Oil refinery slips up on poor market forecast

Failure to precisely forecast demand and supply has left Vietnam’s sole oil refinery with huge volumes of unsold stocks, the state-owned Vietnam National Oil and Gas Group, its operator, said.

The Dung Quat refinery has 750,000 tons of gasoline/oil and 2 million cubic meters of liquefied petroleum gas in stock since domestic demand is 10 percent lower than forecast and the plant’s output is 25 percent higher, Phung Dinh Thuc, general director of PetroVietnam – as the firm is known -- told the media Thursday.

But he did not provide the actual demand and supply figures.

The most practical solution now is to boost demand rather than reduce capacity since the country faces a trade deficit, he said.

At a meeting between PetroVietnam and the Ministry of Industry and Trade earlier this week, the company warned that if measures are not taken to boost exports and domestic consumption, the plant has to cut production due to lack of storage space.

Last month it had asked Quang Ngai Province, where the refinery is located, for permission to expand the plant by 134 hectares to increase its annual capacity from 6.54 million tons to 10 million tons.

But the problem with excess supply dates back to the construction of the plant last year. 
It was much delayed and the exact date of its handover by French contractor Technip was not decided until early this year, forcing local oil distributors to sign import contracts.

Thus, while the plant supplies nine out of the 11 petroleum firms in the country but they only buy 30 percent of its output.

In the January-September period, imports of oil products were worth US$4.87 billion, an increase of 4 percent year on year.

The state-run Vietnam Petroleum Corp (Petrolimex), which has a 60 percent retail market share, also has contracts with foreign suppliers and buys only 19 percent of the plant’s output.

It recently became the third distributor to buy directly from the pant after PetroVietnam subsidiaries PV Oil and Petec.

This followed recent complaints by the company that it is illogical for PetroVietnam to require all oil firms to buy Dung Quat’s products through PV Oil instead of directly.

PV Oil charged a high intermediary fee, it also complained.

The Dung Quat refinery has a monthly capacity of 150,000 tons of gasoline, 240,000 tons of diesel oil, 23,000 tons of LPG and others, enough to meet 33 percent of current domestic demand.

It had produced around 5 million tons of products as of last month after reaching full capacity in May.

It has been unable to sell large quantities of jet fuel to local airlines due to red tape.
Last month it shipped 4,500 tons of jet fuel to BP Singapore.

The plant produces six items -- gasoline, diesel, LPG, polypropylene, jet fuel, and fuel oil.