US$ millions and are unofficial estimates.

Vietnam’s oil and gas industry is currently the country's biggest foreign currency earner and a major procurer of imported technology. Since the first export shipment in April 1987, crude oil has earned over US$17 billion for Vietnam. The oil and gas industry contributes US$1 billion to Vietnam’s State budget every year. The rapid expansion of Vietnam’s economy has fueled a surging demand for energy, which is projected to grow at the rate of over 10% annually. To meet this need, the Government of Vietnam is encouraging investment from both local and foreign sources in offshore oil and gas exploration and production. It is estimated that an investment of about $11 billion will be required for the development of offshore activities during the period 2001- 2010.

Vietnam is ranked third in the Southeast Asian region and 31st in the world in terms of crude oil and gas output. Among the 50 field structures with proven oil and gas reserves, 20 commercial fields have been developed. In 2005, Vietnam exploited more than 20 million tons of crude oil and over 6 billion cubic meters of gas, exporting 19.5 million tons valued at US$6 billion that accounted for 25% of Vietnam’s exports. Vietnam is expected to produce 20 million tons of crude oil and 7.5 billion cubic meters of gas in 2006.

OilVietnam has 600 million barrels of proven oil reserves. Bach Ho (White Tiger), Rang Dong (Dawn), Hang Ngoc, Dai Hung (Big Bear), and Su Tu Den (Ruby) are the largest oil producing fields in the country. Crude oil production averaged 370,000 barrels per day in 2005. This year, eight oil fields are expected to produce crude oil at an average volume of 450,000 barrels per day. Vietnam had net exports of 111,000 barrels per day of oil in 2005.

Vietnam is expected to have produced a cumulative 250 million tons of oil equivalents by 2006, calculating from the very first ton of oil exploited 20 years ago. Of this 250 million equivalent tons, 220 million are crude oil and the remainder consists of 30 billion cubic meters of natural gas. (One billion cubic meters of gas is equivalent to 1 million tons of crude oil.) For the period to the year 2010, PetroVietnam has targets to explore for 30 to 32 million tons of new oil reserves per year.

Vietnam is a small exporter on the world oil market, currently supplying about 0.6% of global demand. The United States is named as the biggest importer of Vietnam's crude oil, accounting for 27.9% of the country’s export volume, followed by Singapore with 27%, Japan 22.2%, China 18%, the Netherlands 2.8% and Malaysia with 2%.

GasVietnam has proven gas reserves of 6.8 trillion cubic feet. Besides crude oil, Vietnam also produces associated and natural gas from several fields. Vietnam’s natural gas production and consumption have been rising rapidly since the late 1990s, with further increases expected as additional fields come on stream. Natural gas is currently produced entirely for domestic consumption. The Cuu Long basin offshore from the Mekong Delta in southern Vietnam, a source of associated gas from oil production, is the largest Vietnamese natural gas production area.

Only two fields in Vietnam have been developed specifically for their natural gas potential: Tien Hai, with a potential output of 1.76 million cubic feet per day, and Lan Tay/Lan Do in the Nam Con Son Basin, which began producing over 5 million cubic feet per day in 2002. In the Nam Con Son Basin, a $565 million, 230-mile pipeline has been completed connecting the Lan Tay and Lan Do fields to the mainland at Vung Tau. The Nam Con Son project consists of five sub sea wells linked to a production platform and a pipeline leading to an onshore treatment plant. Gas is piped to three generating plants at the Phu My industrial complex, where electricity is provided primarily to areas surrounding Ho Chi Minh City. Output from Nam Con Son has reached 88 billion cubic feet. The project currently supplies the Phu My 1, Phu My 3, Phu My 2.1 power plants and the extended Phu My 2.1 plant. Phu My 2.2 will soon begin using output from the field.

A consortium headed by KNOC of Korea, signed a 23-year contract with PetroVietnam in 2002 to install facilities to pump and supply 130 million cubic feet per day of natural gas to Vietnam. The natural gas, located in the Rong Doi and Rong Doi Tay fields on Block 11-2 of the Nam Con Son Basin, is sold to PetroVietnam, which then resells most of the volume to Electricity of Vietnam (EVN). Production at the fields began in 2005. In 2004, KNOC and PetroVietnam signed agreements to further exploit natural gas in both Blocks 11 and 12. Construction of an additional pipeline to bring ashore natural gas from block 11 began in 2005, and is scheduled for completion in 2006.

The Su Tu Den and Rang Dong oil fields, both of which have considerable reserves of associated natural gas, are located near the 62-mile pipeline from the Bach Ho field. An estimated 60 million cubic fee per day of gas from the fields is earmarked for consumption in power plants in southern Vietnam.

Both TotalFinaElf and ChevronTexaco have found natural gas in exploratory drilling in the Malay basin. Additionally, Talisman Energy has found natural gas at the Cai Nuoc field in block 46. The discovery is close to block PM-3-CAA, which straddles the maritime border with Malaysia, and is expected to contain up to 100 billion cubic feet of recoverable gas reserves.

A contract was awarded to McDermott International in March 2006 for construction of a 200-mile pipeline, which will transport natural gas from the PM3-CAA block to Ca Mau province in southern Vietnam. It is scheduled for completion in 2007.

RefineriesAlthough it is a significant oil producer, Vietnam remains reliant on imports of petroleum products due to a lack of refining capacity. Most of Vietnam’s crude oil is exported to refiners in the United States, Japan, Singapore, and South Korea.

Vietnam is contemplating development of two oil refineries: the Dung Quat refinery with a planned capacity of 6.5 million tons per year and an estimated total investment of $1.5 billion, and the Nghi Son refinery with estimated capacity of 7 million tons and $3 billion in investment. According to many industry experts, the decisions to build these two facilities were based largely on political considerations, raising questions regarding their commercial viability.

Nevertheless, after several years of delays in financing, the construction of the $1.5 billion Dung Quat Refinery, located in Quang Ngai province, finally began in November 2005. More than $700 million has been invested to date. The refinery is expected to begin operations in 2009. Vietnam’s distribution infrastructure is discontinuous, with the north and south of the country functioning to some extent as separate markets. Completion of the Dung Quat Refinery, located in the center of Vietnam, is expected to lead to greater interaction between the regions.

A second refinery project, with estimated investment of $3 billion, is located at Nghi Son, north of Hanoi in the Thanh Hoa province. In August 2004, Mitsubishi Corporation agreed to participate in building Nghi Son for completion in 2010.

Vietnam has also contracted a feasibility study for a third oil refinery, to be located at Vung Ro in the southern province of Phu Yen, close to both currently producing oil fields and the major markets in southern Vietnam. The Vietnamese government hopes to complete the refinery within 12 years. PetroVietnam is proceeding slowly with the development of the third refinery in light of the other two projects discussed above.

Players in the fieldVietnam Oil and Gas Group (www.petrovietnam.com.vn) (also known as PetroVietnam or PV), the national oil and gas monopoly that is monitored by Vietnam’s Ministry of Industry on behalf of the Vietnamese government, is empowered to make decisions on strategies, plans and policies for the development of the industry, including cooperation with foreign entities, signing petroleum contracts as well as implementing, monitoring, inspecting and supervising petroleum activities. PV has supplied up to 70 percent of services for the domestic oil and gas industry and is also a business partner with foreign companies in the oil and gas sector. Any oil and gas exploration and production activities by foreign entities in Vietnam are subject to cooperation with PV.

Vietnam’s largest oil producer is Vietsovpetro (VSP), a joint venture (JV) between PetroVietnam and Zarubezhneft of Russia. VSP operates Vietnam’s largest oil field, Bach Ho. Other foreign partners include ConocoPhillips, BP, Petronas, and Talisman Energy.

Vietnam’s storage and transportation division, Petrolimex (www.petrolimex.com.vn), recently completed a new oil storage facility in the central Khanh Hoa province. The depot is largest in the country, with a total storage capacity of 3.68 million barrels.

To date, exploration rights for only 25-30% of the country’s continental shelf with hydrocarbon potential have been awarded. Forty-nine foreign oil and gas companies with exploration contracts operate under Product Sharing Contracts (PSC), Joint Operating Companies (JOC) and Business Co-operation Contracts (BCC), with total registered investment capital of more than $7 billion. The remaining offshore areas, generally with water depths of 200 meters or more, are unexplored and open for new bidding.

Best Products and Services

Vietnam’s expanding offshore exploration and production has created a steadily growing market for offshore oil and gas equipment and services, which is estimated at $1.2 billion in 2006. American equipment and services have captured about 15% of the market and this share is expected to expand over the next few years. In the local market, American companies are well known as world leaders for advanced technologies, quality, and experience in the offshore oil and gas sector. These U.S. firms are currently the most successful in the oil and gas sector in Vietnam.

In general, U.S. suppliers of oil and gas equipment and services are quite competitive in the upstream and midstream sub-sectors where advanced technologies and reliability are strict requirements. Sales opportunities are promising in the following areas:• 3-D Seismic Survey Equipment• Blowout Preventers• Buildings• Chemicals• Computer and Wireless Technologies• Corrosion and Abrasion Control• Cranes, Hoists, and Winches• Deep-Sea Drilling Services• Enhanced Recovery Equipment Services• Fishing Tools• Instruments and Control Systems• Logging and Formation Evaluation• Marine Equipment and Services• Offshore Engineering & Design Services• Offshore Platforms (Fixed and Floating)• Offshore technology licensing• Perforating and Testing Services• Pollution, Oil Spill Control, and Environmental Technologies• Power Supply, Engines, and Turbines• Process Equipment• Production Equipment and Services• Project management services

• Pumps and Compressors• Ropes, Wire Ropes, and Chains• Rubber Products• Software Engineering Services & Equipment• Tools• Tubes and Piping• Valves and Actuators• Wellhead Assemblies• Well-Completion Equipment & Services

Opportunities

American companies will find significant opportunities for exporting their equipment and services to Vietnam in more than 25 ongoing offshore oil and gas exploration and production projects, as well as several gas pipeline projects. The number of projects is likely to increase substantially over the next few years as PV awards new oil and gas blocks to foreign oil and gas companies.

Resources

For more information, please contact the following addresses or visit the following websites:

• Nguyen Dzung, Commercial SpecialistU.S. Embassy in HanoiE-mail: Nguyen.Dzung@mail.doc.gov

• Le Son, Commercial SpecialistU.S. Consulate General in Ho Chi Minh CityE-mail: Le.Son@mail.doc.gov

• Vietnam Oil and Gas Group (PetroVietnam)22 Ngo Quyen StreetHoan Kiem DistrictHanoi, VietnamTel: 84-4-825-2526Fax: 84-4-826-5942Website: www.petrovietnam.com.vn

The largest trade show in the oil and gas industry in Vietnam is the Vietnam Oil & Gas Expo. This show is held every two years. Since 1992, Vietnam Oil & Gas expo has been the premier international exhibition with over 8,000 professional visitors at each event. The upcoming expo will be held from October 12-14 2006, in HCMC; and the next trade show will be held in 2008.